Latest news with #PensionBee
Daily Mirror
5 days ago
- Business
- Daily Mirror
Pension alert for under 65s as DWP data shows 7 in 10 Brits are taking risk
New figures have sparked concern about the number of people withdrawing pension funds early as one expert details how to do it safely New Department for Work and Pensions data has raised alarm bells over how Brits are tapping into their pension pots at younger ages. The statistics showed that seven in 10 people who took flexible payments from their pension since 2015 were younger than 65 years old. Lisa Picardo, Chief Business Officer UK at PensionBee, warned that early pension access could easily result in people "draining their pension pot before they reach retirement", especially during the current cost of living squeeze. However, she said it is possible to begin drawing your pension in your early 60s or even late 50s without jeopardising your retirement security if you stick to certain fundamental guidelines. The 2015 pension freedom reforms permitted individuals to tap into their pension from age 55. This currently sits 11 years ahead of state pension eligibility. And this gap is set to widen as the state pension age faces ongoing review and rises in step with life expectancy data. For those drawing their pensions at the first opportunity, this could risks their money falling short even before state pension payments kick in. To avoid this pitfall, Lisa said: "The key is planning ahead and withdrawing sustainably. "Work out how much you might need each year from your personal pension in addition to what's available from your State Pension, factor in inflation and tax, and consider leaving as much as possible invested to keep growing. Even small adjustments to how much and how often you withdraw can make a big difference to your future income in later life. "Most importantly, remember your pension needs to last a lifetime. It needs to be there to support you for the whole of your retirement, not just the early years, so pacing yourself can help you enjoy the journey without running out of fuel." Looking at the new DWP statistics, Lisa expressed some optimism for what lies ahead. She pointed out how the data appears to demonstrate "a maturing" in how those over 55 have used their retirement funds since 2015. The pensions specialist said: "Rather than people raiding their pots the moment they turn 55, we're seeing more sensible behaviour, and people are waiting until they're genuinely approaching, or are in retirement, before making significant withdrawals. This may be reflective of longer working lives, delayed retirements and increased longevity. "Back in 2016, people in their late fifties were the biggest users, taking 42% of all taxable withdrawals, followed by 28% in their early 60s, and 30% in the over 65 age category. Now the 55-59 group has dropped to just 26%, with a stable 28% in their early 60s, and 46% of taxable withdrawals from the over 65s."
Times
04-08-2025
- Business
- Times
Stick or twist? Savers fear for the pension tax-free lump sum
Catherine Lay checks the value of her pension every day to work out how much she will get as her tax-free lump sum. Lay, a retired IT worker, is yet to tap into her pension pot. Since retiring in 2019, she has lived off her savings and the rental income from a two-bedroom flat that she bought with inheritance from her father. The 25 per cent tax-free lump sum from her pension pot, available to most savers when they turn 55 (rising to 57 from 2027), is a crucial part of the plan for the rest of her retirement. 'I'm hoping to take some of my tax-free cash and use the other part of my pension to buy an annuity that gives me £1,000 a month, so that my income stays under the personal allowance,' said Lay, 59, from Berkshire. 'The tax-free cash will then replace some of the savings I've spent. I look at the summary on my PensionBee app every day and work out what my 25 per cent tax-free part will be. Because I don't have a wage, my investments and savings are really important to me.' But like many others planning their retirement, she is worried that the days of the tax-free lump sum may be numbered. In the lead up to the budget in October last year and to the spring statement in March speculation was rife that pensions, and particularly the tax-free lump sum, which many see as the most important tool in retirement planning, were in the chancellor's crosshairs. With downgraded growth forecasts and a looming black hole in the nation's finances, most are expecting tax rises of some description at the next budget. Lay said: 'You can plan but then you hear that the tax-free lump sum might not be 25 per cent anymore or that it will go completely. And it's the timescale that is the biggest stress, that they could bring in a new rule tomorrow or the day after the budget.' • I raided my pension to beat the taxman but Fidelity's delays cost me £5,000 Tim Morris from the wealth manager Russell and Co said that clients in a rush to take their tax-free cash was the 'main trend' he was seeing among those approaching retirement. He said that it had started last year before the budget and continued to be a worry for clients today. 'The tax-free cash sum from pensions is a very popular option that the overwhelming majority of clients take up. At the moment, there is a general distrust about whether it is safe,' Alan Lakey from the advice firm Highclere Financial Services said. 'Clients do not trust the chancellor.' So far, there is little evidence to suggest that the tax-free lump sum is at risk. The lifetime allowance, the total you could build up in pension wealth before facing a hefty tax charge of up to 55 per cent, was effectively scrapped in April 2023 when the Conservative government removed the charge. When the allowance was fully abolished a year later the amount you could take as a tax-free lump sum was capped at 25 per cent of this limit — a catchy £268,275. The tax rules around pensions were also changed in the last budget, when Rachel Reeves announced that from April 2027 they would be subject to inheritance tax (IHT). 