Latest news with #PensionsDoctor
Telegraph
30-06-2025
- Business
- Telegraph
‘My income will balloon to over £100k with the state pension. How can I cut my tax bill?'
Write to Pensions Doctor with your pension problem: pensionsdoctor@ Columns are published weekly. Dear Charlene, I'm hoping you can provide me with some guidance, but please keep my identity anonymous. I'm 65 years old and approaching my state pension retirement age in December 2025. I'm still working, and currently earn £82,000 a year. I also have a private pension, which pays me £11,000 a year. To avoid the higher tax rate of 40pc tax, I pay £44,000 of my salary a year into my pension. I hope to keep working for a few more years, possibly until I'm 70. In December, I will start to receive my state pension, it will be around the full amount of £11,900 a year. I've heard I can defer my state pension payments for as long as I want to avoid paying too much tax again, is this a wise decision? Many thanks, – Anon Dear reader, You currently receive income of around £93,000 a year before tax, putting you firmly in the higher-rate (40pc) tax bracket before any pension contributions. As you've mentioned, pension tax relief can help reduce your taxable income to move down a tax band. The basic-rate tax band is up to £50,270 per year. Assuming the £44,000 contribution figure you mention is the gross figure that is going into your pension, this would reduce your taxable income to £49,000 a year. It's not clear in what form you currently receive your private pension, but given that you haven't suggested reducing it, we'll assume that it's not drawdown. This is important, because people who take income using (flexi-access) drawdown will trigger something called the money purchase annual allowance (MPAA). This is a reduced annual allowance of £10,000 a year for money purchase pensions (such as Sipps and personal pensions), and it covers the total gross contributions made by you and any employer to all these pension types in a tax year. You cannot carry forward unused money purchase annual allowance. If the MPAA applies to you, your pension provider (paying your income) should have written to you within 30 days of you triggering it. If you're not sure whether you have triggered it or not, please speak to your provider, and also consider engaging a financial adviser. Now on to the question about deferring the state pension. As you know, it's paid without tax being deducted, but counts as total taxable income. If you claimed yours and continue to work, your income would be almost £105,000 a year, or £61,000 if you continued making pension contributions of £44,000 gross. If these continued, you would pay 40pc tax on £10,630 of your other earned income from your salary and pension in payment. Your income would rise by about £6,632 after income tax, but it's worth noting that you'll no longer pay employee National Insurance contributions on your salary, which could mean an extra £3,000 a year in your pocket too. To defer your state pension, you could simply not claim it and get a higher amount later. You'll get an increase of 1pc for every nine weeks that you defer, which is as an increase of around 5.77pc for each year of deferral. If you deferred for a whole year, you'd miss out on £11,900 for that year (around £6,632 after tax), but get around £690 extra a year when you do claim. The extra cash on offer for deferral is far less generous than it was under the old system. It's generally said you'll need to live another 20 years after claiming your state pension to recoup the income you deferred via the increases. This is the average life expectancy for a man of your age today. If you're in good health and expect to live for more than another 20 years, then your current income means it's likely that the extra tax you'd pay now by claiming could make some deferral worth it. It's also worth mentioning that although you'll benefit from the triple lock on most of your state pension, it won't apply to any extra amount you earn for deferral. The other option – assuming you have not triggered the money purchase annual allowance – is to claim your state pension, but increase your other pension contributions slightly. You can do this as you are still working and earning a salary. This isn't usually an option for people who are no longer earning, due to the tax relief rules. You'd need to pay in around £10,630 gross to move back out of 40pc tax – or £8,504 into a scheme like a Sipp that claims some tax relief for you automatically. You might even find the extra contributions you make achieve a higher return than the deferral rate if you invest them. If you do decide you want your state pension, you must claim it, as it isn't paid automatically when you turn 66. You'll need some personal details, including an invitation code from your government letter inviting you to claim. You should get this letter in October, based on your December birthday. I appreciate there is a lot to take in, but hopefully this gives you some help towards your decision on whether to defer or not. With best wishes, – Charlene
Telegraph
23-06-2025
- Business
- Telegraph
‘Are pension investment returns included in my tax-free lump sum?'
