Welcome to Engage Wealth Management, independent financial advisers helping you and your employer navigate the complex world of pensions. Some aspects of pensions can be confusing (and a little boring!), so we have compiled a list of FAQ’s below to help you understand your pension and how it helps your future. We have also included some FAQ’s on other areas of financial planning that could be of interest.
CityFibre pension scheme
Provider: Scottish Widows
Employer contribution: 5%
Employee contribution: 5% via salary sacrifice
Answer: A pension is a tax efficient way of saving for your retirement. It’s a pot of money you and often your employer pay into, and you get some of your tax back from the government. Your pot is invested by your pension provider to grow over time. It’s normally available anytime from your 55th birthday (or your 57th from 2028 onwards), and can be enjoyed either as an income or cash (or both!).
Answer: You may be able to transfer old pension schemes into this arrangement. Transfers are complicated and may not be in your best interest. You should seek financial advice before going ahead. You could leave your old pension schemes and contribute to them as well, but again this may not be in your best interests.
Answer: To help you save more for retirement, the government’s introduced a compulsory requirement for your employer to contribute to your pension savings. All employers are now required to have a pension scheme in place.
Not all employees will be eligible for auto-enrolment. There are certain circumstances based on your age, earnings, or if you work primarily outside the UK where your employer doesn’t have to enrol you into their scheme.
Answer: The short answer is you, your employer and the government (via tax relief!) The long answer is your contribution is topped up by tax relief and your employer contributions. This means the government gives you your tax back. Even on the most basic contribution basis of 5% employee contributions and 3% employer contribution, you are effectively doubling your contribution: 5% actually only costs 4% due to tax relief. Add another 1% from tax relief and 3% from your employer = 8%, for the price of 4%. The image on the left helps to explain this.
Answer: You will be automatically enrolled, but you can opt-out. Your plan documents will tell you how and when you can do this. If you opt-out within the relevant period, you will receive a refund of any contributions made.
Answer: You can increase your contributions but there are maximums – 100% of your salary to a maximum of £40,000 per tax year. If you would like to increase your contributions, you can speak to your HR or payroll department to do so.
Answer: It’s a popular question…just see the Google search below. There are studies into this, but it will depend on your circumstances. Some studies have suggested if you are just starting, halve your age and this should be your contribution, to result in a worthwhile income in retirement. E.g. a 30 year old starting today, should be contributing around 15% of their earnings in total. Don’t forget, you receive tax relief and employer contritions to help towards this figure.
Other studies have suggested saving between 10-15% from your early 20’s.
There is no contribution level that works for everyone. The general advice is if you can afford to contribute more, then do so. There are various online pension calculators to help you and it will all depend on your personal circumstances… any rich Uncle’s out there?
Answer: The value of your plan will normally be paid as a tax-free lump sum to your beneficiaries. Make sure you have completed a beneficiary nomination form.
Answer: When you join your scheme, you will be invested into the default pension fund. Depending on your age, this will consist of investments into shares, bonds and other assets, all designed to produce long-term growth. There are other fund options, which can be discussed with a financial adviser if needed.
Answer: You have options:
Answer: When starting any project, a good foundation is essential. When it comes to your finances, this means ensuring you and your family are well-protected should the worst happen. An emergency fund of cash in the bank of around 3-6 months of your household outgoings is sensible. This covers short-term disasters such as you or your partner losing your job. For longer-term disasters such as being unwell for a lengthy period, being unable to work due to illness or a key family member dying, you need to look at insurance options. Your employer provides some great benefits which are provided via our partner company Engage Health Group. You can check these details with your HR department. However, there are various options you could add on top such as covering your mortgage if one of you were to pass away or unable to work long-term. Take some time to think about your position and how exposed you might be. Get in touch if you’d like to discuss some options as we provide individual life insurance, critical illness cover and income protection.
Answer: Very few people need anything more than a well-managed pension and stocks & shares ISA. Remember, you can invest up to 100% of your salary or £40,000 per year whichever is lower into a pension and £20,000 per tax year into an ISA. Unless you are maximizing all contributions, it’s unlikely other options need to be considered. However, some higher earners might look at Venture Capital Trusts or Enterprise Investment Schemes.