Expert Advice on Pension Planning

There are a few different pension schemes available, which is why knowing which direction to go in with your pension can initially feel quite confusing. Thankfully, KGJ is here to guide you through your options in our trademark honest and transparent way. Here are just some of the pensions available in the UK:

1. State Pensions: Provided by the government, a state pension is based on your national insurance contributions. It is paid to individuals who have reached state pension age, which you can check on the government website.
2. Workplace Pensions: The workplace pension system is a government-mandated programme that requires businesses to enroll eligible employees into, and contribute towards, a pension scheme. Workplace pensions can either be classified as a defined benefit pension (DB) or a defined contribution pension (DC). In DB pensions, the benefit is defined by an employee's income and length of service, whereas in DC pensions, the benefit is determined by the contributions paid in and the pension fund's investment performance. A defined benefit pension may also be referred to as a final salary pension.
3. Private Pensions: These are pensions that can be set up by the individual. Private pension benefits are based on your contributions and the performance of the pension fund. Professional pension advice – such as from the experts here at KGJ – is essential when setting up a private pension.
4. Self-Invested Personal Pension (SIPP): This is a type of personal pension that offers more flexibility and control over your investments. With a SIPP, you can choose a wider range of investments, including stocks, bonds and commercial property. Professional pension advice – such as from the experts here at KGJ – is essential when setting up a SIPP.
5. Stakeholder Pension: This type of personal pension is designed to be simple and low-cost, with specific features mandated by the government, such as low charges, flexibility in contributions, and a default investment option.

Aside from finding the best pension for you, KGJ will be on hand to explain the regulations and occasional changes that make up the UK pension system, as well as the options and implications of the different pension types.

There is no specific limit on the number of pensions you can have – and you can pay into pensions of different types, such as workplace pensions, private pensions and state pensions, as long as you meet the eligibility criteria for each type.

However, the total amount of pension contributions and benefits you receive from all your pensions may be subject to annual and lifetime allowances set by the government, which may affect the amount of tax relief you can claim and the amount of tax you may need to pay. It's advisable to seek professional financial advice from experts like KGJ to ensure you understand the rules and regulations regarding pensions and can make informed decisions based on your individual circumstances.

Your pension may be affected in several ways when you change jobs, depending on the type of pension scheme you are enrolled in. Here are just some possible scenarios:

• Defined Contribution Pension (DC): If you have a DC pension, which is a type of pension where your contributions are invested and the final pension amount depends on investment performance, your pension is typically portable. Although your new employer may not allow you to pay into your old scheme, the old scheme does not close. Sometimes people end up with several such schemes. Whether you have one or several, it is the job of an independent financial adviser, such as KGJ, to help manage your pensions and potentially consolidate them into one.
• Defined Benefit Pension (DB): If you have a DB pension, which is a type of pension where your pension amount is based on your wage and years of service, your pension may be more complicated to take with you when changing jobs and you may not be able to transfer your pension to another employer's scheme or a personal pension plan. However, the pension you have will not close and will pay out to you as planned. If you have any questions seek advice from an independent financial adviser, such as KGJ.
• State Pension: The state pension is a government-funded pension that’s based on your national insurance contributions and is not tied to a specific job or employer. Therefore, changing jobs should not directly impact your state pension. However, your state pension eligibility and entitlement may be affected by factors such as the number of years you have paid national insurance contributions, your earnings and changes in the state pension

Whatever situation you find yourself in with your pension, KGJ is here to explain the process and find the best solution for you based on your individual circumstances. Pension rules and regulations can be complicated and may vary depending on your specific situation and pension scheme, but we’ll be by your side throughout the process, ensuring you understand the steps and end up with the pension solution that’s best for you.

You generally cannot access your pension funds before reaching the normal minimum pension age (NMPA), which is currently set at 55 years old, and is set to increase in the near future. However, there are some exceptions and options, subject to certain conditions and regulations:

• Ill Health: If you are in poor health and unable to work due to illness or disability, you may be able to access your pension funds before reaching the minimum retirement age.
• Serious Ill Health: If you have a life expectancy of less than one year, you may be able to access your pension funds before reaching the minimum retirement age.
• Pension Flexibility: If you have a pension scheme that offers pension flexibility, you may be able to access your pension funds before reaching the minimum retirement age, subject to the rules set by your pension scheme.
• Small Pension Pots: If the total value of your pension savings is below a certain threshold (currently £10,000), you may be able to access your pension funds as a lump sum before reaching the minimum retirement age.
• Pension Transfer: If you have a defined benefit pension (DB) or final salary pension, you may be able to transfer it to a defined contribution pension (DC) and access your pension funds before minimum retirement age. This requires careful consideration and professional advice as there can be costly penalties for making an error.
• Financial Hardship: In some cases of financial hardship, such as severe financial difficulty or bankruptcy, you may be able to access your pension funds before reaching the minimum retirement age, but this is subject to strict conditions and regulations.

