Deep Dive #11 Your big pensions questions answered

0:00Hello and welcome to the latest episode of the AJ Bell Money in Markets Deep Dive Podcast. I'm delighted to say I'm joined today by AJ Bell's head of public policy Rachel Wohey and our head of technical, Charlene Young to talk all about pensions. Hello both, hope you're doing okay. Hello Tom, yeah, very well, hope you're watching. Yeah, good thank you. Hi guys, I'm doing alright. I'm a little bit croaky so apologies, apologies to anyone listening. Yeah, we'll get through it. 100% yeah, absolutely. Now this is a special edition of the pods and we're going to be asking all your nagging questions about pensions and we couldn't have two better people on hand to help with that. We've got plenty to get through so I won't hang about. Let's kick off with a fairly fundamental question. So this question

1:00comes in from Lauren and she says, I've got so many demands on my money at the moment. Retirement feels a long way off so presumably Lauren is still potentially decades away from needing to use her pension. Is it really worth paying into a pension now? Charlene, do you want to take that one? Yes, I will. So thanks Lauren. I think this simple answer is that it really is worth it but you know that's not to say I'm not kind of hearing you when you say you've got competing demands on your cash. Do a completely appreciate that. So why am I saying it's really worth it? I suppose if you're employed in most cases you're already be saving into a pension thanks to auto enrollment. One thing to kind of pick out here as well as the money going in. So you might be thinking, oh, is it worth me kind of topping up my pension savings for example? If you've got a long time to retire and it sounds like you do from the question that can

2:02really kind of work in your favour because it gives your investments in that pension more time to hopefully grow and the beauty of a pension is it's a tax free repressor. Those investments in there can grow free of income tax or gains tax for example. And we talk about something called compound growth quite a lot in our articles and on phone podcasts but that really does account for a huge part of the end value of your pension pot for example when you reach retirement. So if you can really harness the power of that growth even if at the moment you might not be able to pay in any more that can be really powerful. And I think it was the pensions commission I'm sure Rachel correct me if I'm wrong but they they mentioned that investment growth this compound growth can actually account for around 60% of the final value of the pot by retirement. So yes that's kind of you know even if paying in more

3:05or topping up right now or isn't quite an option for you. You know hopefully that kind of gives you a bit of an indication of how powerful the rapper is for the investments and I did mention auto and rum before and under that your employer must pay in at least 3% of something called qualifying earnings. Now many employers actually do more than they still go above and beyond. So you know it's well worth kind of first point checking what they're paying in and you might be surprised they might be paying in more. If you stop saving which I really really would urge you not to if you can at all avoid it you wouldn't get that employer contribution back as pay in another way so it could be lost. So it's another kind of really valuable part of saving into a pension if you are employed. And you know I think we would hear this quite a bit and this question is like is it worth it? We've been seeing it pop up following last

4:05year's budget for example and changes to something called salary sacrifice. I think you know changes and whether it's rumours or real changes or tinkering like this doesn't doesn't really help that message but I think what I'd say is that the pensions do and will still come with really really valuable kind of tax incentives and something called tax relief or bonus top off if you'd rather think about it like that on what you pay in personally. The changes to salary sacrifice will have a bit of an impact for people but the kind of the real burden of that will actually fall on employers it's not to say it won't affect some people but you know in the grand scheme of things compared to the the income tax really if you get on what you pay in you know that is still going to remain really really valuable. Those incentives are there because the government wants people to save into that pension and have some provision for retirement. I mean one thing you could do again even you know if paying in more right now

5:09isn't an option I don't want to dismiss that maybe give your pension like a quick what we might call an MOT Rachel and I've talked about it like show your pension some love before and you know just look at where your contributions are being invested and what fund is are they going into so if it's if it's the default fund that's a catch all so it makes sure that you're getting invested and hopefully getting some of that you know compound growth I talked about but excuse me it's not designed for you it's not designed for potentially people your age or your circumstances it's a catch all for everybody so your colleague who sit next to you might have very different circumstances to you so there might be another option that's better suited to you particularly if you've got decades to run to retirement and I think just knowing what you've got and where it's where money is being invested puts you in in the driving seat if you're more engaged you're showing your pension some love right you're more likely to keep track of your savings especially if you change job and just make sure that

6:11they're working working hard forget I mean Rachel I don't know if you've got anything else to add in I mean we talk about about the impact of kind of tinkering and rumors and it does play into questions like this doesn't it does Shalein it's really difficult because we hear so much speculation in the press and every newspaper or news outlet loves a negative pension headline and sometimes it can really grind you down but you've just got to think that you've just got to remember that general rule of thumb that pension saving is a it's a good thing and if you can continue with it that's the best thing so even if you can't at the moment afford to increase your contributions just continuing where you are if you can if you can afford to do so and obviously you've got to be able to eat and eat the house and all the rest of it but if you can afford to carry on where you are then think about it very strongly your employer pays well if you're employed will probably play into