Write to Pensions Doctor with your pension problem: pensionsdoctor@ Columns are published weekly. Dear Charlene, Please can you help me understand how the tax-free element of a Sipp (self-invested personal pension) works? I have a Sipp from which I have already taken several withdrawals. My question relates to the basis of the 25pc tax-free cash part element. Using hypothetical figures, if I started with an uncrystallised amount of £300,000, I understand I can withdraw up to 25pc from that tax-free. If I then crystallised some of my pension and withdrew £10,000, that leaves a balance of £290,000. Being the beneficiary of a defined benefit pension, I didn't need to access any more of my Sipp funds again for a while, by which time the remaining £290,000 had grown to £330,000. My question is – if I take some more tax-free cash in future, is the 25pc tax-free benefit based on the £290,000 figure, or on the new, higher value of £330,000? Any clarification would be much appreciated. Regards, – Jonathan Dear Jonathan, Although tax-free cash is often thought of as a one-off event, you don't have to take it all at once. You can take it in stages or chunks, as you've chosen to. You're correct that most people can take up to 25pc of the value of their pension pots tax-free, subject to an overall lump sum allowance of £268,275. The money and investments in pensions like Sipps that have not been accessed are known as 'uncrystallised funds'. So the £300,000 uncrystallised Sipp value in your hypothetical example could give you a tax-free lump sum (25pc) of up to £75,000 in one go, assuming you still have plenty of the lump sum allowance left. If £75,000 was paid out, three times this amount, the remaining £225,000, would be moved into your chosen income option, such as drawdown. What is left in the pot is labelled as crystallised funds. Without any new contributions being paid into the pot, there would be no uncrystallised funds, and no further tax-free cash available from it. The same principle applies if we look at releasing smaller chunks of tax-free cash instead. When taking the tax-free lump sum of £10,000, you would crystallise a total of £40,000. The £10,000 tax-free lump sum is paid out and £30,000 is moved into crystallised funds. This can stay within the same Sipp, but the value is labelled and tracked separately. The remaining £260,000, out of the initial £290,000, is still uncrystallised. The uncrystallised funds are what you can take more tax-free cash from in future. You can take an income from the crystallised, drawdown funds as and when you need to, but no more tax-free lump sums will be available from them. The exact mechanics of this will depend on your pension provider, but investment growth (or loss) will usually be allocated in proportion across the uncrystallised and crystallised drawdown funds in your Sipp. The individual investments and cash may not be earmarked specifically to either part. If you took any taxable income, the value is deducted from your drawdown funds, and the split adjusted accordingly. The opposite would apply to any new contributions paid in – the value (and any tax relief) would boost the uncrystallised pot value. Assuming no new money has been paid in or income taken out, the hypothetical Sipp now valued at £330,000 would be approximately split as £34,000 drawdown and £296,000 uncrystallised funds. Up to 25pc of the £296,000 uncrystallised funds could be taken as a tax-free lump sum at that point, or £74,000. But as I mentioned earlier, you also need to have an eye on the lump sum allowance, and possibly the old lifetime allowance too. If you accessed a pension before April 6 2024, you would have used a percentage of the lifetime allowance at the time. This includes when your defined benefit scheme started. There's a standard calculation to work out how much of the new lump sum allowance you've got left. I've covered the calculations before, but the main point is that if you'd already used 100pc of your lifetime allowance, you'd have no remaining lump sum allowance left using the standard calculation. If you have protection from the old lifetime allowance, the starting allowances in the calculation will be higher. For any pensions accessed on or after April 6 2024, you should deduct the value of the tax-free lump sum you took from the remaining lump sum allowance each time. Although the new lump sum allowance makes things simpler for people accessing their pensions now for the first time, people who have already taken money out or have started to be paid a pension before April 6 2024 still need to have a copy of the old rulebook to hand. In my view, the best way to do this is to get regulated financial advice on your real personal circumstances before you make any further withdrawals. You'll have to pay for advice, but it could help you maximise your tax-free cash, put your mind at rest and help avoid any costly mistakes. Wishing you a long and happy retirement, – Charlene
Telegraph
19-05-2025
- Business
- Telegraph
‘I've lost six years of pension savings – is there anyway to find them?'
