{"id":5962,"date":"2025-03-19T11:39:41","date_gmt":"2025-03-19T11:39:41","guid":{"rendered":"https:\/\/new.contentdeployment.co.uk\/quilter\/?p=5962"},"modified":"2025-08-07T09:21:26","modified_gmt":"2025-08-07T08:21:26","slug":"an-introduction-to-pensions","status":"publish","type":"post","link":"https:\/\/new.contentdeployment.co.uk\/quilter\/2025\/03\/19\/an-introduction-to-pensions\/","title":{"rendered":"An introduction to pensions"},"content":{"rendered":"<div class=\"hd-block hd-block-table\">\n<figure class=\"wp-block-table\"><table><tbody><tr><td>The new flat rate State Pension is \u00a3230.25 per week from April 2025<\/td><td>Tax relief is at the highest rate of Income Tax you pay on all contributions you make<\/td><td>From April 2027, unused pension funds will become subject to Inheritance Tax at 40% if exceeding thresholds<\/td><\/tr><\/tbody><\/table><\/figure>\n<\/div>\n\n<div class=\"hd-block hd-block-heading\">\n<h2 class=\"has-x-large-font-size\">Contents<\/h2>\n<\/div>\n\n<div class=\"hd-block hd-block-list\">\n<ul><div class=\"hd-block hd-block-list-item\">\n<li><a href=\"#what-is-a-pension\">What is a pension?<\/a><\/li>\n<\/div>\n\n<div class=\"hd-block hd-block-list-item\">\n<li><a href=\"#what-types-of-pensions-are-there\">What types of pensions are there?<\/a><\/li>\n<\/div>\n\n<div class=\"hd-block hd-block-list-item\">\n<li><a href=\"#what-tax-relief-do-I-get-on-my-pension-contributions\">What tax relief do I get on my pension contributions?<\/a><\/li>\n<\/div>\n\n<div class=\"hd-block hd-block-list-item\">\n<li><a href=\"#is-there-a-limit-on-how-much-I-can-pay-into-a-pension-scheme\">Is there a limit on how much I can pay into a pension scheme?<\/a><\/li>\n<\/div>\n\n<div class=\"hd-block hd-block-list-item\">\n<li><a href=\"#when-can-I-access-my-pension\">When can I access my pension?<\/a><\/li>\n<\/div>\n\n<div class=\"hd-block hd-block-list-item\">\n<li><a href=\"#top tips\">Top Tips<\/a><\/li>\n<\/div><\/ul>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p><strong>Pensions are typically viewed as being complex and difficult to understand. As a result, people often delay starting one or ignore the issue altogether. In reality, though, the basics are relatively simple and taking time to understand them now could have a huge impact on your quality of retirement. Here, we\u2019ll provide answers to questions our clients commonly ask and help guide you through the pensions maze.<\/strong><\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-heading\">\n<h2 class=\"has-x-large-font-size\" id=\"what-is-a-pension\">What is a pension?<\/h2>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>A pension is simply a type of long-term savings plan designed to help you save money for later life. In essence, it allows you to regularly save some of your earnings during your working life in order to provide an income when you decide to retire or work fewer hours. The money contributed to your pension is usually invested, along with other pension savers\u2019 cash, in some form of investment product. Pension contributions also benefit from particularly favourable tax treatment, which makes them an extremely appealing investment proposition.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-heading\">\n<h2 class=\"has-x-large-font-size\" id=\"what-types-of-pensions-are-there\">What types of pensions are there?<\/h2>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>There are three major pension routes and most people fund their retirement through a combination of one, two or all three of these types.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-heading\">\n<h3 class=\"has-large-font-size\"><strong>Workplace pensions<\/strong><\/h3>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>These are arranged for you by your employer and are sometimes called \u2018company pensions\u2019 or \u2018occupational pension schemes\u2019. The employer is required by law to pay a contribution where the employee is classed as an \u2018eligible jobholder\u2019 and automatically enrolled into the workplace pension. You will also receive tax relief from the government. The phased introduction of automatic enrolment since 2012 has now resulted in companies enrolling the vast majority of their staff into a workplace pension.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-heading\">\n<h3 class=\"has-large-font-size\"><strong>Personal pensions<\/strong><\/h3>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>You arrange these yourself and they are sometimes called \u2018defined contribution\u2019 or \u2018money purchase\u2019 pensions. Basically, you pay a portion of your earnings into your pension pot which, along with tax relief, is then placed by your pension provider into a range of investments, such as shares or bonds. The amount you ultimately receive in retirement will depend upon: how much you pay into your pot; the performance of your investment fund; the administration fees charged by your provider, and how you ultimately take your cash.