7:16your pension scheme but they can't give you that money in a different way they can't give you extra bonus or extra salary so you would lose it you just lose that financial contribution that's part of your remuneration package so it might not be hard cash in your in your purse or your wallet but it's still part of what you have worked to to earn and that's your that's part of your wage so yeah get into these habits early on keep plowing along with it keep the faith and you're doing the right thing and it's it's easier I think if you get into these habits at a younger age yeah I think those are really good points and I think that was that was a good comprehensive answer because you know it really speaks to the fundamentals of of kind of retirement investing for your retirement and the importance of pensions right the next question we've got is from somebody at a very different end of the age spectrum and so this is Paul he's 67 retired and he says he's trying to get his head around the best

8:18way to use his SIP or self-invested personal pension before the inheritance tax changes come in from 2027 he's asking if he'd have more flexibility if his money was in a stocks and shares I say instead he also says he knows that he can take 25% of his SIP tax-free with the rest taxed as income and he doesn't need the money to live on right now so he could take that amount gradually say 20,000 a year through draw down and put it into his stocks and shares I say now it's a lot more involved than the previous question so it might be worth kind of splitting it into different bits but Rachel could you could you take that one on yeah you're right Tom it's quite a quite a packed question on but thanks Paul for sending it in should we start with the inheritance tax bit and then just explain the rules there so there's a big change to pensions which is happening from April next year at the moment your pension wealth any

9:19pension funds you've got when you die aren't included in inheritance tax calculations so that outside the estate but when we get through to April if you die after the 6th of April 2027 then any unused pension funds are going to be included within your estate when your executors come to work out what if any inheritance taxes do so what do I mean by unused pensions well it's mostly not exclusively but mostly going to be covered by any pensions that you've not yet touched so something pension that you haven't yet accessed or maybe you haven't used up all your pension you haven't what we call crystallized all your pension so it could be that amount of money as well also if you've taken some tax free cash and then move the rest to draw down because you want to take your money gradually from draw down then the unused draw down

10:24funds any draw down funds you've got leftover they also will fall into the estate for inheritance tax so it's a big change now before everyone really panics about this the government reckons it isn't going to affect that many people but for some people it undoubtedly will make a change so for some people they might find that they're paying more tax more inheritance tax or it could be oh sorry there is status pay more inheritance tax or it could be that adding those pension funds into the value of the estate tips over the allowances and means that inheritance tax is going to now be due so first of all is to work out what your position is but if you think that's the case it's going to affect you then it's the case of looking then about what you want to do now your pension fund is there to give you an income in retirement so I think the first thing I would say is probably make sure that you've always got enough money in your pension to do that to make sure that you've got enough

11:26income or within all your assets and your different investments to make sure you've got enough to live on but if you have what we're going to call excess savings then if you've got more money than you think you need in your pension because you've looked at it previously and you've stored up quite a lot of money in your pension because it was going to be exempt from IHT and therefore you built up a really substantial pension fund far more than you actually need then these people might be thinking well what should I do with that and I think really it boils down to two choices you can either spend it or you can gift it now if you're going to spend it you can spend it on spend it on that holiday spend it on repairing the house buy a new car whatever it happens to be but you have that power so then to take that money and to spend it how you want in your lifetime if that's what really appeals to you and you really don't want your estate to pay anymore in inheritance tax or alternatively you can gift it to others if you are going to take the money out to do either of those

12:33things then remember that 25% of it is tax-free and the rest is taxed as income as Paul quite rightly pointed out you need to think about how much money you're taking out of the pension because obviously the more money you take out the more tax you will pay the more income tax you will pay and you might think well I just grab all my money and just try and get it out of the pension but if you're only going to take your money out and say you take your tax free cash amount out and you just leave in a bank account or even if you take your money out of the pension to put it into an ISO if inheritance tax is your main driver if mitigating or reducing the amount of inheritance tax you you want your estate to pay if that's your main driver you're not really achieving much because you bank account is going to be included in your estate and your ISOs are going to be included in your estate so if you're not able to get the money out of your estate so if you're not going to spend it and you're not going to gift it it's