Write to Pensions Doctor with your pension problem: pensionsdoctor@ Columns are published weekly. Dear Charlene, I am trying to trace a lost pension, but have come up against a brick wall and was wondering whether you would be able to help me? I worked as a building surveyor for Nelson Bakewell from 2004 until it was bought out by Capita in 2010. During my six years employment with Nelson Bakewell, I paid into the company pension scheme and was told that when the company was bought out, all pension contributions accrued would be transferred into a scheme run by Capita. I continued to work for Capita until 2018 and have subsequently located my pension with them. However, they have stated in an email to me recently that they did not receive any pension monies from Nelson Bakewell and they only hold contributions from me from 2010 onwards. I have tried to trace the pension via the government's website, but despite sending letters and emails to the addresses quoted, all have been returned 'gone away' or 'no longer at this address'. Are you able to assist, please? –David Dear David, I'm sorry to hear of the trouble you're having tracking down one of your pensions. It's estimated that there are 3.3m lost pension pots in the UK, according to the Pensions Policy Institute, with a combined worth of around £31bn. While the auto-enrolment reforms have done wonders to get more people saving into pensions, people changing jobs, moving home and having busy lives mean it's easy to lose track of pensions. The value of lost pots has increased by more than 60pc since 2018. It doesn't help that companies cannot seem to keep track of old plans for businesses they have acquired. I know you've already tried, but my first suggestion would be to go back to Capita again – their reply is simply not good enough. If you paid into a plan for more than two years, then there will be a record – and a pension – somewhere. It was a long shot, but I've also checked the pension lifeboat schemes run by the Pension Protection Fund and cannot find any record of a Nelson Bakewell scheme being transferred there either, which can happen in the event of employer insolvency. Capita would not have received any pension money directly from Nelson Bakewell, as that would be held either in trust or via an insured pension provider. But if your employment was transferred across, they should still be able to point you in the direction of the old provider or scheme trustees where the money was previously held. You mention that your old scheme was supposed to transfer across to a new one with Capita as part of the takeover, but a transfer of existing funds is usually something you'd have to consented to, rather than it happening automatically. It's worth asking the Capita scheme for a full transaction history to see if any transfer was made back in 2010. There is a government pension tracing service but as you've found, it does have its limitations. It can only suggest contact details of schemes, based on employer or provider names, so it won't tell you whether you have a pension with a particular provider or what it might be worth. But insurance companies change names and parts of businesses can change hands several times over the years, meaning the results from the government service look woefully out of date. When I tried the service myself, one suggestion had an old address for an insurance company but no contact number, and another suggested a mobile telephone number. One suggestion was for me to contact Axa. The Axa pensions business was sold to Friends Life (Friends Provident) back in 2011 and actually became part of Aviva ten years ago. The government-led 'pension dashboard' programme aims to combat some of the issues you're experiencing, but the wheels of change turn slowly and it's not clear when a fully functioning customer dashboard will see the light of day. The Association of British Insurers has a handy record of the different insurance companies who administered pensions and where they might be now. You could try cross referencing this with anything the government system gave you, as I did above, if you have no further luck with Capita and their HR department. Many providers have free pension finding services that can track down your old pensions, at no cost to you. You can get started with some basic information, including your work history and some services will also help you combine what you find into one pot. At AJ Bell, we found that over half the people who have used our own service located two or more pension pots. Why combine pensions? You're clearly on a mission to track down you pension money – perhaps with an eye on combing what you find in one place. There are plenty of good reasons to combine your pensions, and many people like to do this in the run up to retirement or winding down at work. Firstly, it's far easier to keep track of what you've already got and how much that could get you in retirement. This helps you make informed decisions like how much to increase your contributions, with the aim of closing the gap between where you are now and what you'd like to spend in retirement. If you can combine your pensions into a plan that offers better value for the features you need, you'll end up paying less in charges. More of your money will be invested for longer, giving your pension the best chance of growing faster. There are things to watch out for though. Some plans, particularly older ones, might have valuable benefits or guarantees that could be lost on transfer. Although exit fees have largely been left in the past, you'll need to weigh up the impact of any penalties or adjustments to your new plan before you move your money. If you're unsure whether a transfer is right for you, a regulated financial adviser can help. Charlene Young is a pensions and savings expert at online investment platform AJ Bell. Her columns should not be taken as advice or as a personal recommendation, but as a starting point for readers to undertake their own further research.
