5 things you asked us about your pension money

Julie Hutchison speaking at a Standard Life retirement event and taking questions from the audience on pension money

Pensions

Julie Hutchison

1st October 2015 at 3:57pm

More than 50 customers came along to our retirement roadshow in Cambridge at the end of September.

Our retirement specialists were on hand to help them understand more about the pension freedoms which came into effect in April – and what those freedoms mean for them now that they’re able to access their pension money from the age of 55.

Get informed about pensions

The pension landscape has changed and there’s never been more flexibility, or more reason to make sure you’re informed.

You now have more choices in retirement and the roadshows, which are taking place across the country this autumn, are an ideal opportunity for you to ask questions about your finances.

Here are some of the questions which came up during the coffee break and Q&A session. 

1. Do the new pension freedoms apply to both my final salary pension and my defined contribution pension?

No. The new flexible options only apply to your defined contribution pension which gives you the choice to take a flexible income, withdraw cash lump sums, or buy an annuity – a fixed income for life, or a combination of these.

In contrast, the rules for your final salary pension mean you will get an income which relates to your years of service and salary.

2. Should I keep my various pension savings separate or bring them together?

It’s certainly easier to manage your pension and withdrawals when you’re only dealing with one pension company but, before you consider transferring any pensions, check carefully if you are giving up any valuable benefits.

I cover this in more detail in my Should I bring my pensions together blog but the main things to check include:

  • Does your pension have any valuable guarantees such as a guaranteed annuity rate or a defined benefit where your pension is linked to years of service and salary? If so, and the value of those benefits is £30,000 or more, the government requires you to take advice before you can move these kinds of pension
  • If you have a public sector defined benefit pension which is “unfunded”, this type of pension can’t be transferred.

You can find out more about how to go about practical ways to bring your pensions together in my blog.

3. Can I still keep saving into my pension even if I’ve taken out the tax-free cash?

Yes, you can still save into your pension even if you have taken some or all of your tax-free cash out. If you’ve also started to take a flexible income from your pension then the annual limit on what you can save into your pension reduces from £40,000 to £10,000. This reduction doesn’t apply if you’ve only taken your tax-free cash out (up to 25% of your pension pot).

4. When I die and my pension pot is passed to my wife, will she pay tax on it?

This depends on your age at date of death. If you die before age 75, your wife can take withdrawals from the pension pot tax free. If you die on or after age 75, the amount of income tax due depends on the income tax status of your wife each tax year she makes a withdrawal. So the income tax due could be 0/20/40/45% depending on your wife’s other income in those tax years when money is taken out.

The same is true for husbands, those in civil partnerships and any beneficiaries you want to leave your remaining pension money to such as a child, grandchild, niece or nephew or friends.

Here’s more information about pension death benefits and – How to pass on your pension savings to your loved ones – highlights the practical steps to take to make sure your money goes to who you would want it to.

5. Do you pay tax on the State Pension?

The State Pension is taxable but how much income tax you pay on it depends on your other income. If your total income is not above the personal allowance (currently £10,600 in tax year 2015-2016 for most people) you won’t need to pay income tax on your State Pension.

Read more about the new State Pension from 2016 on our blog.

If you haven’t been to one of our roadshows which take place across the country, check out our website for details of our upcoming events. They are free, open to everyone and suitable if you’re around ten years from retirement.

A pension is an investment.  Its value can go up and down and it may be worth less than you paid in.  This blog is not financial advice. Laws and regulations can change in the future. This blog was written in September 2015.