13:37not an awful lot of difference between having it in a pension or an ISO the only thing I would say is that if you leave it within a pension then you can pensions offer really good flexibility on how will you take your income there are ways means you don't have to take a regular income you can take it whenever however much you want you just take some of it and you have that full flexibility so you can look at your own tax position and work out what your thresholds are how much you're going to pay how much that's going to cost you and you can work out the best solution for you so pensions are as flexible as ISOs are so it's really just thinking about I think make sure you have enough money in your pension or in your ISOs to live off but if you want to absolutely avoid paying any more inheritance tax and it was just going to be passed down to the kids anyway you might want to think about gifting some more

14:37within your lifetime or as I said just book that holiday and maybe spend a little bit of money on yourself which stands for very appealing yeah I like that advice for sure and now I guess inheritance tax isn't or you know the changes to inheritance tax aren't the only changes coming with pensions and this next question from Sarah is on another change that we've got kind of coming down the roads which is the increase in the age of which you can access your pension so Sarah says she knows that that change is coming but she's asking that if she takes some money from her pension when she turns 55 and that's before the 6th of April 2028s when when the age is is going to go up or the minimum age is going to go up to 57 will she still be able to take more later or will she have the weight and but this one again is is another big change coming into pensions so at the moment most people can start taking and can start accessing a pension from the age of 55 and that's going up to 57

15:43in April 2028 and that's because the the state state pension is going up from 66 to 67 over the next two years so what we're doing is that the government's just making sure the minimum pension age also goes up at the same rate but the change is going to affect different people in different ways so let me just boil this down a bit if you were born before April 1971 it's not going to affect you at all because you're going to turn 57 before April 2028 at the other end of the spectrum if you were born after April 1973 then you're just going to have to wait until 57 until you access your pension but you want to reach 55 by April 2028 which is the reason why so you're just going to have to wait another couple of years so it's worth thinking about if you wanted to be a really early retiree then it's worth

16:44thinking about how that does affect you but it's the people in the middle with these people born between April 71 and April 73 and they fall into a special category now it could be they they just need to think this through but it could be that some people have access them money at age 55 when it the clock turned over at 55 before April 2028 and that's absolutely fine but they could have some money which they haven't access and pension money that they haven't accessed now for those people even if they've taken part of a pension pot but they haven't taken the other part so they've taken I don't know 50% of it but they haven't taken the other 50% they just have to wait until the age 57 before they can't do that now that just means adjusting plans being recognising it thinking it through but there's just one other little thing I'd like to mention is that some people get I've taken out a regular

17:48plan that will move some money and access a little slice of your pension pot a little slice of your pension pot every whatever month or every year and it moves it over so you're taking a regular payment on that basis now it doesn't matter if you've entered into that contract or not you're just going to have to put a halt to it and wait until you're after 57 before you can take the rest of the money and if it is going to affect you just think about it think about your plans and do can you get money from somewhere else in the mean time it's a pause but it's not going to be a long pause it's going to be maximum two year pause so is there should take a bigger chunk of money before April 2028 and that might be worth thinking about but with all these things there are consequences and so just work those through when you're thinking about this change yeah I think like I decadent that I think you know in terms of can you take any more it comes

18:49down to what you haven't accessed yet like Rachel said so what we call uncrystallised funds that I'm like me to use the jargon bell but I will forgive me and then what we call crystallised or draw down funds so you'll be able to take I think anything you will be able to take income from those draw down funds that are already in place but yeah you wouldn't be able to access any uncrystallised funds in that interim I think the one kind of you know we know why it's happening it's taken the taking it seriously an awful long time to get the kind of mechanics of exhausted for people like Sarah and the thing that kind of worries me about the way the rules are written for a very small number of people you know like human nature I'm just I'm slightly worried that people might crystallise or access more than they would have in this interim you know in this period before um for fear of missing out we all

19:50hate firmer right and I think that's the only the kind of real concern I have about it but yeah in terms of what you can't and can't do it just comes down to like what mix you have in your pension before the rule changed um and then yeah what you might have to weigh until age 57 to do. Rachel you touched on the state pension there and the next question sort of is somewhat related to that so it's a question from Mike and he's asking about um the fact that he thought you needed 35 years of national insurance contributions to get the full new state pension but he's heard of examples where people have more than 35 years but still don't get that full amount. Sharlene can you explain how that might happen? Yeah um okay Ryan I get asked variation of this one quite often so hopefully um I can answer it um for Mike it's most likely down to the interaction between the kind of old state pension system

