Copy article

Daily Mirror - Difference between workplace and private pension

ended 15. April 2024

Journalist at the Daily Mirror is looking for someone to explain the differences between workplace and private pensions

With the state pension unable to cover the cost of living, she wants someone to explain why Brits should think about having a few different pension pots for when they plan to retire and not just rely on the state pension to get them by.

4 responses from the Newspage community

Copy all

Copy

Editor
Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
Workplace pensions are set up by your employer and there are, now, minimum criteria for contronutions that have to be made by your employer unless you opt out. This is a great way of saving in a tax efficeint way and getting a boost from additional contributions from your company. A lot of companies will pay more than the minimum threshold, but if you want more still for retirement you might want to set up a privite pension. This is one you arrange yourself, or through an adviser. You can choose your level of contribution and what provider and funds you use. Again, you will get tax relief on your payments and you can choose to swtich funds, or even provider, if you decide you want a change.
Copy

Editor
Ross Lacey
Director & Independent Financial Adviser at Fairview Financial Management
The full state pension is just over £11,500 a year. For a married couple both getting their state pensions this would give them around £23,000 of tax free income each year...nothing to be sniffed at.

However, for many, this on its own won't be enough to support the kind of lifestyle they had dreamed of when thinking about retirement.

Having a workplace pension and/or private pension means that there will be money to top up what comes from the state pension. Everybody is different though in terms of their requirements and circumstances in retirement. A good starting point is to look at what is being spent now, and what may be needed to keep a similar standard of living in retirement. Factoring in any guaranteed income like state pensions and final salary pensions will then highlight any shortfall, and from there, you can work out how much might be needed in a private/workplace pension to bridge the gap.
Copy

Alex Shairp
Director at Blackmount Private Wealth Limited
Research by the Pensions and Lifetime Savings Association suggests the average person needs £14,400 to lead a minimal lifestyle in retirement. That's about 25% more than the full State Pension, so we all need to do more than pay National Insurance to get by in the finanal chapters of life. Workplace pensions are the obvious starting point for anyone who is employed. Contributions are usually deducted straight from your wage and your employer should pay in too. These schemes tend to be low cost and offer a small selection of investments to choose from. Unfortunately, the millions of people who work self-employed don't have the pleasure of an employer-backed scheme. Their only option is to make personal arrangements. Saving into a private pension provides a long-term pot to ultimately supplement the State Pension, that also offers considerable tax-reliefs on contributions and investment returns.
Copy

Chloe Phillips
Chartered Financial Planner at Pura Vida Financial Planning
A workplace pension can come in the form of a defined benefit scheme or a money purchase scheme.
A money purchase scheme is like a private pension but has been set up by your employer where you both contribute. There are minimums contributions that were set by the government under auto enrolment . The pension contributions you contribute into your workplace pension attracts tax relief at your highest marginal rate. Many employers pay more than the minimum and some even match employee pension contributions which is a great incentive, increasing your overall pension pot. Top tip, if you are a higher rate taxpayer, check how your pension contributions are made into your workplace pension. If it is relief at source, you will need to claim the higher rate tax relief through a self-assessment tax return. I have had clients who have not realised this and have missed out on tax relief they were entitled to. You can claim up to 4 years’ worth of tax relief where this has been missed.