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-heading\">\n<h3 class=\"has-large-font-size\"><strong>The State Pension<\/strong><\/h3>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>This is a weekly payment from government for people who reach State Pension age. Entitlement is built up by either paying or being credited with National Insurance contributions (NICs) during your working life.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>During the Autumn Budget, the Chancellor announced that the state pension will increase in line with average earnings, rising by 4.1% in April 2025. This means the full, new flat rate State Pension (for those who reached state pension age after April 2016) will rise to \u00a3230.25 a week.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>The full, old Basic State Pension, for those who reached state pension age before April 2016, will rise to \u00a3176.45 each week.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-heading\">\n<h2 class=\"has-x-large-font-size\" id=\"what-tax-relief-do-I-get-on-my-pension-contributions\">What tax relief do I get on my pension contributions?<\/h2>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>Whatever type of pension plan you hold, you get tax relief at the highest rate of Income Tax you pay on all contributions you make, subject to annual and lifetime allowances. This effectively means that some of your earnings which would have gone to the government as tax are diverted to boost your pension pot instead.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>You can receive tax relief via either the \u2018relief at source\u2019 or the \u2018net pay\u2019 method. The \u2018net pay\u2019 method deducts the pension contribution direct from the pre-taxed income. So, for instance, if you\u2019re a basic-rate taxpayer investing \u00a3800 of your take-home pay into your pension, the tax relief would amount to \u00a3200; effectively the taxman tops up your \u00a3800 contribution to \u00a31,000.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>If you don\u2019t earn enough to pay Income Tax at all, you still qualify for tax relief up to a certain amount. The maximum annual contribution you can currently make is \u00a32,880 which, along with tax relief, would amount to \u00a33,600 a year being paid into your pension scheme. This only applies to the \u2018relief at source\u2019 method and doesn\u2019t apply if the workplace pension is operating the \u2018net-pay\u2019 method of tax relief.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-heading\">\n<h2 class=\"has-x-large-font-size\" id=\"is-there-a-limit-on-how-much-I-can-pay-into-a-pension-scheme\">Is there a limit on how much I can pay into a pension scheme?<\/h2>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>You can contribute as much as you like into your pension, but there is a limit on the amount of tax relief you will receive each year. The Annual Allowance is currently \u00a360,000. An individual can\u2019t use the full Annual Allowance where \u2018relevant UK earnings\u2019 are less than \u00a360,000, although your employer still could. You may be able to, however, carry forward unused allowances from the past three years, provided you were a pension scheme member during those years.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>The Threshold Adjusted Income limit is \u00a3200,000 and the Adjusted Income Limit is \u00a3260,000. If your income plus pension contributions exceeds the Adjusted Income Limit, your Annual Allowance<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>is reduced by \u00a31 of every \u00a32 you are over the Adjusted Income Limit.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>The Lifetime Allowance (LTA) on pensions, previously \u00a31,073,100 for the 2023\/24 tax year, was removed completely from 6 April 2024. Since the abolition of the LTA charge the previous April, pension benefits are now subject to Income Tax at the individual\u2019s marginal rate.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>With the abolition of the LTA came the introduction of two new allowances which limit tax-free lump sums paid from registered pension schemes \u2013 the lump sum allowance (LSA) and the lump sum and death benefit allowance (LSDBA):<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>LSA \u2013 a fixed cumulative limit of \u00a3268,275 (25% of the 2023\/24 LTA) on the tax-free cash that can be paid as pension commencement lump sums (PCLS) and on the tax-free part of uncrystallised funds pension lump sums (UFPLS).