20:51and the current one or or the new state pension that is uh over 10 years old now so anyone reaching state pension age on or after the 6th rate pool 2016 falls under the new single tier or flat rate system so yep here we say that you need 35 full qualifying years of national insurance contributions on your record or or credits um in other cases to get this and that stands at just over 240 pounds a week in the current texture for its full rate but as most people reaching even state pension age now and for a good few years and certainly in the early years of the new system would have built up their national insurance record under the kind of old rules um they might not actually receive the full flat rate in some cases and actually in some cases some people get even more even though they're retiring under the new system so um

21:53just trying to think how I might explain this so the the old state pension had a basic state pension and that was based on your national insurance contribution record it was slightly different in terms of the number of years you use it and actually between men and women for a time there were also an additional earnings element to the state pension so this part had various different names over time serves is probably the most common um but you might have referred to as S2P or the second state pension as well now if you were contracted out um I can't avoid using that term to explain this answer I'm afraid so another piece of a jargon from me um if you were contracted out of this additional state pension not the basic the additional part you and your employer were either paying national insurance contributions that are lower rate or some of your contributions were being used to contribute to a pop

22:53instead of that additional state pension for those years so although contracting out it was completely abolished in 2016 has the new pension system is coming in millions of employees would have been members of contracted ITSK's at some point in their lives before then so particularly if you were in a kind of final salary or career average scheme certainly in the public sector um actually I had to pick out the start the other day so I'm just gonna yeah so the government estimates it's three quarters of people reaching state pensioners between the new system coming in for 20 years would have would have been affected in some way so it is massive when you think about it um so we talk about this full headline rate of the new state pension but in reality actually not everyone you know hot I wouldn't say hardly anyone but lots of people don't get that they might get more or less so even though um these people in this boat with the 35 years they might be seeing a deduction for the time they were contracted out

23:56they would have been paying low enough for insurance contributions for that time and in most cases should have built up kind of additional pension benefits elsewhere and kind of in lieu of this additional state pension that they'd given up so I think there's again we talked about phoamer in the last question there's there's often you know people going well I'm you know I've got this 35 years um or more but I don't have the fore why am I missing out I'm being kind of hard done by but in most cases you'll have built up additional pension elsewhere so when you're kind of final salary schemes um for certain years you might see this referred to as something called GMP or guaranteed minimum pension um other people might have seen it built up in in a part so um by all means of course yeah if you're concerned about this or you've got friends that consider about this I'd encourage everyone to check their record I know um obviously there's been a lot in the press about he's not always being like fully correct but again it's kind of like knowledge is power right so just knowing what your

24:56record says and then if you have a dispute get that raised in good time or if you can see years where you think you were entitled to a credit for national insurance contributions for example caring responsibilities things or that make sure that is all fully affected on your record so um just in terms of like how it affects your record when when you get or your approaching state pension age there'll be a calculation to kind of compare um your record under the new scheme versus the time you were in under the old rules and there's a comparison that's done to make sure that you don't kind of lose out under either system and that is where I mentioned some people get more than the full rate state pension if you were contracted in to this additional state pension and you built up quite a decent amount under those rules um you might get more than the full flat rate and your excess amount is known as a protected payment so if you see protected in my or protected in payment that's what that relates to

25:56but yes most many many people would have been contracted at at some point and for you know another sort of nine years nine to ten years at least it's probably going to impact peoples peoples records and their state pension so um some people because they have continued to work past 2016 under the new system will build up full qualifying years and sometimes it might cancel very small periods of being contracted out but again you know we see a lot of people say oh well you can top up your state pension and yes you can but in some cases that isn't going to get you still to the full amount because of that time you've been contracted out so it's very much a case by case basis and I know it's something Rachel's talked about in the past you know it's not an automatic default thing that you should do a voluntary national insurance contribution to top of your record in some cases it definitely will work out for you but not in every once so again that's kind of just a word of caution maybe have a look at your record and think about how this

27:02might impact you really helpful thanks shelly like like a lot of things with pensions that's quite complex isn't it but I think um you know that's really helpful for people to sort of thank you sorry no no no no I think there's no point to trust for people no you did a really good job of it I think it's just just shows you doesn't it that there's a lot to navigate and like you said knowledge is power so it obviously helps to have the answers and the next question we've got is from James and should give James a little congrats he's recently started earning enough to fall into the additional rate tax band and so obviously good news for him but he's paying into a sip alongside his workplace pensions so I mean you know again kind of duff with a cap for that because obviously you know he's he's really getting well nice real time but he wants to know does he get all of the pension tax relief he's entitled to automatically or does he have to do anything to to get all of it right yes um Rachel you okay if I just take this one the star would be delighted if you took this one

