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Pensions are long-term investments with special tax rules, such as getting tax relief on contributions. There are three main types of pensions - state, occupational and personal.
If you’re affected by cancer, you may want to look at pensions to:
Saving for your retirement may not seem important when you’re starting out, but it’s never too soon to start planning for your future.
Most people can claim a State Pension once they reach State Pension age. The State Pension is made up of two main parts: Basic State Pension and Additional State Pension. The government has announced that, in time, these will be replaced by a new single-tier State Pension.
You build up Basic State Pension by paying national insurance contributions while you’re working or through credits given in some circumstances when you can’t work. Employees (but not people who are self-employed) are eligible for Additional State Pension and build up their entitlement by paying national insurance contributions while working. People who aren’t in work because they are caring for children, caring for a frail or disabled adult, or are themselves affected by a disability can be credited with some Additional State Pension.
You’re likely to still build up some State Pension if you:
In other situations, periods off work will probably appear as gaps in your national insurance record, which may reduce the amount of State Pension you eventually get. But you only need 30 years of contributions and credits for a full Basic State Pension, so you may not need to worry about filling these gaps.
The minimum age at which your state pension can start is currently 65 for men. Between April 2010 and November 2018, the qualifying age for women is rising from 60 to 65, so it depends on when you were born. State pension age for both men and women will then increase to 66 by March 2020.
It’s due to rise to 67 in 2028 and will be reviewed every five years after that. It’s important to start planning your pension early. Even if you are many years below pension age, it’s helpful to know now when you will reach state pension age.
Anyone born in 1953 or later should check the government’s state pension age calculator| to see when they’ll reach State Pension age.
If you have paid or been credited with enough national insurance, your surviving husband, wife or civil partner may be able to claim Bereavement benefits. Unmarried partners can’t claim bereavement benefits. However, there is an exception for couples in Scotland who have been living together since before 4 May 2006 and can show that their relationship amounts to an ‘irregular marriage by cohabitation with habit and repute.
If your surviving family members’ income and savings are low, they may qualify for means-tested benefits (or an increase if your household was already claiming them), such as Income Support or tax credits.
You can’t start your State Pension before you reach State Pension age. Instead, you may be able to claim other state benefits if you can’t work because of illness or caring responsibilities or if your household income is low.
To find out about national insurance credits, visit the HM Revenue and Customs website| or call 0845 302 1479.
To check your State Pension age, use the Direct.gov online calculator| or call 0845 606 0265.
From January 2013, households with a higher or additional rate taxpayer will be taxed on their Child Benefit. You can choose not to receive the benefit to avoid the tax bill. If you do this, make sure you still complete the claim forms even though you will receive nothing because you will still get national insurance credits to protect your State Pension.
If you belong to an occupational or company pension scheme and you’re getting sick pay during a period when you’re off work sick, you will usually continue to build up your occupational pension as normal. If you’re off for a prolonged period, your pension may stop building up.
If you take time off for caring responsibilities, your pension will be unaffected if you are using up your holiday allowance. Beyond that, your pension may be affected.
If you cut back your hours and this means your pay is less, this is likely to reduce the pension you’re building up.
In all the situations above, exactly what happens to your pension rights and when depends on your contract of employment and the rules of your particular scheme. To check the impact of time off or reduced hours on your occupational pension, talk to the personnel or human resources (HR) department at work. To check how much pension you may get at retirement, check the latest benefit statement from the scheme. You should be sent a statement each year.
Under government rules, the earliest you can normally start drawing a pension from an occupational scheme is age 55. But you can start your pension earlier than this if you’re no longer able to work because of ill health.
There are two types of occupational scheme:
Employers can no longer set a normal retirement age, however, occupational schemes can still set a normal pension age from which your full pension is payable. Starting your pension earlier usually means your pension is a lot lower. Some schemes (usually final salary schemes) can enhance the pension you get if you’re retiring because of ill health.
You can usually take part of the proceeds of your pension scheme as a tax-free lump sum. The rest must be drawn as taxable pension. If you have a reduced life expectancy, some schemes can increase the lump sum further and reduce the pension payments.
