WELCOME TO "IMPROVING YOUR PENSION"

"I want to improve my pension. What are my options?"

    You have 4 main options:

1) If your employer offers you a pension scheme and is prepared to contribute to it, this can be a valuable benefit for you and you should consider joining it.

Many companies run pension schemes for their staff and make a contribution to your pension. An employer contribution to a company pension or an enhanced Stakeholder pension is a valuable employee benefit. It makes sense to take advantage of any employer contribution available.

Even if the company does not make a contribution they should have a basic Stakeholder pension facility which allows you to have your pension contributions deducted from pay and passed on to the pension company. This is a convenient way of getting into the habit of saving for retirement. Contributions you make get tax relief, so every £100 invested in your pension fund only costs you £78. (Less for higher rate tax payers).

2.You could work on longer and/ or you could defer your Basic State pension.

New rules have been introduced which are designed to give employees more flexibility to work on past the normal retirement date. You may be able to contribute to your pension scheme for longer too. As a general rule, working longer and contributing longer to your pension should increase the amount you will receive as pension income. The new rules also allow you to draw your pension and continue working.

Deferring your Basic State Pension for even one more year could increase your Basic State Pension by over 10% for the rest of your life. An extra year employed of course gives you another year’s earnings, which will be worth thousands of pounds in itself to you. 

 As mentioned previously, pension contributions benefit from tax relief. Every £1 of contribution only costs you 78p as a basic rate taxpayer, less if you pay tax at the higher rate.

If you are a member of a Defined Benefit scheme and you are likely to retire with less than the maximum number of years’ service, your scheme may allow you to buy additional service through an “added years” scheme.

Alternatively, you may be able to pay extra into a Money Purchase scheme, which will build up a fund alongside the main scheme to get additional pension. This is known as making Additional Voluntary Contributions.

If you contact your pension scheme administrator they should be able to provide information on these options.

New rules, which came into effect in April 2006, introduced more flexibility and scope for making extra contributions. 

You can now set up a Personal or Stakeholder pension as well as be a member of your employer’s scheme.  You can pay up to a full year’s salary as pension contributions each year!

This may seem unrealistic but as well as making regular monthly payments you are allowed to make top up lump sum contributions. For example, you may have some savings in a credit union, bank, or building society account that you could pay into a pension scheme.

You could use some of this to make a top up payment to a Stakeholder pension. Say you made a contribution of £3000. This is paid net of tax relief, so is “grossed up” with the addition of a tax credit, making £3846 invested in your pension plan, an immediate uplift of over £800. Because there is no set up charge for a Stakeholder pension you get all the £3846 working for you from day one.

4.  If your employer does not have a pension scheme you could start your own Personal or Stakeholder pension.

As well as the advantage of tax relief on the contributions, Personal and Stakeholder pensions are a good way to save for retirement.

The pension fund is what is known as a “tax favoured” environment. This means that the fund pays no Capital Gains Tax on its investments. Bank interest is not taxed, nor income from Gilts, Bonds and property. This in turn means that the fund has the opportunity to generate better returns over the years than similar taxed investments.

Stakeholder pensions in particular are very good value for money. There is no set up cost, no hidden charges or penalties if you want to change the plan or transfer it to another provider, and an annual management charge of 1% a year or less. This means that the premiums you pay are working fully for your benefit.

You can draw on your Personal or Stakeholder pension fund from age 50 onwards (55 from 2010), without having to actually retire. However you have to remember that there are no magic solutions! You are likely to get more from your pension the longer you can keep it going.

For further information on Personal and Stakeholder pensions see our page on types of pensions

If you want to work out how much pension you can get for a specific monthly payment there is a pension calculator available on the Financial Services Authority (FSA) website (www.fsa.gov.uk/consumer). Here you can put in different amounts and the calculator will work out how much pension this will give you, based on assumed rates of future growth in the pension fund.

    “What other options do I have to save for my retirement?”

This document is for guidance only, and professional advice should be obtained before acting on any information contained herein. We cannot accept any responsibility for loss occasioned to any person as a result of action taken or retained from in consequence of the contents of this publication.

Scottish Transport Credit Union Limited
Authorised and Regulated by the Financial Services Authority