28:04time sorry I'm the state pension woman was great as well thanks for doing that I know I do this to myself and so James yes girl star as Tom mentioned there so it this comes down to what type of scheme you're in and how it operates for tax relief so in the sip will be clear on that we'll know what type it is it depends about your workplace pension so there's kind of two ways schemes can be set up to claim tax relief on personal contributions so what we pay in as as members all employees under something called net pay your contribution would be taken from your pay before income tax is calculated and deducted so pension contributions are kind of exempt or free from income tax ultimately and there's two ways that can happen so confusingly under the net

29:05pay arrangement your pension contributions actually taken from your kind of like roast income before income tax so if that is your workplace pension scheme check with your provider or your employer if that's the case or you can actually look on your pay slip and if you can see that that contribution has been taken before income tax you'll be getting the tax relief you are due as an additional rate tax payer correctly because it's coming off before any income tax so that should be fine whereas in the other method which is known as relief at source which you'll sit warm is certainly be operating under a pension member pays their contribution from the kind of take home pay so if you were doing this through your pay slip you would see a lower contribution come off but from your kind of post tax pay and then as you'll know from when you've paid into a sip the pension provider reclaims some tax relief back from HMRC so basic rate 20%

30:12and that's automatically added into the scheme so in terms of what is in the pop you end up in largely the same place but anybody who pays more than kind of basic rate 20% tax so that is someone like James additional rate tax payer I think you mentioned so 45% in the rest of the UK are 40% higher rate tax payer in the rest of the UK and some of the Scottish rates and bans which are different so anything if your headline rate on your earnings is above 20% if you're paying into a relief at source scheme like a sip you will need to reclaim the extra tax relief you'll do and don't forget to do this because it could be like thousands of pounds in some cases so there's there's two ways to do this science to me like James I'm not entirely sure but if James does complete self assessment tax returns then you can do it using that so it will either come the extra tax relief

31:14will not be paid into your pension it will come to you either as a refund or an adjustment to your tax code or off your your self assessment but if there's other things to settle so that's how you'll get that back for anybody who doesn't complete self assessment you don't necessarily have to do that just to get this extra pension tax relief back HMRC has a way you can come directly do it online you can also I think still write to them but I'll be take quite a long time so there is an online system and you need a government gateway login to do it and you'll need some evidence from your relief at source pension scheme of what you've paid in and what you're trying to claim so it's important you need that that evidence now likely from your provider so if you log into that system and you've got a government gateway login already have a look if not get one set up so you can see what you'll need so they did and HMRC did come down on on the kind of evidence requirement last year I think because they were getting lots and lots

32:17of adaptations for tax refritches great because then it means people are kind of engaged in trying to find out what they do but some of them weren't either complete or correct or they weren't actually in one of these relief at source scheme so do you need some evidence you need that log it but yeah once you've logged that and it's online it's there and you can kind of track it through so again it depends how you might get that extra tax relief but yeah please please anyone who is paying sort of extra savings or if you're self employed and you're paying into a sip and you're in any of those tax plans higher than that 20% please please check if you can make a claim and please do so yeah very solid advice that the next question is about pensions dashboards so iat is asking what are they are they actually happening which for people I guess you follow pensions more closely is it's probably quite an important question and what will people be able to see on them

33:24Rachel do you want to pick that one up? Yeah well first of all congratulations to iat for actually spotting that they're going to happen this this has been a long long time coming I've worked in pensions for I don't know if I want to disclose how long I've worked I think it's coming up for about 34 35 years and certainly for the last 20 25 years this whole concept has been discussed so but we've never ever seen it so let me just run wild a little bit what's a pension dashboard pension dashboard is going to show you all of your pensions in one place so it's going to list all of your private pensions whether that's with a workplace provider with your employer's pension scheme or whether it's your sip or whether it's that little pension you took out back in 1999 and you have completely forgotten about it it will show that as well so it's going to

34:25put all the pensions in one place on one screen it's also going to show your state pension as well so going back to just what Charley was saying a moment or two ago it will give you a forecast of what your state pension is going to be so what it's going to show you with all these pensions it's going to list where you have your pension schemes now some of them it's going to list where you can get hold of more details about your pension schemes as well so that's a really important point is you can have contact details there and these providers are going to have to have a phone line set up because they're going to get a lot of calls when this dashboard goes live saying oh you have my pension I never knew about that I got married 20 years ago I need to change my surname how do I do that how do I do this blah blah blah um so you're going to be able to see all of these pension schemes so it's going to give you the details the contact details if it's a pension that works off a fund value you know this is and again I apologize for all the the jargon and this jargon

