Archive: MoneySavingExpert's Money Tips Email

Martin's 19 Pension Pumpers...
Tips, tricks & must-knows to protect & boost savings possibly by £10,000s for, and in, retirement

What's the best money advice your parents gave you? I asked this on social a fortnight ago for my pod, and many replies were similar to Janice's on Facebook: "Mum told me to join the work pension scheme at 19. I thought it was too young, as retirement was decades away. 40 years on, it has meant I could retire at 60. Thanks mum."

We typically work for 45ish of our 85-year lifespan. So that work-income needs to cover many fallow years (when we're ickle our parents pay for us, but most of us then must do the same for our kids). So saving for retirement is crucial. Yet pensions are ill-understood and have a bad rap. So today it's my annual attempt to whet your appetite to tool yourself up with knowledge about...

- State pensions: Income from the state once you hit a set age (today 66+).
- Private pensions: Tax-free savings only usable from age 55.
- Company pensions: Pensions your employer also contributes to (either build up a pot of cash or a final/average salary scheme).

1. There's £27 BILLION sitting in lost, old pensions. Are you one of those with £10,000s hidden? Pensions are big money. Yet you'd be surprised how often people lose track, including old work pensions.

Jodi's email explains this better than I can: "Thanks to you promoting lost pensions on your TV show, we contacted the [free] Pension Tracing Service & discovered a lost pension pot worth £82,000. Thank you Martin. We didn't know where to start looking as it was over 40 years ago & my husband could not remember who it was with as he had lost all paperwork. He was shocked to find out the amount."

2. Under 73? Can you pay £800, or far less, to gain £5,400 or more? It's all about extra national insurance (NI) years, but don't dawdle

It's possibly the single MOST LUCRATIVE thing many can do with their money. In last week's email, I explained how many can pay £800 to gain £5,400 on your state pension, and for those who find it easier to listen than read, on Wed I recorded my new Can you gain £10,000s? podcast. On the same day, Dave emailed me... "Dear Martin & team, a big thanks for reminding me to top up NI. My wife had 10+ years missing. Her pension forecast was £69/wk but a (large £8,200) contribution to fill the gaps increased it to £132/wk [a £3,280/yr boost, over £60,000 if she gets it for 20yrs] - no brainer!" Can you boost your state pension for free? Carer? Had a career break? An illness? You could be due NI credits to boost your state pension. I covered claim free national insurance years last week... do read it, it means some can do what Dave did, but without even paying for the years.

3. Big Pension Boon I: It's saved from pre-tax income, so you save more than it costs you. If you save £100 into your private or company pension, it effectively comes from pre-tax income, so if you're a basic-rate taxpayer, that means you get £100 saved, but only lose £80 from your pay packet, a huge gain you don't get with other savings, so in simple terms... 

4. Big Pension Boon II: Employee? If you save, your firm must contribute too. Don't throw away a hidden pay rise. This is about auto-enrolment pensions, where all those age 22 to 66ish who earn £10,000+ a year automatically save into a pension, and their employer must put in a whack too. Opting out is almost always a bad idea, as you're throwing away free cash. For a full explanation, pros, cons, and how it means you can often save £160 and it costs you £80 or less, see my Important warning to every employee explainer (including video).

5. Have you told your pension firm who should get the money if you die? Don't accidentally leave it to your ex! You CAN'T usually leave pension savings in your will. Die before taking your private or company pension and the provider / trustees decide what to do with it, so fill out an expression of wishes (EOW, or 'nomination') form to tell them your preference - it's not binding, but is important & helps.

And if you filled it in years ago, check it's still up to date. If not, update it (and inform your family), as when I warned about it last year, I got messages like this: "@MartinSLewis It's just happened to us! My mother-in-law died... only for her pension firm to want her ex's details... they split 20 years ago! She'd be spitting feathers if she knew!"

And Jan tweeted: "@MartinSLewis Through work I'm involved in deciding who should receive benefits if there is no EOW. It's hard to decide if there's no obvious relative/partner. Please don't burden your employer/trustees with having to guess what you'd have wanted."

6. How much should you save in your pension - aaaaaaarrrrghhhhhh.
Take a deep breath before you read this... as a very rough rule of thumb, take the age when you start putting money in your pension, halve it, and that's the % of your salary to aim to put into your pension for the rest of your working life for a strong pension income.

So start at 20 and it's 10% (this includes employer's contributions), at 40 it's 20%. Don't worry, almost nobody does it! The real takeaway is how the earlier you start, the better, as you've longer for the gains to compound. And every time you get a pay rise, if possible put a chunk of that into your pension before you get used to the increase. See our beginners' guide to pensions for more.

7. Under 22? Over 66? Earn under £10,000? You can usually FORCE your employer to contribute to your pension. If you're in these categories, your firm doesn't have to opt you in to a pension, but you do have a right to make it contribute. So if you're under 22, over 66, or earn under £10,000, click the link and have a read, or watch m'video on it.

8. How the pension tax gain works for the self-employed. You get the same tax-advantage as employees, but it works differently:

• You automatically get 20% tax relief. So for every £80 you pay in, the Government adds £20 without you doing anything, so £100 is added to your pension (see how much can I put in my pension?).
  
  
• Higher 40% or top 45% rate taxpayers. You can usually claim the extra back via your tax return (which you need to do anyway as you're self-employed). This isn't added to your pension, but reduces your tax bill on other income - the net result is the same. 

As for where to start, guidance or advice is always worthwhile, & as a primer see our self-employed pensions guide.

