Money Basics - Pensions
Money basics is a series of short articles where we will explore several themes that confuse and bewilder and try to break down all the legalistic jargon into plain English.
Tweet us your article suggestions @ChattertonsLaw – literally anything in the world of money that you want to know more about.
Hassle, Hassle, Hassle
Everyone knows they need a pension, but pensions are confusing. The government is hugely confused by pensions; we’ve had fairly significant changes to pensions every year for the past decade.
The changes didn't, mostly, apply to final salary schemes either; making pensions even more confusing. Even worse; all public sector schemes – including MP’s pensions – have been either been altered recently or are under review.
AND we’ve got auto-enrolment.
How on earth is anyone supposed to cope?
Pensions, two flavours…
Actually, pensions only come in two flavours really, with a huge amount of tiny differences within those two flavours. Defined Contribution (DC) and Defined Benefit (DB).
DC, not the publishers of Batman, means you know what you’ve paid in, but you don’t know what you’re going to get out.
DB means you know what you’re going to get out – but you have no idea how much it will cost.
Dependent on your employer, or whether you’re buying a pension personally this is split down as follows;
Personal Pension Plan
Retirement Annuity Contract (S.226)
Group Pension Plan
Additional Voluntary Contributions
Final Salary Scheme
Career Average Earnings (CARE)
Final Salary, new schemes are CARE.
So you can see, the terminology just naming a pension is confusing. Once you’ve worked out whether it is DB or DC you can start to make some progress on what you can do with it.
If you’re a public sector worker your benefits are, normally, fairly generous and fixed.
Most people cannot transfer out of a public sector DB anymore; but it is definitely worth doing some maths to see whether retiring early or later would better enable the standard of living you want in retirement.
If you work for a company it all gets a little confusing as you can be a member of anything.
You can transfer out of a private sector final salary and at your retirement date this is definitely worth looking at. We’ve had clients with an £8K final salary worth £360K as a lump sum.
FSAVC’s, Private, Stakeholder pensions and AVCs need reviewing annually as there may be something more appropriate on the private pension marketplace.
Our in house Independent Financial Advisors can help you with all aspects of financial planning including pensions, investments and inheritance tax planning. If you need any legal advice, please contact the Chattertons’ Wealth Management team at your nearest office.