<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>LSDBA \u2013 a fixed cumulative limit of \u00a31,073,100 (the 2023\/24 LTA) on the total amount of the tax-free part of lump sums and lump sum death benefits payable to and in respect of a member. In addition to the PCLS and tax-free elements of UFPLS, tax free elements of serious ill health lump sums and lump sum death benefits use up this allowance.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>For both allowances, those with old-style Lifetime Allowance protections will have higher allowances (noting that the window for new applications for Individual Protection 2016 and Fixed Protection 2016 will close from 5 April 2025).<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-heading\">\n<h2 class=\"has-x-large-font-size\" id=\"when-can-I-access-my-pension\"><strong>When can I access my pension?<\/strong><\/h2>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>The pension freedoms introduced in 2015 allow you to access your pension once you turn 55 (57 from 2028); from that point you\u2019re free to take as much or as little as you like from your pension pot, whenever you like. While this has certainly introduced greater flexibility, it has also heightened the necessity to carefully consider your options. It\u2019s therefore imperative to seek professional financial advice before accessing your pension to minimise potential tax implications and maximise the benefit you ultimately receive from your pension funds.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-heading\">\n<h3 class=\"has-large-font-size\"><strong>Pensions subject to IHT from 2027<\/strong><\/h3>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>During the Autumn Budget 2024, the Chancellor announced that unused pension funds will be subject to IHT from 6 April 2027.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>When you die the value of your pensions will be added up with your other assets to calculate whether your estate will pay IHT. If the value of your estate is above \u00a3325,000 (or \u00a3500,000 if you\u2019re leaving your home to a direct descendant), any pension funds above that threshold will be liable for IHT at 40%. If you\u2019re passing on your pension to your spouse or civil partner, this can be inherited tax-free, as with any other assets left to a spouse or civil partner.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-heading\">\n<h2 class=\"has-x-large-font-size\">Top Tips<\/h2>\n<\/div>\n\n<div class=\"hd-block hd-block-heading\">\n<h3 class=\"has-large-font-size\"><strong>It\u2019s never too early to start saving into a pension\u2026<\/strong><\/h3>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>You should start saving for retirement as soon as possible as the sooner you begin the longer your savings have to grow. While other financial challenges can make this difficult, investing regular amounts in a pension throughout your working life gives you the best chance of enjoying a prosperous retirement.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-heading\">\n<h3 class=\"has-large-font-size\"><strong>\u2026But better late than never<\/strong><\/h3>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>Never think it\u2019s too late to start saving for your retirement. The favourable tax treatment pensions enjoy and their potential for investment growth means any contributions you make later in life can still make a huge difference to your standard of living in retirement.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-heading\">\n<h3 class=\"has-large-font-size\"><strong>Retirement planning is vital for the self-employed<\/strong><\/h3>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>As the self-employed are inevitably responsible for their own pension provision, it\u2019s particularly important that this section of society takes full control of their retirement planning. So if you belong to the growing band of self-employed workers make sure you don\u2019t delay saving for your retirement.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-heading\">\n<h3 class=\"has-large-font-size\"><strong>Keep track of how your pensions are doing<\/strong><\/h3>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>It\u2019s good to regularly review your pension arrangements to ensure they continue to meet your retirement objectives. Your pension provider(s) will send out annual benefit statements detailing your entitlements and you can also request a State Pension forecast. This information will allow you to assess your provision and decide whether you need to take further action, for instance, increasing contributions or setting up an additional pension. Many people only review their pensions when they\u2019re about to retire, by which time it\u2019s too late \u2013 don\u2019t fall into this trap.