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There is the Basic State Pension and if you are employed you also have an earnings related top-up, the State Second Pension (S2P). Historically there is also SERPS and the Graduated Pension. They are currently payable from age 65.
• The Basic State Pension is £97.65 per week for a single person (2010/11).
• A BR19 form can obtain a forecast of your State Pensions and this can be useful to help target your retirement income.
• It is possible to Contract Out of the S2P via either an employer's pension or via a Personal or Stakeholder Pension.
• Many Occupation Pension schemes automatically contract you out leaving you only with the Basic State Pension plus the employer's scheme.
• With Contracting Out via a Personal or Stakeholder Pension a portion of your National Insurance contributions are paid into your pension. These 'rebates' are invested to provide a retirement income. I have concerns over the level of rebate and whether it is enough to produce a better income than the State scheme. This option is soon to stop.
• To complicate matters further there has been a Pensions Credit introduced The Standard Income Guarantee is £132.60 for a single person and £202.40 for a couple. The maximum possible Pensions Credit is only £20.52 per week (£27.09 for couples). The Pensions Credit is reduced by other income. (source: Pensions Agency)
You get a pension based on your NI record, the maximum being achieved with 30 years contributions. A married woman with no NI record can get a pension based on her husband's NI record. The the married couple pension is paid to the person who paid the NI but that is not received if the spouse has her/his own NI record.
Everyone should make sure they have their own independent retirement income and not depend upon the State Pension.
Remember at age 65 your tax allowance increases to £9,490 (£6,475 below age 65). The extra is the age allowance.
With sensible planning you can ensure that as a couple you can maximise both tax allowances. It would be silly, for instance if the husband had a gross taxable pension income of £15,000 and the wife only £5,000. The husband would be paying tax while the wife has tax allowance to spare. A more efficient arrangement is for them to have £10,000 each to minimise tax or at least for the wife to have investments from which her tax can be reclaimed.
You can lose out in other ways too.
If you have a total taxable income of £22,900 at age 65 you lose £1 of age allowance for each £2 of income, being effectively taxed at 30% at that point. Far better again for many people to plan around that - spreading savings/investment to make sure both incomes are below that band and/or any additional income coming from non-taxable sources like Stocks & Shares ISAs rather than pensions.
Pensions are not the only tool available tomplan for retirement.
It is best to plan early on, certainly before you retire. Too many people lose out because they fail to plan. A lot of people in retirement are also losing out in a lot of areas, lacking the advice needed to maximise income and minimise tax.
Also no-one should ever purchase an annuity that is offered by their pension company withour getting advice and an open market quote. I have known people to lose out on what would otherwise have been an income 30% better....
Just a few generic tips there for anyone interested. I have a lot more up my sleeve but I am afraid you will have to pay me for those.
This is an important subject for everyone and proper planning can make the world of difference to your standard of living in retirement. Whatever you do nothing in this post represents a recommendation to invest. Please ensure that you get advice before investing and know the risks.