The Importance of Pensions

Posted 08/10/2019

In the UK, if an individual has contributed towards national insurance out of their earnings for at least thirty years they will be entitled to the full amount of state pension each week when they reach the pension age. A forced retirement age does not exist so reaching the pension age does not mean a person is required to stop working and in some cases, for financial stability or for a love for keeping active, many individuals will choose to continue working. In some cases an employer can force retirement but must provide reasonable evidence as to why they did so, such as health implications.

The state pension age is currently set to rise. The state pension age is planned to increase between 2037 and 2039 to 68 years, and currently stands at 67 years. The laws around state pension ages are constantly under review so it is advisable to check the laws nearer the time that this can be claimed. Men and women used to have different pension ages but now the pension age is the same for both genders. The current state pension pay out, at the maximum amount, is £129.20 a week which may sound daunting for some people planning their future.

The national insurance is paid if an individual receives either over £166 a week in employment income or earns more than £6,364 in a year through self-employment. For the employee, the national insurance is paid directly from the wages before the money reaches them and this deduction is reflected on their payslips. A self-employed person will pay their national insurance alongside their income tax by the 31st January each year once their annual self-assessment tax return has been submitted. If an individual does not pay towards national insurance in a year through either method, they can make voluntary contributions at any time.

Even though everybody is entitled to a state pension if national insurance is paid, this does not mean that an individual cannot receive another pension. A person can receive as many private pensions as they have paid into in their lifetime. For most employed people, auto enrolment means that a portion of their wages is already deducted to be put towards a private pension if the employee chooses to remain on the enrolment scheme. A private pension can be paid into on a weekly, monthly, annual or one-off basis depending on the individual’s choice.

There are a number of pension providers out there to choose from, all easily found on the internet and some more better known than others due to advertising and reputation, but picking out the right one can prove a task. Financial advisors can be consulted in choosing the right pension provider for specific requirements. Accountants and bookkeepers are not the same as a financial advisor; there are different qualifications involved, and the business insurance covers different areas of finance in each career. Therefore, a financial advisor is better suited to recommend pension providers to an individual.

Tags: Pensions, Savings, State Pension, Private Pensions