Participating in a pensioner’s savings scheme is the best financial decision you can make to secure a stress-free life after retirement. Saving a decent amount of your earnings throughout your working life goes a long way to influence your standard of living after retirement. Besides helping secure your financial freedom in the future, pensions are more lucrative because of the tax relief benefit. So, if you were wondering whether pension saving is worth it or not, let The Family Money Team walk you through everything you need to know in this guide.
As Warren Buffet, CEO of Berkshire Hathaway, rightly puts it:
“Do not save what is left after spending, but spend what is left after saving.”
What Are the Types of Pensions?
There are three main types of pensions—State Pension, final salary pension, and defined contribution pension—that you can benefit from.
- State Pension
The State Pension is one of the best pension plans paid by the government to beneficiaries when they meet the threshold. You, therefore, first have to hit the State Pension age of 66 to qualify for the State Pension.
Also, it’s important to note that the pension age isn’t static, so it changes after some time depending on factors like State guidelines and life expectancy. According to a report in Age UK, the State Pension is expected to grow gradually and will hit 67 between 2026 and 2028. Furthermore, the age is expected to increase further to 68 by between 2037 and 2039.
Currently, full State Pension beneficiaries qualify for a £179.60 weekly payment. However, this amount rises year after year because of the triple lock effect. What is the triple lock effect? It’s an initiative by the government to increase State Pension value by 2.5% every year.
How much State Pension funds you have access to depends on your National Insurance contributions. So, if you want more, it would be best to establish good contributions to the National Insurance during your active working years.
Also, you need to contribute consistently to the National Insurance funds whether you’re an employee or you’re self-employed. You can make periodic voluntary payments if you have skipped some months due to illness or unemployment.
You need to contribute to the National Insurance for 35 years to qualify for the full State Pension.
2.Final Salary Pension
A final salary pension is a form of defined benefit pension. The final salary is a scheme that pays beneficiaries a fixed income after retirement. You qualify for the fixed income regardless of market performance.
The amount of money you can receive through the final salary pension depends on two things. Your salary and how long you’ve been contributing. If you want more at the end of your working life, it’s essential to have a high salary and contribute longer.
If your employer offers a workplace pension, you should join it as they will usually make contributions on your behalf in addition to any amount you contribute to the fund.
3.Defined Contribution Pension
The defined contribution pension is the most popular pension scheme today.
So, how does a defined contribution pension work? You build up a pension pot that will pay you a retirement income based on how much you and/or your employer contribute and how much this grows. In addition, your investment returns also have a stake in your pot value.
Many employers are embracing the defined contribution pension by contributing to the fund. Employees also contribute some amount from their monthly salary towards the fund.
What Are the Pension Rules?
Pension rules are set regulations that govern pension schemes. Therefore, you need to know and have them at your fingertips when planning to join a pension scheme7. Below is a quick rundown of pension rules.
Employers should automatically enrol their employees in the scheme when they’re 22 years old or more.
Pension beneficiaries should earn at least 10,000 annually.
Employers must contribute a minimum of 3% of the employee’s salary to the scheme on time.
Self-employed individuals are entitled to all pension tax relief benefits as employed.
Major companies are required to contribute more cash to the savings scheme than they pay out as dividends.
What Benefits Are Pensioners Entitled To?
Most senior benefits are cut across the board, while others are specific to age. Pensioners over 60, 70, or 80 enjoy different senior benefits depending on age requirements for eligibility.
Benefits for Pensioners Over 60
Below are the benefits for pensioners savings over 60 that you can qualify for once you hit the minimum required age.
State Pension Senior Benefits
Seniors born before or on April 1951 and April 1953 (women) are eligible for the basic State Pension of £134.25 weekly and an additional State Pension depending on the beneficiaries’ qualifying years
Full State Pension of £179.60 weekly
Pension credit
No National Insurance
Eye and Dental Care
You’re entitled to free NHS eye examinations and prescriptions and free NHS dental care and treatment. You only need to meet the minimum age qualifications.
Free and Discounted Transport Cost
Seniors over 60 qualify for a free bus pass. You’ll also have access to travel on ferries, trains, trams, tubes, and the Overground.
Winter Fuel Payment
Pensioners over 60 could get between £100 and £300 towards winter fuel, insulation and heating systems.
Military Benefits
These pension benefits are only available to armed forces veterans and their partners. They include war disablement pension, war widow or What Are the Pension Rules?
Pension rules are set regulations that govern pension schemes. Therefore, you need to know and have them at your fingertips when planning to join a pension scheme7. Below is a quick rundown of pension rules.
Employers should automatically enrol their employees in the scheme when they’re 22 years old or more.
Pension beneficiaries should earn at least 10,000 annually.
Employers must contribute a minimum of 3% of the employee’s salary to the scheme on time.
Self-employed individuals are entitled to all pension tax relief benefits as employed.
Major companies are required to contribute more cash to the savings scheme than they pay out as dividends.
What Benefits Are Pensioners Entitled To?
Most senior benefits are cut across the board, while others are specific to age. Pensioners over 60, 70, or 80 enjoy different senior benefits depending on age requirements for eligibility.
Benefits for Pensioners Over 60
Below are the benefits for pensioners savings over 60 that you can qualify for once you hit the minimum required age.