Telegraph
28-04-2025
- Business
- Telegraph
‘Can I really use my pension to keep my child benefit payments?'
Write to Pensions Doctor with your pension problem: pensionsdoctor@ Columns are published weekly. Dear Charlene, I've had a promotion, and I think my new salary will tip me over the child benefit limit this year. We've got two children that my wife currently claims for, and we haven't had to worry about it before. Does she need to stop claiming or reduce what we get directly with HMRC? Or wait to hear from them? A colleague mentioned that I can use pensions to claim back child benefit, but I'm not completely sure how that works? My new salary is £65,000 before my work pension payments. I've checked with my employer and I currently pay 4pc from my pay before tax, which my employer matches. They've said that my new role means I can get up to 6pc from them if I also pay in 6pc before tax. I'm happy to pay in more to my pension, but I'm not sure how it affects my child benefit or not? Can you help? Thanks, – Shaun Dear Shaun, Congratulations on your promotion. I'll start by running through the child benefit rules, and then use some examples to show how pensions can help you get the money back and boost your retirement savings at the same time. Child benefit is payable to households with children aged under 16, or under 20 if they remain in certain education or training. Parents registered for child benefit can also receive National Insurance credits, meaning they obtain qualifying years for the state pension. It also means your children will get a National Insurance number automatically in the three months before they turn 16, without having to apply for one. For 2025-26, the rates of child benefit are £26.05 per week for the eldest or only child, and £17.25 per week for other children. So, £2,251.60 over the year based on your two children. Since January 2013, a high-income child benefit charge (HICBC) has applied where child benefit is claimed and one or both parents earn have 'adjusted net income' above a certain threshold. I'll explain exactly what adjusted net income means later. The starting point for HICBC is now £60,000, and child benefit starts to be clawed back by the charge at a rate of 1pc for each £200 of income over the £60,000 threshold. Where one partner has income of £80,000 or more, the HICBC claws back all the child benefit. For example, a family where the breadwinner has an adjusted net income of £70,000 will have to pay back 50pc of the child benefit thanks to the HICBC. It can still be worth claiming child benefit where income is more than £80,000, due to the National Insurance benefits mentioned above. You can still claim but opt out of receiving the payments via the portal. In fact, HMRC statistics published on April 23 show 712,000 families did just that as at August 2024. People in between the limits can ask to receive the (full) payments and then pay any HICBC due after the end of the tax year via a self-assessment tax return. This is a particular hassle for people who don't usually need to file a return and can also easily be missed, risking large fines if charges aren't paid. However, part of the tax changes announced in the Spring Statement last month confirmed that employees will be able to report and opt to pay any HICBC directly through the PAYE system instead. Fingers crossed this will be possible from the summer How pensions can help You can use your pension to lower your adjusted net income and, in some cases, avoid the HICBC altogether. Adjusted net income is total taxable income less your own pension contributions and charity donations that qualify for gift aid. So, your earnings before tax, but also income like interest and dividends that you receive outside of tax wrappers like Isas. You've mentioned you'll earn £65,000 this year, before your own pension contributions of 4pc are deducted. Assuming no other income, your adjusted net income would be £62,400. But you could go further. Lowering your adjusted net income by another £2,400 before tax, would mean you avoid the HICBC, get the full value of child benefit for the year and boost your pension pot. Your employer has said they will match up to an extra 2pc pension contribution, which would cost only you £1,300 from your pay before tax but mean an extra £2,600 in your pot over the year thanks to the extra matched contribution on offer. Think of it as your money doubled, plus some of the child benefit back too. If you're able to put away a further £880 over the course of the year into your pension from your pay after tax (on top of the £1,300 mentioned above), automatic tax relief in your pension will boost this to £1,100, and also reduce your adjusted net income to £60,000, meaning your family keeps all of the child benefit. As a higher-rate (40pc) taxpayer, you could also claim an extra £220 on the £880 by contacting HMRC. It does involve diverting money into your workplace pension that you would have got after tax on your payslip. But an extra £3,700 in your pension pot for the year would actually cost you less than £1,170. This is once the tax relief on your own extra pension contribution is accounted for, along with the extra 'free' money your employer will put in and the value of the child benefit you won't have to pay back. I hope this explains the position and helps with your planning. With best wishes,
Telegraph
21-04-2025
- Business
- Telegraph
‘Will Britain's state pension still exist when I retire in 30 years?'
