UK-based digital bank Starling has shared important information about pensions.
In order to mark National Pension Awareness Week in the United Kingdom, Starling teamed up with their partners in the Starling Marketplace, PensionBee and Penfold, to help consumers gain a better understanding of pensions.
As explained in a blog post by Starling Bank, the most common types of pensions are State Pensions which is “a regular payment from the government to you, which you can claim when you reach State Pension age.”
In order to receive the minimum State Pension, you “must have paid National Insurance contributions for at least 10 years by the time you reach State Pension age (currently 66),” the blog post from Starling noted. It also mentioned that “to receive the maximum amount (at time of publication worth £179.60 per week), you must have contributed for at least 35 years.”
Then there’s Workplace pension – which is “usually arranged by your employer. A percentage of your pay is put into the pension scheme automatically every payday.” Additionally, you’ll usually “receive contributions from both your employer (a minimum of 3%) and the government (in the form of tax relief),” the blog post noted.
There are also Private/Personal Pensions which Penfold and PensionBee offer. It’s an alternative or “additional pension to a workplace pension.” You are able “to pick a fund that best suits you and a fund manager will manage your investments for you.”
In addition to these options, there’s the Self Invested Personal Pension (SIPP) – which is a type of private pension that “gives people more freedom over how they invest their pension.” For instance, “with most private pensions you pick a fund and then the fund manager manages the investments for you, whereas with a SIPP you can pick and manage your own investments.”
As explained in the blog post, your pension is “a long-term investment and like most investments, the value can go down as well as up and you could end up getting back less than what you originally invested.”
The update from Starling also noted that if your pension does make a return and grows, then that growth can “cause even more growth because your returns will be reinvested and could compound over time.” The update also mentioned that the “longer time period your pension has to do this, the bigger your pension pot could become.”
PensionBee and Penfold have calculators that may help give clients a better idea of how their contributions over time might affect their pension.
As noted in the blog post:
“When you contribute to a personal pension, you will usually benefit from tax relief. Basic rate taxpayers (£12,571 to £50,270) usually get a 25% tax top up, which means that for every £100 you pay into your pensions, HMRC will add an extra £25. Most pension providers automatically claim the basic rate tax relief on your behalf and add it to your pension pot.”
The update also mentioned that the higher and additional rate taxpayers are able to “claim a further 25% and 31% respectively through their Self-Assessment tax returns.”
For 2021/22, you are able to “get tax relief on pension contributions up to £40,000 or 100% of your salary (whichever is lower) if you earn less than £240,000.” Any contributions that “you make over this limit are taxed at the highest rate of tax you pay,” the company clarified.
If you’re operating your own limited company and maintain a personal pension, you may choose to open up a private pension and transfer “any previous pensions into one pot for easy management.” This might also be appropriate or “suitable when you want to take your pension with you when you,” the Starling Bank team noted. They also pointed out that you can access more information from their partners Penfold and PensionBee over at the Starling Marketplace.
PensionBee is currently offered to clients who maintain a Starling personal or sole trader account. Penfold is also available to clients with a Starling sole trader or business current account. According to the update, the “big benefit of banking with Starling is you can see your contributions directly in [their] app via the Marketplace.”
For more details on this update from Starling Bank, check here.