The pension planner timeline: feel like a personal finance pro

Should you start your pension in your first job?

It's never too early to start a pension fund, even though other saving (or spending) options may seem more attractive.

A personal pension has significant benefits and is worth considering alongside other saving strategies. Those benefits include: 

• It’s a long-term investment, with a clear goal: your retirement. So you’re less likely to be tempted to dip into it for other reasons
• Even if you wanted to, you can only commence drawing retirement benefits when you hit the age of 55 (unless you suffer from certain health problems)
• With a defined contribution scheme, you can decide on the amount you take out once you hit 55 – you can even choose to have regular payments, like a salary.

Will my first employer give me a pension?

The government has announced that, in 2020/21, the minimum age when employers have to automatically enrol workers into a company pension scheme will drop to 18 years old, which will increase ‘the eligible target group by 0.9 million individuals and total annual pension savings by £770 million’ ^[1].

There are also proposals to remove the lower earnings limit: the amount people need to earn annually to be automatically enrolled, which currently sits at £10,000.

If you aren’t old enough or don’t earn enough to qualify for employer pension contributions, it’s still worth talking to your employer to see if you still want to enrol in their pension scheme.

How much does my employer pay into my workplace pension?

There is a minimum contributions amount that employers have to pay into pensions, but that is also soon set to change. In the words of the government:

‘In April 2019 the contribution rate rises again to a total of 8 per cent, of which the employer must contribute at least 3 per cent and the state contributes 1 per cent through tax relief .’ ^[2]

How could marriage improve my pension?

If you’re married, or in a civil partnership, you might be eligible for an extra £75.50 per week in state pension payments when you retire, through your spouse’s or civil partner’s National Insurance contributions.

You can find out if you’re eligible on the government’s website.

 

Will having a child affect my pension?

There are two pension-related things to think about when you have a child:

1. Should I start a pension for my child? It’s a great way to create a nest egg, even though they won’t be able to access it until they’re 55 years old
2. Can I make sure my child will get my pension if anything happens to me?

If you’re under 75 when you pass away, whatever is in your pension can be withdrawn tax-free by your beneficiary. The Pension Wise website has more information.

 

What should I do with my pension when I get a new job?

When you get a new job, you should look into the pros and cons of transferring your old workplace pension into your new company pension pot.

It’s a good idea to seek expert advice, but you can read more about transferring your pension in our guide.

If you don’t transfer your pension across, and realise some may have gone missing during your working life, contact the government’s Pension Tracing service, which has the details of over 320,000 pension schemes.

What happens to my pension if I get divorced?

In a divorce, your personal pension is considered as an asset, which can be split between the two parties in a number of ways. In Scotland, only the value of the pensions accrued during the marriage is considered; in the rest of the UK, the pension you built up before your marriage is also taken into account.

The options available in the whole of the UK include:

• Pension sharing – you get a percentage share of one, or a number of, your ex-spouse’s pension
• Pension offsetting – your pension’s value is offset against the other assets being taken into account
• Pensions attachment (or ‘earmarking’ in Scotland) – you receive a portion of your ex-partner’s pension when they start receiving it

There are two more options – deferred pension sharing and deferred lump sum – which are available everywhere except Scotland. Read more about divorce and pensions on the Money Advice Service website.

How do I prepare my pension when I’m close to retirement?

If you’re approaching the state pension age, it’s time to assess your retirement and what you are going to do with your pension.

‘You can usually take up To 25% of the amount built up in any pension as a tax-free lump sum,’ says the government website. ‘The tax-free lump sum doesn’t affect your Personal Allowance.’

Surprisingly, people aged 65 and over make up the smallest percentage of people making or receiving contributions from a personal pension. That’s even though over 10.2% of them are still working ^[3].


Whatever stage of life you’re at, thinking about your pension can help set you up for a more enjoyable retirement. It’s also a good idea to consider your savings, including your pension, at big life moments – like marriage, changing career or having a child. If your life changes, then your finances may have to change to reflect that, including how you contribute to your pension.

Sources

[1] Department for Work and Pensions, 2017. Automatic Enrolment Review 2017: Analytical Report. GOV.UK  https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/668657/automatic-enrolment-review-2017-analytical-report.pdf

[2] Department for Work and Pensions, 2017. Automatic Enrolment Evaluation Strategy. GOV.UK,  https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/667379/automatic-enrolment-evaluation-strategy.pdf

[3] Office for National Statistics, 2019. Labour market statistics time series, https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/datasets/labourmarketstatistics