'Given the recent introduction of this limit on the amount you can take as tax-free cash, and the fact they are bringing pensions into the IHT net as well, I think scrapping the tax-free lump sum is unlikely to be high up on the government's agenda,' Scott Gallacher from the wealth manager Rowley Turton said. This doesn't stop savers worrying that a rule change will scupper their retirement plans, however, and there are concerns that there could be a repeat of last year, when there was a spike of savers taking their tax-free lump sum before the October budget. AJ Bell, an investment platform, said its customers took about £300 million extra from their pensions last year than expected amid concerns that the tax-free cash perk was set to be scrapped. Interactive Investor, another platform, said that the value of tax-free lump sum withdrawals were more than 500 per cent higher in July 2024, when Labour won the general election, than in July 2023. The advisers Money spoke to said that many of their clients then regretted their decision when the tax-free lump sum was left intact in the budget. Darren Cooke from Red Circle Financial Planning said: 'We saw some people trying to cancel tax-free cash withdrawals or claim a 'cooling off period' after the budget. All my clients got told to sit on their hands — and I was right.' As a general rule, it is best not to make big financial decisions based on speculation. Most advisers recommend that their clients stay put until any rules are confirmed, and do their best to talk people out of kneejerk reactions. A potential exception is if the tax-free lump sum is being lined up for a specific purpose, such as paying off the mortgage or giving to a child or grandchild for a house deposit. Lakey said: 'It is difficult for an adviser to make anything other than the general comment that if you are relying on it for some specific reason, then you might wish to take it while it's still there.' • The four (secret) pension tips that could cut your tax bill There is a wider financial planning question over the best way to take your tax-free cash, however. Withdrawing the whole sum at once might feel like a timely reward from the taxman for years of diligent saving, but it may not be the most tax-efficient way to use the perk. Your choices depend on the type of pension you have. If you have a defined benefit (DB) pension, which guarantees a set, often inflation-linked income for life, then you typically only have one decision to make: take your tax-free lump sum and get your set income, or leave your tax-free lump sum and get a higher income. Any pension income above the personal allowance of £12,570 is taxed, so the second option could mean that you pay more tax in the long-run. A defined contribution (DC) pension, a 'pot of money' pension where how much you get in retirement is based on how much you pay in and how your investments fare, comes with more choices. You could take your entire tax-free lump sum in one go. If you do this, you need to decide what you do with the remaining 75 per cent of your pension: buy an annuity (an insurance product that pays an income for life), move it into drawdown (where you leave it invested and take money as and when you need it), or take it all as cash. Or you could take your tax-free cash in stages as part of the regular income from your pension, which means that you pay less tax when you make withdrawals. To do this, you effectively access your pension pot in stages. Each time you take money from your pension pot, 25 per cent of it would be tax-free. For example, say you want to take £25,000 of pre-tax income from your pension pot each year. You would get 25 per cent tax-free (£6,250), alongside the next £12,570, which is tax-free thanks to the personal allowance. This means that only £6,180 of your income would be taxed. At the basic rate of 20 per cent, that gives you a tax bill of £1,236. If you had already taken your tax-free lump sum, then only the first £12,570 of your income would be tax-free. The rest, £12,430, would be taxed at 20 per cent and give you an annual tax bill of £2,486. • Why Gen Z is facing a pensions crisis The fact that pensions will soon be subject to IHT has changed the backdrop of financial planning for some savers. From April 2027 they will form part of your estate for inheritance tax purposes, meaning that the funds could be taxed up to 40 per cent. Pension left to a spouse or civil partner, including from 2027, is exempt from IHT. Before, it was common financial sense to keep as much money in your pension pot as possible because it could be passed on entirely IHT-free. However, it's now more complicated. Morris said the change meant that many were deciding to gift their tax-free lump sum now to avoid any future IHT bill. He said: 'I've had clients take the view that they may as well give away the money. Many baby boomers had the dual benefit of a DB pension and eye-watering house price increases. 'This has kept the Bank of Mum and Dad as one of the main lenders to the younger generation, and with pensions soon to be subject to IHT, I've seen the trend of giving away the tax-free cash accelerate this year.' For Lay, the raft of changes and possible changes to pension and tax rules have made it tricky to plan. She said: 'You just don't know what's going to happen do you? You have the cash Isa limit potentially being reduced, there's been discussion over the 25 per cent tax-free lump sum, and then pensions will be subject to IHT. 'I'm not saying things shouldn't change, but it makes things tricky. I've been really planning my pension for the last five to six years and making sure I've got my ducks in a row. For them to start shooting at those ducks is really annoying.'
