Archive: MoneySavingExpert's Money Tips Email

Martin's 16 Pension Pumpers...

Tips, tricks & must-knows to boost your private & work pensions by possibly £10,000s

Pension SuperPowers, consolidation, starting a pension, the withdrawal tax trap, find lost pensions, kids' pensions & more

As my hair gradually greys at the edges, I find more of my social group ask me pension questions. That's a worry. These questions shouldn't wait until you're in your fifties, they should be asked the day you start working, or even earlier - after all, children can have pensions. Though never feel it's too late. If you haven't done it yet, the sooner you start, usually, the better.

Thankfully though, for my ITV Pension Help Special last week, I had more questions than any other subject in this series so far (it's well worth a watch as a primer). And I realised I hadn't covered private pensions here in a while, so now I'm remedying that.

For those saying: 'ah, just live for the now'. Remember, we typically only work 45ish of our 85-year lifespan. So that work income needs to cover all the fallow years (when we're ickle, our parents pay for us, but most of us then need do the same for our kids), meaning saving for retirement is crucial. My tips 1 to 12 cover building up a pension and tips 13 on cover using the money when needed.

2. Don't accidentally leave your private or workplace pension to your ex! You CAN'T usually leave pension savings in your will. If you die before taking your pension, the provider / trustees decide what to do with it, so you should fill out an expression of wishes form (also called a nomination form) which tells them your preference - it's not binding, but it is very strong evidence & helps.

Most people fill one in when they first set up a pension, but many fail to keep it up to date. So I've had messages such as this in the past: "@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!" Do check yours.

3. There's over £31 billion sitting in lost, old pensions. Do you have £10,000s hidden? With people regularly moving job, especially as many now start paying into a pension without being asked (see below), some lose track. There are a number of tracing old pensions tools you can use to track them down.

And it's worth a check, as Deborah emailed us: "I've been having a major sort out of our paperwork. I found information about a very old pension from 1998 four addresses ago. We used your advice about tracing a lost pension and found a pension pot of £61,700 that my husband didn't know he had! So a big thank you. That will make a big difference to our retirement!"

9. Take a deep breath... how much should you save in your pension? Here's a scary old famous 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 retirement income. So start at 20 and it's 10% (this includes employer's contributions), at 40 it's 20%.

Don't worry, almost nobody gets there. The real takeaway is that the earlier you start, the better, as you've longer for gains to compound. Plus my tip is, 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.

10. Children can have pensions too! Almost anyone can save into a pension and get tax relief, even if they've little or no income. The minimum allowance is £3,600/yr (meaning it only costs you £2,880). This means even a newborn baby can get a pension.

And indeed I know grandparents who open them for their grandchildren, liking the idea it'll trigger a memory of them in 50 years' time. The advantage of this is as the earlier you start, the more time it has to grow, so starting super young should be very valuable once your ickle ones are old 'uns like me. It's no surprise that more than a couple of kids of the parents in MSE Towers have pensions.

However, I'd caution to always first look after your own finances, then look at top children's savings and fill up a junior ISA, as they're shorter-term priorities. Yet if you're lucky enough to have enough to do that, then a pension for the children may be a good option.

12. Should you consolidate your pensions? This is always the most-asked question when I do pension shows.

Clearly having them all in one place eases the administrative burden, and can mean lower fees if you choose carefully which pension you're moving them all to. Different financial advisers I discuss it with have different views, so let me run through the key things to consider.

- 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?
- Compare the charges and investment choices of your old pension(s) to the one you will consolidate them all in.
- Are there any exit penalties that apply to the schemes?
- How flexible are the options for taking retirement or death benefits?
- Be very careful moving money out of Salary Schemes (if it's even possible), you could be giving up unbeatable benefits.
- If you've under £10,000, you can use the 'small pots rule', letting you cash in up to three of them without it impacting how much you can contribute in future. So leaving them untouched may be useful later.
- Don't close a pension your current employer is contributing to. If it's not a great scheme, instead you may be able to regularly sweep the money into a pension you prefer.

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 consolidating anything, as get it wrong and it can cost you. For more explanation, read our Should I consolidate my pension? guide. This should all get easier when the 'pensions dashboard' launches in 2026.

13. Important. How you take money out of your pension matters - getting it wrong can cost £10,000s extra. To make it easier to understand, watch my Avoid the huge tax trap when taking money out of a pension video clipped from my ITV show. It's already gone viral with over 6.5m total views over the past week on social media.

That should give you the basics, yet the most important thing is, before you do anything, get free one-on-one guidance. This is all about when you take the 25% tax-free lump sum in a money purchase pension, which you can do from age 55 currently (rising to 57 in 2028).

In a nutshell, if you just withdraw money from your pension, say £10,000, then £2,500 is tax-free, the rest is taxed at your current tax rate (unless it pushes you up a threshold, in which case it's higher, so staging the withdrawals is crucial).

Yet many want to take the 25% tax-free cash out first, likely as they'll pay tax at a lower rate later in life (as their income drops), so want to wait until then to take the taxable money out. You can do that, but only if you take up to 25% of your money out and, at that point, put the rest in an annuity or drawdown.

14. Annuity rates are higher now, but NEVER just grab your pension providers' annuity. 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 the rates were pants.

Yet now interest rates have risen, annuities have become an option again for some who value security for some of their money. On a standard annuity, you can now get around £6,500 a year per £100,000 pension pot, though it can vary hugely with circumstance, so do get guidance / advice to ensure it's right for you.

The key rules if you're considering an annuity:

• 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 (as smokers die sooner), you may be able to get a special higher rate.

15. You don't pay Inheritance Tax on a pension... BUT that's set to change. Under current rules, if you die and there's money left over in your private pension, it's not treated as part of your 'estate', meaning there's no Inheritance Tax to pay on it.

However, in Rachel Reeves' first Budget in October, she announced from April 2027 pensions will be eligible for Inheritance Tax, though the exact regulations aren't in place yet. Do remember though, only 6% of estates have to pay Inheritance Tax (see my 5 Inheritance Tax need-to-knows video for why most don't), and while that will rise when pensions are included, it's still likely to be only 8% who pay it.

That's not the only tax though. Currently, die aged under 75, and with a Money Purchase pension or drawdown, your beneficiaries can usually take money out tax-free. If you die aged 75 or over, their withdrawals are usually taxed at their normal tax rate on income (or some of what's taken may even push into the higher band). That will also remain from 2027, meaning the pension you leave behind could be double-taxed for some. Read more in Inheriting a pension.

16. It's worth getting an idea of when you'll die... What a great way to end (literally). You can currently take your private pension money aged 55, though most should hold it in there for later if they don't need it. Yet knowing how long you'll need it to last gives you a rough idea of what you have to spend each year (do factor in any State Pension or other income too).

- 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.

Health and genetics affect longevity, but your current age is the single most important factor. The Government has a basic tool, the Life expectancy calculator, as a start point. Here's the situation for someone aged 66...

PS: Thanks to the Money & Pensions Service, Sir Steve Webb (LCP), Chris Hallam (First Wealth) & Tom Selby (AJ Bell) for giving this a once over for me.