35:29ball is doing some serious work but if it's a defined contribution scheme which means you build a pension pot also known as money purchase confusingly but if it's one of those then you have a pot of money so it will show you the value of that pot of money as well but for all pensions it will show you what income you're going to get so it will tell you what the forecast income is from all of these pension schemes and importantly when that kicks in some pension schemes will have a if it's a workplace pension then it will have a set retirement date when you you know you retire from your job at age 66 or 67 the same as a state pension age and then your your income kicks in or it could kick in earlier at 60 for some people have been working for quite long time or it could be like a sip where you have chosen the age that you're going to take the money so for all of those it will show you when the income kicks in so you're able to look at it and go well actually at age

36:3167 this is what income I'm going to have from all these different various schemes and it gives you on that power to know what you have and when it where it is now as I said this has been a long long time coming it's been tested it's been absolutely tested and the that's good news that's good news last thing we want this to happen is that the pension dashboard to fall over or when people get it or for people not to understand what it says or for them just to go this is low to rubbish I'm turning off we really really don't need that so it's important that it is tested so that's happening at the moment and they're sending it out to various people got people doing test runs of it and interestingly enough that's something I'm planning to do this afternoon because I think I might have a spare hour this afternoon and I've been asked to test it so I'm quite curious as I've seen it but it's always better to see it for yourself so I'm quite interested in that it's going

37:35to be launched we don't yet know but we think it's going to be our best bet it's going to be in 2027 and I would probably say about June, July, August, September so it's all like some rush in 2027 so it's really not that long to come so I think it's fabulous I think it's a really big important step forward I'm a real big fan you can tell and the enthusiastic about this but it is not the panacea okay it gives you information it tells you what pensions you've got most of the time some of them some of them might be at what they call a match so they might write to you and say oh Rachel we think you have a pension here and then I will realise that I have never updated them about getting married or changing my address or something like that and therefore they're not entirely sure it's me but I can solve that by getting in touch with a provider so you will get all this information about all your pensions where they are how much the worth what possible income they could give you but then

38:41what do you do with that information now that's the big pension dashboard doesn't really cover it's then up to you to decide what to do the important thing to say is these income estimates you're getting are estimates it's one of those things that that you can almost guarantee that the figure that you're going to get is not the figure that's written down but it's going to be somewhere in that ballpark it's only an estimate it won't take account of any taxary cash you're taking so if you want to take taxary cash from your pensions and most people do it may mean that you're going to get a lower income so think about that but it does give you a starting point and it's a really valuable starting point you are able then to say I'm going to get this income through is this really what I want do I want more and if you do want more then you can start investigating how to get more and there will be loads and there's already loads and loads of ways that you can go pension contribution tools out there just google them and you can say right I want to put in extra

39:47money but the difference now is that you're not guessing at how much you're starting from you have a much better idea of how much you're starting from you can take those figures plug them into other tools and then you can work out what you are going to do next so again we're going to come back to this I think this might be the title of the podcast even if information is power you're going to have a really good starting point and it'll give you this information and for that that's why I'm a fan of it I think it will work it'll be easy to understand I've seen it it looks great it looks brilliant you can figure out what it's telling you so it's going to be good I like is actually happening like like you it's kind of being talked about for a while and I've probably been a bit guilty of like rolling my eyes slightly going as ever going to happen obviously we saw kind of some of the the legislative work paused or the regulate for a time a few years ago so it's brilliant I agree that it's actually happening and I think that you say it's going to give you

40:51an income figure that it's slightly frustrating of course that the rules mean that what you might see on like your statement that it could be different or what you might kind of work out yourself but it still get really helpful and I think I hope in my kind of ever the optimist way despite having rode my eyes earlier and that it might help address some people's fears about whether they have enough because we see a lot of big numbers banded around you know with the retirement living standards for example and they're looking at what pot you might need but actually having this income figure again is another way to be helpful because we talk about pots but the pensions are really supposed to pay us an income and there are still some that stupid you are defined income but yeah I think it's like you say it's still good to do your own number crunching but hopefully this is kind of gets over that first kind of hurdle or mental barrier so yeah let's let's help people kind of take action that you say and and get on board you know

41:54so the one thing you know the the living standards all those things incredibly useful don't give me wrong I've had a lot of time talking about them as people do and but I do have this worry sometimes that the headline figures can put people off so anything to get people a bit more engaged yes not everyone might be as quite as excited as Rachel or myself a bit bigger yeah can only be a good thing I think that's the ultimate line with it it's not a panacea it's not going to solve all your pension problems but it is going to give you a lot more information than you currently have and that at the end that's the best thing about it absolutely absolutely right we're on to well nearly to our final question I mean it's kind of I guess you know we've been talking a bit about people kind of at either ends of this fetch from in terms of pensions or where they're out with it but this is somebody asking about when you hit age 75 which they they kind of so this is Paul and he asks you know the age 75 seems to be an important point for pensions why is that and and what should