Yahoo
10-07-2025
- Business
- Yahoo
Social Security Cuts Could Cost You $138K: Here's How Much More You'll Need To Save
If Congress doesn't act soon, millions of Americans could see their Social Security benefits reduced within the next decade. According to the 2025 Trustees Report, the Old-Age and Survivors Insurance (OASI) Trust Fund will be able to pay 100% of total scheduled benefits until 2033, after which point benefits would be cut by 23%. Find Out: Read Next: If benefits are reduced, it will be up to the individual to make up the difference. A 23% cut would require $138,000 in additional savings to generate the same income, based on the widely accepted 4% retirement withdrawal rule, a new PensionBee analysis found. That's a steep ask, especially for those nearing retirement. But the earlier you start preparing, the more manageable it becomes. Here's how the additional $138,000 in required savings breaks down for workers who will be retiring after 2033. The PensionBee analysis broke down how much extra workers of all ages would need to set aside each month to save an additional $138,000 by the time they retire, assuming a retirement age of 67 and 5% investment returns: Age 25: $67/month Age 35: $121/month Age 45: $238/month Age 55: $701/month 'Those nearing retirement are in a worse position to offset cuts, but there are tangible ways to buffer the potential impact,' said Romi Savova, founder and CEO of PensionBee. Learn More: Savova recommended that Americans who are approaching retirement take advantage of catch-up contributions, which allow people ages 50 and over to contribute an extra $7,500 to their 401(k). Starting this year, Secure 2.0 also allows those ages 60 to 63 to make 'super catch-up' contributions of an additional $11,250. 'Some Americans may choose to delay retirement, which gives more time to save, pay down debt and allow investments to grow,' Savova said. 'You can also consider drawing from personal retirement savings first while delaying Social Security benefits, which increases your monthly payout by about 8% for each year you wait past full retirement age until the age of 70.' Whether you're 25 or 55, now is the time to take an active role in your retirement planning. 'If you're not already saving for your retirement, consider this your wake-up call,' Savova said. 'The longer your money is in the market, the less you'll need to contribute to make up for lost benefits, so it really makes sense to save as much — as early — as you can.' It's also important to monitor your retirement accounts regularly to ensure you are staying on track. You may need to make adjustments, such as contributing enough to get your full employer match or even contributing the maximum annual limit if possible. In addition, make sure you rollover your 401(k) account if you switch jobs. 'The system is complicated, and the average person will have 12 jobs in their lifetime, which can mean an equal number of scattered retirement accounts,' Savova said. 'It's your responsibility to ensure every account is tracked and invested wisely. Consolidating accounts into a central home, like an IRA, can make it easier to manage your savings and give you a clearer picture of your progress.' More From GOBankingRates Mark Cuban Warns of 'Red Rural Recession' -- 4 States That Could Get Hit Hard 6 Hybrid Vehicles To Stay Away From in Retirement 5 Types of Cars Retirees Should Stay Away From Buying This article originally appeared on Social Security Cuts Could Cost You $138K: Here's How Much More You'll Need To Save Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Telegraph
30-06-2025
- Business
- Telegraph
The countries where you can live abroad and still get the state pension
If you are thinking about relocating abroad on a permanent basis, you might assume you'll stop paying National Insurance contributions in the UK. You might then imagine that you'll need to pay 'social security' – or the equivalent – in your new country of residence. But what you might not realise is that there are a host of countries that have agreements with the UK in terms of National Insurance contributions. Under those 'social security agreements', there is the option to pay voluntary National Insurance contributions while living overseas which will count towards your state pension record back here in the UK. Adelle Greenwood, technical manager (tax) at the Institute of Chartered Accountants in England and Wales, said: 'Former UK residents who have moved abroad may wish to consider paying UK voluntary National Insurance contributions to secure future state pension and other benefits entitlement.' Here Telegraph Money takes a closer look at what's involved. National Insurance record and state pension Before we delve deeper into the possibility of making National Insurance contributions while abroad, it's worth reminding yourself of the state pension rules. Becky O'Connnor, director of public affairs at PensionBee, said: 'To get any state pension when you reach state pension age, you need 10 'qualifying years' on your National Insurance record.' However, if you have less than this, you may be able to use your overseas social security contributions to make up the 10 qualifying years. In other words, filling in the gaps in your National Insurance record could help you qualify for a UK state pension. Ms Greenwood said: 'With this in mind, you may want to review your National Insurance record to evaluate your contribution history and see if there are any gaps you wish to cover. 