It remains unclear what Labour’s first budget next month will mean for pensions – with Chancellor Rachel Reeves refusing to rule out additional taxation.
The lack of detail has created speculation – and so experts at investment bank Saxo have provided us with quick answers to the top 10 most googled questions about pensions…
1. How will I find a lost pension?
If you’re looking for a workplace pension, you can contact previous employers and get the information directly from them or many companies offer this service and track them down on your behalf.
The government offers the Pension Tracing Service which, by using your employer’s name or your information, can provide you with the details of their workplace pension provider.
2. How much is the state pension?
The current full rate of the UK state pension is £221.20 per week, but this is dependent on how much National Insurance you’ve paid while working.
To qualify, you’ll need to have paid national insurance for 10 full years.
If you’re married and both of you have built up 35 qualifying years, this amount doubles to £442.40 a week, or £23,004 a year.
3. When do pensions go up?
The state pension is increased on the first Monday on or after 6 April in line with whatever is highest out of inflation, average wage growth or 2.5%. In April 2024, the annual rise increased by more than 8.5%.
4. How much pension will I receive?
This depends on two main factors – your NI contributions to make sure you receive the full state pension and whether you have a private pension (but there are more factors to consider as well).
This private pension could be a Self-Invested Personal Pension that you’ve managed, or a workplace pension you and your employer have paid into while working.
Other factors to consider are sector specific pension schemes (teachers’ pension, NHS workers, military), how you draw down your pension and the tax implication, and your age.
5. Are pensions subject to inheritance tax?
Usually pensions are exempt from inheritance tax as most schemes are written as trusts, therefore they are valued separately from one’s estate and not included in probate calculations – but there are exceptions:
- Continuing guarantee payments may be subject to IHT;
- If a lump sum is paid from a value protected pension, the net of tax amount may be included in the estate;
- If the pension owner died after reaching 75, income tax may be payable.
6. Are pensions tax-free?
It depends on the amount you are withdrawing from your pension, as income from pensions is taxed like any other kind of income. You have a personal allowance (£12,570 for the 2024-25 tax year) which is tax-free.
You then pay 20% tax on income between £12,571 to £50,270 and 40% for any more.
7. How much money can you have in the bank on pension credit?
There is no upper limit on how much money you can have in the bank to receive pension credit, but if you have more than £10,000 in savings and investments, the amount you receive may be reduced.
8. How do I consolidate a pension?
Pension consolidation means combining all (or some) of your pensions into one pot.
If you have several employers over time you are likely going to have workplace pensions in different places. There are advantages and disadvantages to both so it is best to seek advice before combining your pension.
9. How much pension pot do I need for £2,000 per month?
Using a pension calculator, the minimum amount required would be £272,000 for a £24,000 annual drawdown.
However, this doesn’t include a lump sum and other factors that will be personal for you. Speak to a professional to receive tailored advice for you.
10. Will Labour tax pensions?
Pensions are already subject to tax. Regardless of how you withdraw your pension, 25% of your total pension pot will be tax-free and you’ll pay tax on the rest as if it were income.