10. Defer taking your state pension and you get more - is it worth it? The state pension is boosted by 5.8% for each year you defer (you can defer part-years too), so defer one year and someone on the full 'new' state pension would gain £660/yr extra.

It's actually designed to be fairly neutral for someone who lives a typical lifespan - you gain if you live longer, lose if you die sooner.

So the main reasons to do it are: i) You're likely to live longer than typical, eg, are in great health and have history of longevity, ii) You are likely to pay tax at a lower rate later on than now, so deferring would help. Step-by-step help in our Should I defer taking my state pension? guide.

11. Important. Taking money out of your pension can be very taxing, if you do it the wrong way (think of a swiss roll). Never take money out of your pension for the first time without getting at the very least guidance, as get it wrong and some pay £10,000s more than they need to in tax.

Don't worry, I've an easy way to talk you through it, my swiss roll 'taking your pension' video explanation (yes, the sponge cake) may help you understand it (and make you peckish).

12. State pensioner with total income under £235/wk (or couple under £350/wk)? Check if you're missing out on £1,000s for free. Nearly a million pensioners are missing out on Pension Credit, a vital benefit worth £1,000s a year for many, which tops up your income. I take you through it simply in Are you missing out on Pension Credit?

Even if you're only due a few quid (most eligible are due far more) it's worth it, as Pension Credit is a 'gateway benefit' that opens the door to a whole host of other payments too, such as cost of living support, council tax reductions, free TV licences and more which can be worth thousands.

13. Annuity rates are far higher now, but NEVER just grab the one from your pension provider. Now here's a clever idea: just imagine that with your pot of money saved up in a pension (company or private) you could buy a product that gives you the security of a fixed, sometimes even inflation-linked, income each year for the rest of your life. You can, it's called an annuity.

It used to be the way almost everyone had to take their pension, but then in 2015 new 'pension freedom' rules meant it all changed. And many breathed a sigh of relief they wouldn't need an annuity - not because the idea is bad, but because in practice rates were dire. 

Yet now interest rates have risen, annuities have become an option again for some, for some of their money. When a few years ago every £100,000 of pension savings would get you not much more than £4,000/yr of income, in the same circumstances now it'd get nearly £6,500/yr. Though do get guidance/advice to ensure it's right for you.

There are some key rules if you're considering it though.

• DON'T just get an annuity from your pension provider without checking elsewhere (start with a quick annuity comparison), as you could be locking in many £1,000s less each year for life.
  
  
• DO remember if you've health issues, or are a smoker, you may be able to get a special higher rate.

14. You don't pay any inheritance tax on a pension. Most people's estates won't pay any inheritance tax (see my 5 inheritance tax need-to-knows 4min video). Yet it's worth being aware whatever the situation, if you die and there's money in your private pension, that's not part of your estate so there's normally no inheritance tax on it.

If you die aged under 75, and have a money purchase pension (a pot of pension savings rather than a final salary type, even if it's now converted into a drawdown), then your beneficiaries can usually take the money out tax-free. If you're over 75, then when they take it out it usually counts as additional income for tax purposes.

PS: In general, most of the state pension isn't passed on when you die, though it's more likely if you hit state pension age before 6 April 2016. Check your situation via Gov.uk.

15. It's worth getting an idea of when you'll die... You can currently take your private pension money at age 55 (rising to 57 in 2028). Yet one big question is how long you'll need it to last.

- Spend it all too soon, and you'll have a poor retirement.
- Be overly cautious, especially when you first retire, and you'll have a worse lifestyle at the time when you can most enjoy it.

Don't underestimate your longevity - your health and genetics affect it, but your current age is the single most important factor. The Govt has a basic tool, the life expectancy calculator, as a start point. Here's the situation for someone aged 66...

16. Woman aged 70+? You may be due £10,000s back due to errors in your state pension. 100,000s of married or now divorced / widowed women on the 'old' state pension (those who hit state pension age before 6 April 2016) are due big bucks due to pension system errors, mainly as they didn't get the cut of their husbands' pensions due to them.

It's often about if the wife receives under 60% of the husband's state pension. There's a full eligibility list in Are you one of 200,000+ women missing out on £1,000s of state pension? Many will now automatically be refunded, but you will still need to claim if...

• You got divorced AFTER reaching state pension age.
• Your husband turned 65 before 17 March 2008.
• You're a married woman on zero state pension, getting a small amount of additional state pension / SERPS.

18. Should you consolidate your private or company pensions? This is always the most asked question when I do pension shows. And indeed it's easier to manage and keep track of one pension, but I'm afraid it's not always a winner. Different financial advisers I discuss it with have different views. It depends on...

- Are there any perks in your existing pension, such as boosted annuity or other rates, which you'd be missing out if giving up on?
- How do the charges and investment choices of your old pension(s) compare to your new ones?
- Are there any exit penalties that apply to the schemes?
- How flexible are the options for taking retirement or death benefits?

If that's all gobbledygook to you, that's a very good reason to - as a bare minimum - get some free guidance or advice before you do anything, as get it wrong and it can cost you. For more explanation, read our Pension need-to-knows guide.

19. On a final salary pension? Be careful cutting your hours before retiring. If you're thinking of reducing your hours, check your scheme's rules before you agree to a pay cut. A few rules state that it's literally a percentage of your final salary - in which case, dropping hours just before retirement could cost you large. Do check before making a decision.

PS: Ta to independent pension advisers Robin Keyte of Keyte Financial Planners and Dennis Hall of Yellowtail Financial Planning for giving this a readthrough check.