'Armed with this information, you can then make an informed decision about contributing while living outside the UK.' How does it work? The way in which living or working – or having lived or worked – in another country could affect your claim for the state pension depends on two key things: How many qualifying years you have in your National Insurance record; Which countries you have lived or worked in. In short, being able to use overseas National Insurance contributions is most likely if you have lived or worked in the European Economic Area (EEA), or Switzerland. But it's also possible in certain countries that have a 'social security agreement' with the UK – more on this below. Ms O'Connor said: 'If you work and contribute to the social security system in any of these countries, reciprocal arrangements mean that these years can be added to the qualifying years in your National Insurance record.' Understanding 'aggregation' It's worth getting to grips with the idea that while, in some countries, you may be able to 'aggregate' UK and local contributions for 'qualifying' purposes – this is not for the pension amount. In other words, where agreements are in place, years can be 'added', but the amount you get paid depends on the number of qualifying years in your UK record, not the years of work abroad. Ms Greenwood said: 'This means any contributions made in the other country will be taken into account when determining eligibility for state benefits – but not usually for the calculation of the amounts due.' Worked example The government website provides some examples of how this can work in practice. Say you have seven 'qualifying years' from the UK on your National Insurance record when you reach state pension age. But during your life, let's say you worked in an EEA country for 16 years, and paid contributions to that country's state pension. This will come into play. As a result of the time you worked abroad, you will meet the 'minimum qualifying years' to get the new state pension. That said, the amount of new state pension you actually get will only be based on the seven years of National Insurance contributions you made in the UK. Different rules apply to Canada, New Zealand and Australia Having got your head around this, it's important to note that for some countries, the rules are slightly different. Ms O'Connor said: 'The exception to this is, if you currently live in the UK, time spent living in Canada or New Zealand could be added to the qualifying years in your UK National Insurance record. Similarly, time spent living in Australia before April 5 2001 can also be added.' Be wary of other criteria Wherever you live, you will also have to meet other criteria. Whether or not you are eligible will be worked out by the Department for Work and Pensions (DWP) when you make a claim. Making voluntary contributions In order to pay voluntary Class 2 or Class 3 National Insurance contributions while abroad you must have either: Previously lived in the UK for three years in a row; Or paid contributions (or had Class 2 National Insurance treated as having been paid), for at least three years. The government website provides more information here. How to set yourself up If you are planning to pay National Insurance contributions while you are overseas, you may need to apply for a certificate called a CF83 confirming that you pay social security in the UK. Once you've sent the relevant paperwork to HMRC, you will be told whether you are eligible – and what class and rate you can pay. How will years get added? If you do meet the criteria – meaning years can be added to your record – you could be eligible for the state pension, provided you are over the 10-year threshold. As mentioned above, the actual amount you get paid will be calculated on the 'qualifying years' in your UK National Insurance record along with the time added on from the country you were living or working in. Note that you can only get paid up to the 'full rate' of the new state pension. Act with caution Before you proceed, you need to be aware that things can get a little complicated. Ms Greenwood said: 'Some people – in particular workers who have moved abroad for work purposes or who regularly work between the UK and another country – may still be liable to employee UK NIC on a mandatory basis.' Equally, there's also the possibility that a worker may now be liable to social security in the other country where they are living and working, instead of in the UK. Ms Greenwood added: 'This will depend on the country, and whether the individual's circumstances mean they come into the scope of any social security agreement in place.' Find out more here. Seek advice Matters to do with social security and National Insurance contributions can be complex – and especially for temporary non-residents. If you're not quite sure about the right approach for you, or if you have any questions, it may make sense to seek professional advice. A good starting point is the International Pension Centre. Remember, it won't increase the amount you get If you live or work in a country that has an agreement with the UK, you may be able to aggregate UK contributions and contributions you make in your 'new' country for qualification purposes. But this won't have an impact on the actual amount of pension you get. Don't assume you will get the annual uplift to the UK state pension Ms Greenwood said: 'Claimants should be aware that the annual uplift to the UK state pension does not apply if you are living in a country where there is no social security agreement with the UK – or where the provisions of the agreement do not protect the increase.' Think about the impact of moving abroad There's no escaping the fact that moving and working overseas can complicate your state pension entitlement. Ms O'Connor said: 'As a result, the payments you receive when you reach state pension age may be lower.' Moreover, if you then live overseas when you retire, this can also affect how much you receive. Ms O'Connor added: 'For anyone who lives and works abroad, this can have a noticeable impact on retirement income later on.' With this in mind, it's worth taking the time to make sure you understand the arrangements in the country you are moving to – and how these are likely to affect your retirement income.
