Five reasons why everybody’s talking about pensions

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Online searches for ‘pensions’ tend to spike in February. And with speculation about more State Pension changes coming in the new tax year and Martin Lewis having hosted a 90-minute pensions special this week – it feels like the word ‘pension’ is on everybody’s lips. We’re delighted to see it become such a hot topic, so here are five reasons why we think pensions have got people talking.

1. You get unique tax benefits

A good reason to get talking about pensions is to spread the word about the great tax benefits you can only get with a pension plan. 

In a nutshell, when you pay money into your pension plan, your payment gets topped up by the government. So the amount you would have paid in income tax on a payment into your pocket instead gets added on to your pension payment.

So, let’s say you’re a basic-rate taxpayer and pay 20% in income tax. Paying £100 into your pension plan will only cost you £80 – the remaining £20 will be added in tax benefits. 

And if you’re an additional or higher-rate taxpayer, it could cost you even less to save more into your pension plan. Just keep in mind you may need to claim anything over 20% back by completing a Self-Assessment Tax Return.

Some workplace pension schemes offer tax benefits in a different way (for example, if you’re part of a salary sacrifice or salary exchange scheme, you won’t need to claim anything back). So do check with your employer how this works for you if you’re not sure.

2. Auto-enrolment means your employer gives you a helping hand

Thanks to auto-enrolment, you’re not the only one saving for your future. Your employer must also pay into your workplace pension plan on your behalf. A total of 8% of your qualifying earnings will be paid into your pension plan (unless you choose to opt out) – that’s 3% minimum from your employer and 5% minimum from you.

Some employers will offer to pay more than this as part of their benefits package, or in some instances they’ll even offer to match your payments up to a certain percentage. But even at the minimum 3%, that’s still a significant boost to your retirement savings. And when you add on the tax benefits we mentioned earlier – your pension plan easily becomes the most tax-efficient way to save for retirement. Well worth talking about!

3. The State Pension is changing soon

Let’s not forget about the State Pension – which is different from your personal or workplace pension plan and has been a hot topic recently.

The most recent news is that the biggest ever increase to the State Pension is coming in the 2023/24 tax year. This is because the government announced the reinstatement of the triple lock in the Autumn Statement back in October. The triple lock is the method used to decide how much the State Pension will increase by. Bringing it back means the State Pension will rise in line with inflation (which was 10.1% in September 2022) in the new tax year. You can find out more about the triple lock in our article.

The increase means that those qualifying for a full new State Pension will receive £203.85 a week (up from £185.15). And those who reached State Pension age before April 2016, who are on the older basic State Pension, will now receive £156.20 – up from £141.85. You can check your own State Pension forecast on the government’s website. 

You can find out more about the State Pension and the changes coming up in our State Pension article.

4. There are millions of lost pensions out there

It’s estimated that there’s currently £26.6 billion in lost or dormant pension plans – a stat which is likely to get people talking. But it’s a great reminder to find out if any of it is yours.

Now that you automatically get a new workplace pension plan set up for you every time you start a job, it can be easier than you think to lose track of old workplace pension pots. 

All it takes is forgetting to tell your pension provider you’ve moved, or not checking if it’s right to combine your old pot with your new one, and you could find your pension savings are spread out over multiple pots by the time you come to take your money. 

That’s why it’s important to track down your old pension pots and make sure you’re not missing out on any of your hard-earned money when you come to retire. And you never know – they could be worth more than you might think. 

If you find you have multiple pots, you might find it’s easier to have everything in one place. You can read more about the pros and cons of combining your pension plans in our article.

5. Tax year end deadlines are coming up

Lastly, the end of the 2022/23 tax year is coming up on 5 April, which means people could be talking about what they need to do to make the most of their pension savings before the year is up.

You get a pension annual allowance each tax year. It’s the total amount you can pay into all of your pension plans and still get those unique tax benefits. It’s currently £40,000 or your total salary – whichever is lower – but could be less than this if you’ve started taking money from your pension already. You start the new tax year with a new allowance, so it’s worth making the most of it as much as you can each tax year. You can sometimes carry over any unused allowances from the last three years.

But arguably the most important pension deadline for this tax year is to fill in any gaps in your National Insurance record. These gaps could impact the amount you’ll get from your State Pension, which could potentially translate into missing out on thousands of pounds in retirement. 

Until 5 April 2023, you can plug any gaps in your record between 2006-2016. But in the new tax year, you’ll only be able to go back as far as the last six years. So it’s well worth checking to see if you could benefit by making a payment by the end of this tax year.

If you’re under State Pension age (currently 66), contact the Future Pension Centre to find out if you’ll benefit from voluntary contributions. If you’ve reached State Pension age, contact the Pension Service.

The information here is based on our understanding in February 2023 and shouldn’t be taken as financial advice.

The value of investments can go down as well as up and could be worth less than what was paid in.

Standard Life accepts no responsibility for information on external websites. These are required for general information.

Laws and tax rules may change in the future and your own personal circumstances, including where you live in the UK, will have an impact on tax.