State Pension Senior Benefits
Seniors born before or on April 1951 and April 1953 (women) are eligible for the basic State Pension of £134.25 weekly and an additional State Pension depending on the beneficiaries’ qualifying years
Full State Pension of £179.60 weekly
Pension credit
No National Insurance
Eye and Dental Care
You’re entitled to free NHS eye examinations and prescriptions and free NHS dental care and treatment. You only need to meet the minimum age qualifications.
Free and Discounted Transport Cost
Seniors over 60 qualify for a free bus pass. You’ll also have access to travel on ferries, trains, trams, tubes, and the Overground.
Winter Fuel Payment
Pensioners over 60 could get between £100 and £300 towards winter fuel, insulation and heating systems.
Military Benefits
These pension benefits are only available to armed forces veterans and their partners. They include war disablement pension, war widow or widower’s pension, and medical costs.
Benefits for Pensioners Over 70
The over 70 pensioners are meant for seniors aged 70 and over. Below is the quick rundown of the pensioners’ savings over 70.
Pension credit
Cold weather payment
Winter fuel payment
Free television license
Disability living allowance
Personal independence payment
Free dental care
Hospital travel facilitation
Carer’s allowance
Free travel
Attendance allowance
Bereavement support
Free eye examination and prescription
If you’re over 75, the BBC has announced that from 2020 you’ll need to be claiming pension credit to get a free TV license. You have nothing to lose by applying but potentially a lot to gain, and even if you’ve previously been turned down.
Benefits for Pensioners Over 80
The over 80 pensioners are individuals aged 80 or more with no full State Pension. Those getting State Pension can also claim pensioners’ savings over 80. In addition, one needs to be living in England, Wales or Scotland for a minimum of 10 years.
The benefits for pensioners over 80 include;
Weekly payment of £80.45
Carer’s allowance
Pension credits
Free eye and dental care
Christmas bonus
Attendance allowance
Winter fuel payment
Cold weather payment
Disability living allowance
Personal independence payment
Bereavement support payment
Free Television
Free travel
What Is a Pension Credit?
Pension credit is the government’s effort to give seniors additional financial support to help with the cost of living. To qualify for the pension credit, one needs to earn a low income and be over State Pension age. Pension credit is not the same as the State Pension, so you shouldn’t confuse them.
You can get pension credit if you’re a carer, disabled, or have a child depending on you for financial support. You can get pension credit even when you have other sources of income.
Pension credit is a complete package comprising two parts — guaranteed and savings credit — and comes with the following additional benefits.
Housing costs for renters
Support for mortgage interest if you own the property.
Council tax reduction
Free TV licence for seniors over 75
NHS dental treatment and eye care
Heating cost facilitation during winter
What Is a Guaranteed Pension Credit?
Guaranteed pension credit is a part of the pension credit scheme and is only available to individuals who’ve reached State Pension age on or before April 2016. The Guaranteed pension credit helps increase your weekly income to £177.10 and £270.30 if you’re single or married, respectively.
If you get other benefits, such as Carer’s Allowance, Disability Living Allowance, Personal Independence Payment or Attendance Allowance, your weekly Guarantee Credit amount can go over the minimum income threshold of £177.10.
If you stop being eligible for Savings Credit for any reason, you will not be able to get it again. You’ll get up to £14.04 Savings Credit a week if you’re single. If you have a partner, you’ll get up to £15.71 a week. You might still get some Savings Credit even if you do not get the Guarantee Credit part of Pension Credit.
How Much Is UK State Pension Credit?
The UK State Pension credit is £177.10 per week if you’re single and £270.30 per week if you have a partner. But that’s not all because one can get more if they have additional responsibility and costs. For example, people with severe disabilities earn an extra £67.30 a week.
If you have in your care another adult, you can earn an extra £37.70 a week. And if you have children or young adults in your care, you can make another £54.60 a week for each dependent. However, if the first child was born before April 2017, the income is £65.10 a week.
You can also earn more if the child or young adult has a disability. The extra amount is £29.66 a week if they get DLA or PIP and £92.54 a week if they’re blind.
You will need the following information about you and your partner if you have one: National Insurance number, personal or financial information about your income, savings and investments, and your bank account details if you’re applying by post. If you want to backdate your claim, you will need details of your and your partner’s income, savings and investments on the date you want to backdate your application to (usually three months ago or the date you reached State Pension age).
What You Need to Know About Pension Credit Eligibility
You are only eligible for the pension credit if you’re a resident of England, Scotland or Wales and have attained State Pension age. You also need a settled or pre-settled status under the EU Settlement Scheme if you’re from Switzerland, Norway, Iceland, Liechtenstein or the EU.
Other eligibility criteria are as follows:
All partners should have reached the State Pension age
In addition, one partner should already be getting housing benefits
According to State regulations, a partner means your husband, wife or civil partner if you stay together. It can also mean someone you cohabit with as a couple, though you’re not legally married.
The Bottom Line
Securing a peaceful life after retirement is noble, especially when you have dependents. There are many ways to save for life after retirement. So, if you were wondering how to get started, contributing to a pension scheme is one of the best ways.
The best part is, you only need to meet the State Pension age of 66 to be eligible for a comfortable life after your active working years. But, this can only happen when you start saving early. It’s never too late to start. To be fully eligible you must contribute to National Insurance for at least 35 years. We hope you found this guide helpful!