The Independent
27-06-2025
- Business
- The Independent
5 pension mistakes you might be making now that will cost you later
Pensions can often be a topic that people don't think about much, or feel the importance to take time to research. Lisa Picardo, chief business officer for PensionBee in the UK – where they help customers to consolidate pensions, contribute and withdraw with ease – says that it is 'never too late to get on top of your pensions'. ' People do engage with their pensions at different points and for different reasons,' Picardo says. 'It's always a great idea to engage with your pension, because taking those proactive steps to consolidate and to engage now typically will lead to better retirement outcomes.' As the idea of pensions often go to the back burner of people's minds, there may be some common and simple mistakes being made that could effect their future. We spoke with pension and finance experts to explain what some of these may be. Losing track of your hard earned pension costs Picardo says people loosing track of their pension costs is 'really big' and 'surprisingly very common.' 'This is not just about forgetting where your money is or even losing it altogether, but it's about missing out on the opportunity to manage these savings effectively and achieve a better retirement outcome,' she says. 'The mistake that people make is that they essentially lose sight of their pensions because most of us are going to accumulate many pension pots over our careers due to the auto enrolment function here in the UK, which means that every time you start a new job, you get a new workplace pension. 'With more and more frequent job switching, people are going to amass a number of pensions over their lifetime. Our research shows that there are around 4.8 million pension pots that are now considered lost in the UK – that is one in 10 people who think they've lost a pot. 'Bringing all your pension pots together is therefore a great solution. It puts you in control of your financial future, helps to reduce the risk of forgotten or lost pots, helps to potentially cut down on fees and overall makes it easier for you to manage your savings.' Not taking advantage of employer contributions 'Under auto enrolment, if you're eligible and don't opt out, your employer contributes to your pension which is essentially free money, along with the tax relief you receive,' Claire Trott, head of advice at St. James's Place says. 'Many employers also offer 'matching,' where they'll increase their contributions if you do. Failing to take advantage of this is like turning down part of your salary, as there's usually no alternative benefit offered in exchange.' Not making the most of your contributions 'It is very easy to put pension saving on the back burner,' Picado says. 'Especially when you are faced with other pressing financial priorities. However, if you delay or don't contribute to your pension, it can significantly impact your pots' growth over time. 'Many people don't contribute enough or don't start early enough and therefore, they don't really have the benefit of compound growth which is sort of like magic. Even small increases can make a world of difference. 'Therefore to solve this, you should do what you can, when you can. Start contributing early. If you can't commit to it fully, do it flexibly. A lot of people take the opportunity when they're doing a tax return once a year to have a look at what additional contributions they could be making.' Trott adds: 'I often suggest when you get a pay rise, consider putting half into your pension, your take home pay still increases, and you're investing in your future.' Claiming higher or additional rate relief 'If you're a higher or additional rate taxpayer contributing to a personal pension, you may be entitled to extra tax relief but you won't receive it automatically,' Trott says. 'You can claim through your Self Assessment tax return or by contacting HMRC directly to adjust your tax code. For regular contributions, one call is often enough. Just remember to flag any one-off payments clearly so HMRC doesn't apply the change to future years in error.' 'What we see when markets are turbulent is a lot of people feel worried about savings and act impulsively,' Picado says. 'They may withdraw funds or switch investments during a downturn, thinking that it will minimise their loss or protect their money. However, this can put you in a position where you actually do more harm than good. 'What happens here is they are crystallising that loss and lose the ability to recover as the markets rebound. Similarly, withdrawing too much once you reach pension access age can be a mistake because you can run out of money in later life. 'Therefore, when you do come to withdraw, you have to make sure that you are future-proofing and not taking too much in one go. If you are in drawdown and there is market volatility, try to ensure that you have some cash reserves or an emergency fund handy so you can draw on that. This can really help to ride out market storms without having to either sell investments or take too much at the worst possible time. 'Pensions are long-term investments and are very much designed to weather the storm over the long term.'