43:00they be aware of as they get closer to it shall in do you want to take that one on it is the fronting 175 because it it's always been like that kind of landmark kind of age in pensions but I think and we haven't written about this before but when the lifetime allowance was abolished a couple of years ago two and a half years ago and I think some people just thought that actually that age 75 doesn't doesn't matter anymore because they used to be a kind of checkpoint if you like when you reach 75 and and some people had like a a tax charge that they might have had to pay if they still had plenty in their pension that they either not access to or crystalises we talked about or they had access but not actually like really sped in if you like and but 75 does kind of still matter and three I think main places that comes to play so I'll run through them very quickly

44:00so actually one we've already talked about on the show tax relief so age 75 matters for tax relief if you're a UK resident you'll get income tax relief on your own pension contributions as we talk about effectively makes an income tax free however that the ability to get that on your own contributions stops as soon as you turn age 75 and I think sometimes people kind of forget that so yeah that's where 75 comes in if you're still kind of working past your 75th birthday or employer in theory can still pay into your pension if you have one and they'll get tax relief there's obviously separate rules kind of about make you sure that's for the political the privacy of the trade but yeah and in terms of what you are paying into your pension age 75 a real hard stop point there um again on kind of tax benefits of pensions tax fee cash something else we've talked about so there isn't a hard and fast rule that you have to take your tax fee cash before you reach 75 and some I have been asked that a couple of times recently some providers might

45:04still have like a really old restriction in their rules but there's no kind of pensions rule but if we think about how death benefits are treated there is they 75 still matters of that that's kind of my third point perhaps I should have covered that second really but yeah you don't have to take your tax fee cash before 85 but we do see people consider taking anything that they might still have in their plan so perhaps they haven't access their pension or crystalize a tool or they've accessed parts of it and some of it is in drawn and they've still got some untouched uncrystallized funds and the reason people might do that is because if you died after age 75 and you've still got or you still had tax fee cash entitlement in your plan that kind of disappears so yeah some people think about taking taking that out for that reason and what is this this age 75 cliffhose death benefits so if a pension holder dies before age 75 money in their pension can usually be

46:09passed on tax-free so as long as that kind of transfer happens within two years to your beneficiary at the moment if you die on or after age 75 your beneficiaries will pay income tax at their own rates as when they withdraw money from funds that they benefit from or inherit from you and so that income tax charge applies whether your pension is passed to like your spice or civil partner or or any other type of beneficiary so that is like kind of at age 75 hard and fast rule and obviously when we see pensions included in the states the inheritance tax purposes for a make for next year there will be a spire as an exemption on that I think that's really important to point out still so if I left my pension funds to my husband he could inherit this free of i.t but anyone who passed away after age 75 there could be income tax there so you know if you're talking about a kind of non-exempt beneficiary and income tax that's where we

47:10talk about some of those high potential rates there so yeah three kind of main things tax-free fit stops there's still a bit of a cliff edge when it comes to income tax on pensioners desk benefits and then that that follows through to that kind of tax question so hopefully that sounds like that question ifable yeah 100% it has right finally before we wrap up and we've covered a lot of ground today I thought it might be worth telling the tables slightly so Rachel and Charlie is there a question which you don't often get asked about on pensions but you think is something that people should be kind of interested in or are asking about and Rachel why don't we start with you or not well I'm actually going to go completely off script here Tom so I don't know if I am the best person to start with but I'm going to address instead of saying is there a question that I get asked don't get asked I'm going to address the question I get asked the most and the most I get asked five people who I don't work with I don't come into connection with work I come into connection with them down the pub then just friends and things like that

48:14and people say to me what should I do about my pensions and I love that it's such an open-ended question isn't it what should I do about my pensions you'll fund and the public or I try to avoid I like it yeah yeah um that's the problem isn't it's if you you you get to my age you know a little bit about pensions you're a valuable person does me more drinks though so let's just take the advantages um but it's it's a really broad question but I think it just brings together all the themes that we've we've discussed today um and I think it really boils down to what Charlene started with actually is that you just got to show your pensions some are love and at the moment we're going through the um pay your pensions some attention campaign which is a national campaign which is run every September and I think it's really apt that we bring that in for this it is get to know your pensions show it some love understand it find out where it is we've got the dashboard's coming but up to then you're going to do maybe do a bit of legwork but you can do that