Write to Pensions Doctor with your pension problem: pensionsdoctor@ Columns are published weekly. Dear Tom, The debate over the state pension – such as what should happen to the triple lock – seems to entirely focus on people who are in receipt of it, or will be soon. However, it ignores people like me who are in their 30s and have no idea what it might be worth when we finally reach retirement, or when we might get it. Is there any certainty at all about whether the state pension will still exist in 30 years, or should my generation simply hope for the best? – James Dear James, Given the state pension is the foundation upon which most people's retirements are built, you'd hope there would be certainty over what you might get when you reach state pension age, and what that state pension age will be. Unfortunately, while I can tell you how the state pension works today and what your state pension age will be under current legislation, there is every chance those goalposts will be shifted one way or another during your lifetime. Let's kick off with the fundamentals. Those reaching state pension age after April 2016 should be entitled to receive the new state pension, which is worth a maximum of £230.25 per week in 2025-26. This benefit currently increases each year by the highest of average earnings growth, inflation or 2.5pc – the so-called 'triple lock'. This means the value of the state pension will, at the very least, keep pace with rising prices and average wages and increases in 'real' terms in relation to both when they grow at less than the 2.5pc underpin. To get the full state pension, you need a 35-year National Insurance record, while you need a 10-year record to qualify for any state pension at all. For every year missing from your National Insurance record – which you can check online on the government site – a deduction will be made from your entitlement. If you are approaching state pension age and have gaps in your record, it is possible to fill them either by paying Voluntary National Insurance or claiming free National Insurance credits if you have taken time out of work for certain reasons, such as caring for children or elderly relatives. For now, the state pension age is 66, but this will rise to 67 between 2026 and 2028, and then again to 68 between 2044 and 2046. That means as of today, someone in their 30s will have a state pension age of 68. You can check your own state pension age easily with The Telegraph's state pension age calculator – all you need is your date of birth. It's important to remember that whatever your state pension age, you will need to claim the benefit from the Government. You should receive a letter inviting you to claim around four months before your state pension age. What does the future hold? As things stand, the only concrete state pension policy politicians are willing to talk about is the triple lock pledge, with the Labour government committing to maintaining these gold-plated increases for at least the rest of this Parliament. There are currently no plans to bring forward the rise in the state pension age to 68 or increase the state pension age beyond 68 for future retirees. However, there are strong reasons to believe the status quo won't remain. Firstly, at some point the triple lock will have to end, which will require the Government to set out what it believes the state pension should be worth and how it should increase in future. Secondly, the costs of paying state pensions are already significant, and are set to grow in the coming years. The latest Office for Budget Responsibility assessment projects that pensioner spending will rise to £182bn by the fiscal year 2029-30. If projected life expectancies and state pension costs continue to rise, it seems inevitable that the state pension age will rise too – although to what level and when is impossible to say. In the absence of certainty from the Government on the state pension, the best thing you can do is take control of your own retirement provision – saving as much as you can as early as you can, taking advantage of any employer contributions available, upfront tax relief and tax-free investment growth. Tom Selby is director of public policy at online investment platform AJ Bell. This column should not be taken as advice or as a personal recommendation, but as a starting point for readers to undertake their own further research. Charlene Young is away.