Accessing pension funds before reaching the minimum retirement age may have serious tax implications, which is why it's critical to seek professional advice from financial experts, such as those at KGJ, before making any decisions regarding your pension funds. Rules and regulations related to pensions are complex and subject to change, so it's essential to stay informed and consult with a qualified financial advisor for personalised advice.

If you pass away before retiring, the fate of your pension fund is determined by several criteria, including the sort of pension you have, whether you have reached the age of 75, and if you have designated any beneficiaries.

• State Pension: If you have not yet reached state pension age and you die, your state pension entitlements will not generally be transferred to your beneficiaries or estate. However, your spouse, civil partner or qualifying partner may be eligible for some benefits based on your national insurance contributions, such as a bereavement allowance or bereavement payment.
• Defined Benefit Pension (also known as a ‘DB’ or ‘final salary’ pension): If you are a member of a defined benefit pension scheme and you die before retirement, the pension scheme may provide benefits to your spouse, civil partner or dependents. This may include a pension payable to your spouse or civil partner, or a lump sum payment to your nominated beneficiaries or estate.
• Defined Contribution Pension (also known as a ‘DC’ pension): If you have a defined contribution pension, the value of your pension fund at the time of your death may be paid to your nominated beneficiaries or estate. Normally the pension is transferred as-is and can then be re-invested to suit the beneficiaries’ objectives. The transfer of a pension is outside the scope of inheritance tax and no inheritance tax should be chargeable on a pension transfer.

At KGJ, we know that pension rules and regulations are complex and subject to change. We therefore recommend seeking professional financial advice whenever you need to understand the specific implications of your pension, be it in the event of your death before retirement or in any other circumstances.

When changing jobs, you may be able to transfer your pension from your old employer's pension scheme to your new employer's pension scheme, perhaps even transferring into a private pension. The following is an example of steps you can follow to transfer your pension after a career change:

1. Check your current employer’s pension scheme: Remind yourself of the details of your current pension scheme, including the type of pension you have, the value of your pension pot, any benefits or guarantees, and the fees associated with transferring your pension.
2. Research your new employer's pension scheme: Find out about your new pension scheme, such as the type of pension you have, in addition to any fees, benefits or guarantees. You may need to request information from your new employer or their pension provider.
3. Seek professional advice: Transferring a pension can be complex and it's important to consider the implications on your retirement savings. Seek professional financial advice from a qualified financial advisor or pension specialist – such as the team here at KGJ – who will help you understand the pros and cons of transferring your pension.
4. Request a transfer value: If you decide to transfer your pension, you'll need to request a transfer value from your current pension scheme provider. This is the amount of money that can be transferred to your new pension scheme or personal pension plan.
5. Complete transfer paperwork: You’ll need to complete the required paperwork, which may include transfer forms and other documentation. It is critical to carefully research and comprehend the transfer's terms and conditions, including any fees or charges.
6. Wait for the transfer to complete: Pension transfers can take time and the process may vary depending on the pension schemes Once the transfer is complete, you should receive confirmation from both your old and new pension scheme providers.
7. Review your new pension scheme: After the transfer is complete, review the details of your new pension scheme. It's important to regularly monitor your pension savings and make adjustments as needed to ensure your retirement savings are on track.

It's crucial to carefully consider your circumstances, including your retirement goals and risk tolerance, seeking professional financial advice before making your pension transfer.

Taking money out of your pension plan may have tax consequences because pensions are subject to specific tax restrictions. Tax ramifications will vary depending on several circumstances, including your age, the sort of pension you receive and the amount you withdraw.

• Age: If you are under the age of 55, you generally cannot withdraw money from your pension, except in certain exceptional circumstances, such as ill health (see ‘Can I access my pension funds before retirement age?’ above). If you do, it may be subject to a significant tax penalty of anything up to 55% of the withdrawn amount.
• Type of Pension: Defined contribution pensions (DC) allow you to access your pension savings flexibly once you reach the age of 55, subject to certain rules. You can usually take 25% of your pension pot as a tax-free lump sum, while the remaining 75% is subject to income tax when withdrawn. On the other hand, defined benefit pensions (DB), also known as final salary pensions, typically provide a fixed income for life and may have different tax implications when it comes to withdrawals.
• Withdrawal Amount: If you withdraw a considerable sum from your pension in one go, it could push you into a higher tax bracket, resulting in a higher income tax liability. It's important to consider the tax implications carefully and seek professional advice to understand the potential impact on your overall tax situation.

Pension rules and tax regulations are subject to change and it's important to stay up to date with the latest guidelines from His Majesty’s Revenue & Customs (HMRC), which are split into state pension guidance and workplace and personal pension guidance. You can also seek advice from qualified financial professionals here at KGJ before making any decisions regarding pension withdrawals.