Pensions
How will my National Insurance contributions affect my pensions?
National Insurance is one which is payed by every working professional for their entire life. National Insurance Corporation has planned to change their rules in 2010. In order to get a full scale pension now, you should have payed National Insurance for at least five years of your working lives, but this doesn't account for house-wife or children taken care by relatives as they have less amount and years of National Insurance Payment. In 2010 it will much easier due to revision of rules, as you have to pay contributions for thirty years sometime in your life to get a full scale pension. This will be very useful for women who don't have a long working life.
How old do I have to be to qualify for a pension?
Men qualify at 65. Women, at the moment, qualify at 60 but that's going up. From 2010 the pension age for women is rising to 65 over the next 20 years. And then in the long term, the state pension age will rise in stages to 66, 67, and for people who retire after about 24 years, it will be 68. So it is rising, and that simply reflects the fact that we're all living longer.
Can I collect my state pension early?
No, you have to wait until you reach the pension age. In fact, you have to wait until the Monday after you reach pension age to get your pension, which annoys people if their birthday falls on the wrong day of the year in that particular year. You can retire later. You don't have to draw your pension at pension age, and every week you defer drawing it, it goes up by a tiny, tiny amount. So it can be worth delaying it if you really don't want to retire, and then when you do retire later, you can either take that extra money as an extra pension or as a lump sum. So some people do put off drawing their pension. My advice probably is draw it, and stick it in a savings account. You're probably better off doing that really.
Is it worth paying into a pension scheme?
That's a very hard question to answer. If you're in a job that provides the pension, then normally it's a good thing to be a member of that pension scheme. Not least because the employer will normally be paying money into it, so if you don't go into the scheme, you don't get that money. So if you're in a job that's got a pension scheme, join it. That's a general rule; it really can't be wrong. If you're not in a job with a pension – and at some point in the future, all jobs will have them, but at the moment they don't – then, it really depends partly on your earnings. If you don't earn very much and you can't afford to put much into a pension, then it may never really pay you back. But if you've got a decent income, then yes, pay into a pension. One big reason for doing that is that the money you pay into a pension is subsidized by the state, because you get tax relief on it. So if you're a basic rate tax payer, every pound you put in, the Chancellor puts in 28 pence. If you're a higher rate tax payer, every pound you put in, the Chancellor puts in 66 pence. So it's a very good deal in that sense. And of course all that money, whether it's yours or from the Chancellor, is building up, again tax-free, until the time you retire. So, paying into a pension is generally good advice. But, there is a piece of advice always when talking about saving – if you've got big debts, it's probably better to clear those first.
Do I have to pay tax on my pension?
Pensions are taxable income whether it's a state pension, private pension or a company pension, they are taxable. The reason for that is that you got the tax relief when you were paying into them. At least as far as the company or private pension is concerned. So yes you do need to pay tax on it. Normally tax will be taken off before you get it. That isn't true of the state pension. You get that paid without tax taken off and, what normally happens is, your other income is taxed a bit more to take account of the tax you owe.
What are the best methods I can use to boost my pension?
The easiest way to boost a pension, if you're still in work, is to pay more in. Put more money into your pension, either through your employer or through a personal pension. And that's usually, depending on your income, a good thing to do. Once you've reached retirement and you're drawing your pension, you can't boost the pension itself, but there's all sorts of ways to earn a bit more money, save on the amount you spend. If you want more money, you've only got two choices. One is earn more or spend less. And you can look at all the different ways to do that. And there is a VideoJug presentation on exactly that subject.
Can you still work and draw your state pension?
You can still work and draw your state pension. You can draw your pension at pension age and carry on working. There's no restriction on that at all. A lot of people do that and stick the money somewhere safe and then use it later. If you've got a company pension, then normally you can draw your pension at whatever age the company pension comes into payment and carry on working, even for the same employer. There used to be a lot of restrictions in the past that when you draw your pension, you have to stop work. Those have gone, so you're much more flexible now than you used to be.
Do bigger pension payments always mean a bigger pension in retirement?
No they don't, and they don't because not all pensions are the same. Some people can pay a lot more into a pension and get less out of it. That's why it's important to choose a pension carefully. Get good financial advice from someone with a current pension qualification, and preferably from someone who isn't going to be paid commission on the pension you chose. All pensions aren't the same. The big differences are the charges, which can be much higher with some pensions then with others, and the investment performance, which of course we all know about. But the best pensions are the ones employers provide. They give you a pension related to a salary and those are the very best. Once you're in one of those you can't really pay in more. It's determined by the fact you're in it and how many years you work. It's a mistake to think that just by paying more in you will always get more out.
What if I haven't paid enough NI contributions and have no private pension?
There is a system called pension credit that gives you a guaranteed minimum income, rather more than the state pension in fact. You will be able to get that whether you paid in anything or nothing at all. The state will always provide for people over sixty by providing them with this pension credit. They will also pay some or all of your council tax, and if you're in rented accommodation they will pay some or all of your rent. No one over pension age is left destitute in Britain. They will get some help from the state and, in theory, it's enough to live on. It's very difficult to live on but it is, in theory, enough.