49:19go back through figure out which pensions you set up when make sure that you've told them that you've changed your address or your email address or something like that make sure you're getting your statements in find out how much they're worth look at the illustrations you get an illustration every year an illustration shows you what sort of estimate of income you're going to get so have a look at that you've got all of that information it just means you maybe having to put it all together figure out how much you're paying into it figure out how much your employer puts in and go back to can your employer will your employer up that contribution so if you pay an extra one percent will your employer pay an extra one percent can you do that is it going to give you enough money to live off are you happy with that figure and can you pay more and I think it's really a case of just being very very brave here and just peeling back the layers have a look at the charges on your pension now that sounds scary but most pension providers will give that within a statement or

50:24you can go look on the websites and it should be easy to find it's certainly easy to find for AJ Bell I know that's done that for personal reasons and look at the investment as well look at where that it is being invested and decide if that's what you want look at what return you've got go and look at the what else the scheme offers because even if it's a workplace pension and it doesn't offer this wide variety of investments that a SIP does it still has to offer something else apart from a default fund so have a look at that and see if that's getting a better return if you employer doesn't pay into your pension so just be careful that employer doesn't isn't can at the moment actively paying into your pension but if he doesn't it's just a pension you set up years ago or had an old employer pay into you could also move it or transfer it I'll put it somewhere where you're thinking and again lower charges or better investment or better informational support but if you do that tread carefully because you've got to make sure that

51:29you're not going to give up valuable benefits there's always an effin of but but if it's a case of I mean I personally I really hate paperwork I absolutely can't stand doing the health old administration and I know this is scary but I think honestly think that if you show your pensions and some TLC some love and attention then it's gonna it's gonna pay you back it's gonna be a good thing for you and sometimes you just have to sort of like face up to these things so hopefully that's sort of like wrapped up a lot of the the questions that I get but gives you some pointers on how to start to do that as well yeah I like that message for sure Shari if you got something that perhaps sticking to the the idea of stuff that people don't ask you so much and it's not going to be really as on message probably as as Rachel's but I wish people kind of asked me a bit more about why they should do a pension nomination so by this I mean I'm

52:30ending on a real high here talking about that right but yeah it's so important right so anyone who's taken out a pension with us will know we we ask you for this when you apply and at other various points perhaps when you're accessing your your A.J. of our pension but and I think for me I mean it's a really important one anyway but it's gonna become even more important kind of as pension skip brought in into the value of the states and there is a bit of confusion here so your pension nomination is how you tell your pension provider who you'd like ultimately your your pension to go to who you'd like to be considered so you can nominate one person lots of people charities even you know it doesn't have to necessarily be a person and you can do that in different kind of proportions. Pensions like you're one A.J. Bell are held in discretionary trust so the the provider has like the kind of ultimate discretion on who gets it but

53:31it's is very rare that those nominations are followed and again it goes back to this information is power because your pension nominations up to date your pension provider has you know it's almost up to date wishes she's really important. Now come April 2027 pensions are a coming part of a state for I.H.T purposes but they will still not fall under your will and this is a potential area for that confusion so both of these things these documents these bits of information are crucially important and will become even more important when your loved ones are trying to administer a state and an a pension is potentially in there as well so please keep your will up to date please keep your pension nomination up to date but don't assume just because pensions are coming into inheritance tax your will will take care of it all we still need you to have an up to date nomination and I think I mean just just log in check it check it once a year maybe even more frequently and just check it with actual current wishes because you

54:34would be surprised the amount of nominations we see that that haven't been updated in the past 10 years and that's people you know who are sort of taking money from their pensions so you think they'd be quite engaged because that's how that's sort of getting paid nice so yeah um sorry to end on a rather sad but no but it's an important one and uh yeah that's my nag for everybody I'm not just the AJ bow one all of them and please please please for the sake of your loved ones and as someone who's who's gone through administering a state for the various family members who did have wills I couldn't have imagined trying to do it without one so please yeah please consider that as well yeah that's a really important point right it only remains for me to thank Charlene and Rachel very much for their extremely useful insights and also to all of you for listening and for your questions and we hope these answers kind of help with your own retirement planning and I think to Rachel's point is you know it can be a bit intimidating to do this admin but

55:39it really can pay off for you if you do and the weekly edition of the pod will be back later this week and until then goodbye this podcast is for educational purposes and the views expressed don't necessarily reflect those of AJ Bell the podcast isn't telling you if a certain investment is suitable or not the value of investments can change and you can lose money as well as make it it's also important to remember that how your tax will depend on your individual circumstances and rules can change the way an investment performed in the past may not be the same as how it behaves in the future if you want help go see a qualified financial advisor