In a defined contribution scheme, you would usually use your pension fund to buy a lifetime annuity. This is a special type of investment sold by insurance companies where, in exchange for your pension fund, you get an income payable for the rest of your life.
The occupational scheme may have arrangements to offer you an annuity, but you always have the option of shopping around and buying your annuity elsewhere to get a higher income.
In general, it’s worth shopping around anyway, but it’s especially important to do so if you have or have had cancer, or your health is otherwise poor. This is because you’re likely to qualify for an ‘impaired life’ annuity. This will pay out a much higher income than you would normally get.
Alternatively, you can choose to leave your pension fund invested, drawing off part of it on a regular basis to provide your pension direct from the fund - this is called ‘income drawdown’. Choosing income drawdown may enable you to strike a better balance between having a pension now and leaving something for your dependants later on.
To shop around for an annuity or to discuss income drawdown, contact an independent financial adviser (IFA).
To find out if you’re eligible for early retirement from your occupational scheme and how much lump sum and pension you may get, talk to the personnel or human resources (HR) department where you work.
You may have this type of pension through your workplace, or you may have taken out a scheme for yourself. With a workplace scheme, your employer may be paying in contributions for you. These will notmally continue while you are off sick.
With a scheme you have taken out for yourself, you will continue to build up a personal pension if you keep paying contributions into your scheme. If you’re off work or reduce your hours and your income falls, you may find it hard to keep the contributions going. If you stop, your eventual pension will be lower. Check whether your personal pension includes a waiver of premium benefit (see our section on insurance|). This takes over making the contributions if you can’t work because of illness.
To check the rules and options for a personal pension, see the terms and conditions or talk to the provider. To check how much pension you may get at retirement, see the latest benefit statement from the scheme - you should be sent a statement each year.
From October 2012 to February 2018, most employees will be automatically enrolled into a pension scheme at work.
If you are automatically enrolled, you can opt out within one month and your contributions will be refunded. Otherwise, you can opt out at any time but the contributions you've paid so far stay invested in the scheme. Workers who opt out are automatically re-enrolled every three years (and so would have to opt out again if they still did not want to be in the scheme).
If cancer means your household income is tight, you may want to stop your contributions for a while, but think carefully before doing this. Opting out means you lose your employer contributions too, and your eventual pension will be lower. Bear in mind that the pension scheme may offer an early pension due to ill health and/or life insurance cover as well as a retirement pension.
For more information about automatic enrolment, visit direct.gov.uk/workplacepension|
Under government rules, the earliest you can normally start drawing from a personal pension is age 55. But you can start your pension earlier than this if you’re no longer able to work because of ill health.
You can take part of the proceeds of your pension scheme as a tax-free lump sum. The rest must be drawn as taxable pension.
All personal pension schemes are defined contribution schemes. This means, as described on the previous page, you build up your own savings. Your contributions are paid into the scheme and invested. You use the resulting pension fund to buy an annuity or you can choose for income drawdown and so draw a pension direct from the fund.
Normally, the earlier you start your pension, the lower the amount you will get each year.
You don’t have to buy an annuity or draw your pension from the same company with which you have been building up your savings. As described above for occupational schemes, you can shop around for a better deal. Doing this will often mean a big increase in the pension you get, particularly if you qualify for an impaired life annuity.
If you’re aged at least 60 and the total value of all your occupational and personal pension savings is no more than a given limit (£18,000 in 2012-13), you can take the whole lot as a cash lump sum instead of turning it into pension. A quarter of the lump sum will be tax-free, but the rest is taxable as income for the year in which you receive it.
Regardless of the value of your total pension savings, you can usually take the proceeds from an occupational scheme (but not a personal pension) as a lump sum if the value is no more than £2,000. From 6 April 2012, the same applies to a pesronal pension worth no more than £2,000, but for a maximum of two personal pensions only. A quarter of the lump sum will normally be tax-free, but the rest is taxable as income for the year in which you receive it.
To check the value of your pension savings, check your latest benefit statement or talk to the pension provider.
To compare the annuities available, visit the Money Advice Service| or call 0300 500 5000 or get help from an independent financial adviser (IFA).
Content last reviewed: 1 May 2012
Next planned review: 2013
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© Macmillan Cancer Support 2013
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