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-heading\">\n<h3 class=\"has-large-font-size\"><strong>Plan your inheritance<\/strong><\/h3>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>It\u2019s important to plan what will happen to your pension benefits if you die. Passing on your pension wealth is now relatively easy and some pensions can be inherited tax-free. It\u2019s therefore essential that you keep your beneficiary nomination forms up to date as your providers will use this information when deciding who will inherit your pension savings.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-heading\">\n<h3 class=\"has-large-font-size\"><strong>Take control of your retirement<\/strong><\/h3>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>When you reach 55 (57 in 2028), it\u2019s important to carefully consider what you can do with your pension pot. For instance, you could: keep your savings invested; take a cash lump sum; draw a flexible income (drawdown); buy a fixed income (an annuity) or do a combination of these things. While this flexibility may enable you to retire earlier or semiretire, it\u2019s vital you take full control of your retirement options at this stage. This should include seeking advice and discussing the pros and cons of the different avenues available to you.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-heading\">\n<h3 class=\"has-large-font-size\"><strong>Get good advice<\/strong><\/h3>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>Retirement planning is never a case of \u2018one size fits all\u2019; so it\u2019s vital you obtain sound financial advice tailored to your individual needs. We offer advice and help with all aspects of pensions and retirement planning, whether you\u2019re just starting out and want help choosing the most appropriate pension products, or you\u2019re approaching the stage of life when you need to utilise your pension pot and want to know the most efficient way to access your funds. Remember: we\u2019re here to help.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-heading\">\n<h3 class=\"has-large-font-size\"><strong>W<\/strong>e&#8217;re here to help<\/h3>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>We\u2019re only a phone call away, so if you have any questions or would like to discuss the best pension options for your individual circumstances, please do get in touch.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-spacer\">\n<div style=\"height:50px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p><strong>It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from, taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor. No part of this document may be reproduced in any manner without prior permission.<\/strong><\/p>\n<\/div>","protected":false},"excerpt":{"rendered":"<p>The new flat rate State Pension is \u00a3230.25 per week from April 2025 Tax relief is at the highest rate of Income Tax you pay on all contributions you make From April 2027, unused pension funds will become subject to Inheritance Tax at 40% if exceeding thresholds Contents Pensions are typically viewed as being complex [&hellip;]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[32],"tags":[86],"hd_content_source":[],"_links":{"self":[{"href":"https:\/\/new.contentdeployment.co.uk\/quilter\/wp-json\/wp\/v2\/posts\/5962"}],"collection":[{"href":"https:\/\/new.contentdeployment.co.uk\/quilter\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/new.contentdeployment.co.uk\/quilter\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/new.contentdeployment.co.uk\/quilter\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/new.contentdeployment.co.uk\/quilter\/wp-json\/wp\/v2\/comments?post=5962"}],"version-history":[{"count":4,"href":"https:\/\/new.contentdeployment.co.uk\/quilter\/wp-json\/wp\/v2\/posts\/5962\/revisions"}],"predecessor-version":[{"id":6872,"href":"https:\/\/new.contentdeployment.co.uk\/quilter\/wp-json\/wp\/v2\/posts\/5962\/revisions\/6872"}],"wp:attachment":[{"href":"https:\/\/new.contentdeployment.co.uk\/quilter\/wp-json\/wp\/v2\/media?parent=5962"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/new.contentdeployment.co.uk\/quilter\/wp-json\/wp\/v2\/categories?post=5962"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/new.contentdeployment.co.uk\/quilter\/wp-json\/wp\/v2\/tags?post=5962"},{"taxonomy":"hd_content_source","embeddable":true,"href":"https:\/\/new.contentdeployment.co.uk\/quilter\/wp-json\/wp\/v2\/hd_content_source?post=5962"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}