Pensions explained for folks in the UK. We’ve all been told that pensions are important, but why? Most of us have never had pensions explained to us, yet it’s vital to know how pensions work in the UK because for most of us they are the most tax-efficient way of building retirement savings. After watching this video, you’ll understand pension basics enough to get started with these crucial accounts.
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Chapters:
00:00 Intro
01:07 1 – Types of Pension
03:47 2 – Free Money with Pensions
05:49 3 – How Pensions Are Taxed
06:44 4 – How Pensions Grow
08:24 5 – How you get your money OUT
11:20 Summary
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Pensions Explained UK: Pension Basics for Everyone
Pensions are an important concept for our retirement planning and financial security in later life. However, many people are confused about the different types of pensions, how they work, and what they can expect from them. This article will explain the basics of pensions in the UK in simple and easy to understand terms.
What is a Pension?
A pension is a financial product that you can use to save money for your retirement. It can either be provided by your employer or can be arranged privately by you. A pension allows you to contribute money over time, which will grow through investment and generate an income stream that you can use in retirement.
The Different Types of Pensions
There are three main types of pensions that you can choose from: State Pension, Workplace Pension, and Personal Pension.
State Pension – The state pension is a government-funded pension scheme that provides a basic level of income in retirement. To qualify for the full state pension, you need to have contributed enough National Insurance (NI) contributions over your working life. The current full state pension is £175.20 per week (as of 2020/21 tax year).
Workplace Pension – A workplace pension is a pension scheme that your employer must provide by law. You and your employer make regular contributions into the scheme, and the money is invested for you. The income you receive in retirement depends on the amount you have contributed, the investment performance of the scheme, and the annuity rate at the time you retire.
Personal Pension – A personal pension is a private pension arrangement that you can set up yourself. You choose how much to contribute, and the money is invested for you. The income you receive in retirement depends on the amount you have contributed, the investment performance of the scheme, and the annuity rate at the time you retire.
How Pensions Work
Once you have a pension scheme, you begin making contributions into it. These contributions are invested by the scheme’s fund manager into a range of assets, such as shares, bonds, and property, aiming to grow your money over time. When you retire, you can use the income generated by your pension to supplement your other income streams, such as your state pension or other savings.
The amount of income you receive in retirement is determined by various factors, including the amount you have saved, the investment performance of the scheme, and the annuity rate at the time you retire. An annuity is an insurance product that converts your pension savings into a guaranteed income for life.
It’s also important to regularly review your pension to ensure your contributions and investments are meeting your retirement goals.
In Conclusion
Pensions are a crucial part of our financial planning for retirement. Understanding the different types of pensions available and how they work can help you make informed decisions about your savings. Whether you are relying on the state pension, a workplace pension, or a personal pension, taking advantage of your pension options will help you achieve a comfortable retirement and financial stability in later life.
Well done on expluaing UK pensions in just over 10 minutes.
I have a question
If i get 22 years record on my state pension and for example its like 6k per year by 2039 and the working allowance its 16k an year this means that i can take from my pot 10k pee year free tax or i need pay tax as well if both combined don't go over 16k?
Can employers pay directly into a SIPP?
Can you make another video on tax relief and pensions, with number examples thanks
Thanks for a great explanation of this. I still struggle to understand though what happens to all the money, say in the 2015 NHS scheme which is DB. The amount contributed by employee and employer always seems to be so much more than the 1/54th promised for each contribution year? Anyone explain the maths here?
I’m closing in on my retirement and I’d like to move from Minnesota to a warmer climate, but the prices on homes are stupidly ridiculous and Mortgage prices has been skyrocketing on a roll(currently over 7%) do I just invest my spare cash into stock and wait for a housing crash or should I go ahead to buy a home anyways
Question: Using the same example of a £200K pot; considering a drawdown period of 20 years – does it mean for someone who has not taken the tax free lump sum can actually take £12570 + £2500 per year before starting to pay tax?
Wonderful!
VOTE this SH.T TORY government OUT they don't look after there own SIX MILLION a day on illegal MIGRANTS but if you have paid taxes for over 50 years your treated like dirt
The more I think ,I ll just keep working ..the less muddled I am …..it’s a golden age when I can afford to pay a car bill ,,literally the best time of my working life ,why spil it ? And also getting wasted listening to simple minds
Thanks for this. So useful. Could I just ask; is the income tax paid on a DB pension the exact same as would be taxed on a salary? Ie if I'm getting 40k per year DB pension, I'd pay exactly the same overall tax as I would if I was getting a 40k salary?
Great explanation, but can I clarify, if I were to do a volunteer payment into my nest pension to help top it up, say £1000, I've already been taxed on this money from my salary. Will nest then recover the tax I paid on this £1000 and add it to my pot?
you can work for 40 years putting a large amount of money into a DB scheme, retire and be dead within 2 years and your wife's widows pension immediately halves, if she dies 2 years after you die then all the money your paid in your whole working life disappears. This is why they ran the schemes in the first place as most men and their wives did not live long enough to collect the amount paid in, in the good old days. you still throw a dice these days if you stay in a DB scheme that you and your partner will live long enough to at least get out what you have invested over the decades.
Riddle me This….A pensioner living alone on basic pension ONLY pays £8 per month council tax. Then because of the pension rise in April pays £28 per month so his pension rise has gone
Really great video for explaining the basics. Do you have a video explaining how pensions work for people who have ill health and are unlikely to make it to those 60's and 70's?
Brilliant. Thank you
Excellent video… I think it's a discrace (having paid into a pension) the government then turn around and keep raising the age you can draw on it… Its OUR money! France was recently sticking as the their State pension was being raised from 60 – 64 years old. Us Brits really need to grow some Cahoniez.
Excellent – really helpful, thanks
Good video
I don't think DB pensions exist anymore in the private sector. Didn't Gordon Brown put a stop to them?
This is the best video and explanation on how pensions work put in simple terms. Thank you and well done.
I have subscribed to this channel. 10/10
When it comes to the British state pension, it’s EASY. You cannot now claim a state pension until your near death, or they would be happier if you were to croak it and never collect on your life time saving for a shit pathetic British state pension. EASY.
Great video. I worked for a very large and well known company and have recently become a pension rep. Its a voluntary role but I'm passionate that all employees, particularly the younger ones, get educated to know their options available. The company only offers DC now to new members but its pretty generous at 8+12 but some newer joiners are still in the auto enrollment level. Fine that everyone's situation is different when it comes to what they can or want to save but I just like to make sure they are aware if all the options and figures. I'm really enjoying it.
Can you tell me about the pensions of my mates all worked there bag out all there lives state pension is 67 these died last aged 55 57 62 62 that 4 people what happens to their pension I'm 62 with I'll health worked all my life what advice have you for me
Great video on pension and investment. I just came across your channel and I have subscribed immediately. I really need educating on investment and pension. Thank you
I'm 44 and I must of had over 25 different jobs in my time. How do I find all these little pension pots I have had. I have tried using different find my pension schemes but they need to know who the pension provider was. I have absolutely no idea who these providers were. Is there any way of sorting out this mess or is that money just lost.
Great vid cheers. As a recent uni graduate I'm currently putting 6% of my wages into pension which is fully matched by my employer. though I'm wondering if you think it would be worth contributing around 17% of my wages to my pension so that I'm under the threshold of uni loan repayments?
I can survive fine without 17% currently and with the current payback rate on my loans vs it's accumulating interest, it seems pointless to pay into, and I can potentially just tuck away that money for my future instead. plus all student debt is scrubbed for free after 30 years! Do you think this could be a good idea?
Thanks for this – wondered if you can have a state and private pension. How do you manage 2 pensions if so?
As other commentors have said – that was very well explained. Thanks.
Which is more worthwhile, contributing more than 3% to a workplace pension (which my employer doubles) or allocating that difference to a SIPP?
What's is the compensation Fund retirement?
Where were you when i was 18 not 80 to late for me why don’t we learn these things in schools
With DC pensions when you pass away what happens to the remaining amount of money in the pension scheme if it wasn’t handed over to an insurance company for a guaranteed income, is the remaining money left to the estate?
Really well presented and very helpful! Thank you
I don't understand. As a self employed person, is that 25% tax relief physically added to the pot as implied in the video, or is that amount taken off your annual taxable income to reduce your tax bill to encourage you to put the 25% BACK into the pot?
Thank you for this video! A quick one. Within Defined Benefit schemes I understand that a spouses pension can be paid (dependent on the rules of the scheme) however is this always paid until the spouses death? Reason I ask is that it was my understanding that a dependents scheme pension:
1) Does not have to be paid for the life of a dependent
2) Does not have to be paid annually
3) May be reduced at any time in accordance with the rules of the scheme.
I may have misunderstood, therefore I would value your input.
Thank you
The pension scheme is complicated beyond belief – here is the simple solution. Leave school at sixteen, sign on the dole + claim every benefit going = full state pension! !
My pension was just handed to another financier and I wasn’t told till it was already done ,all my money and my private information, so I panicked and I withdrew it all and had a massive tax bill to pay ,as I’d already taken my 25% tax free lump sum
Where do I stand is re accountable for selling my pension ,would appreciate any advice
Why can’t we transfer crystalesed pension,please explain,I think I got wrong information somewhere
Greatest thing about a UK state pension is that it pays your wife half after you've snuffed it.
Wot? If I personally invest in for pension, how is it tax free if the tha is already deduted from the salary before you even invested
This topic is so confusing for me and I have so many questions that remains a mystery for me. The main one being … Say me and my wife die soon after my retirement age and still have a million pounds in my NHS pension pot. Will it be passed to my adult kids or the govt is gonna bless me for my charity? If it will be passed to my adult kids then what percentage will it be and is it fully liable for inheritance tax?