What is meant by 'annual allowance'?


The annual allowance sets the maximum limit on what you can contribute to your pension scheme(s) annually before tax obligations kick in. For the 2024/25 tax year in the UK, the standard annual allowance is equivalent to 100% of your annual salary, capped at £60,000. However, this figure might be lower for high earners or individuals already drawing from their pension pots.

The annual allowance applies to all contributions made within the year, whether that be your own contributions or those made by your employer.

Exceeding the limit will incur tax charges unless you have carry forward available.

What is an 'annuity'?

An annuity is a retirement product that will provide you with a regular and guaranteed income for life, or for a specified period. They can be purchased from age 55 by using some or all of your pension pot.

What is 'auto-enrolment'?


Auto-enrolment is a UK government initiative aimed at encouraging more people to save for retirement by automatically enrolling eligible employees into a workplace pension scheme. Under this scheme, employers are required to automatically enroll eligible workers into a qualifying pension scheme and make contributions to it. Employees also contribute, but they have the option to opt out if they wish. Auto-enrolment helps individuals save for retirement more effectively by making pension participation the default option for eligible employees.

What is a 'beneficiary'?


In the context of pensions, a beneficiary is the individual (or entity) who will receive the benefits or proceeds of a policy or plan in the event of the policyholder's death. It’s important to check the specific terms of your pension plan and keep your beneficiary nominations up to date.

What is 'carry forward'?

Carry forward is a rule that allows individuals to make use of any unused annual allowances from previous tax years. This means you can contribute more than the standard annual allowance in a given tax year by carrying forward unused allowances from the three previous tax years. It's a valuable tool for those looking to maximise their pension contributions, especially if their earnings fluctuate or if they haven't fully utilised their allowances in previous years. However, there are specific eligibility criteria and limits to consider.

What is a 'defined benefits scheme'?


A defined benefits scheme is a type of workplace pension. These schemes payout a guaranteed retirement income determined by factors such as salary history and length of employment.

You may also come across the term 'final salary scheme' which is a type of defined benefit scheme based on your final salary at retirement rather than an average of your career earnings.

What is a 'defined contribution scheme'?


A defined contribution scheme is a pension plan where you build up your pension pot through set monthly contributions from your salary each month. Your employer may also contribute.

Unlike a defined benefit scheme, there's no guaranteed payout – your retirement income will depend on factors such as how much has been contributed, how the fund's investments perform and the choices you make at retirement.

What is a 'pension drawdown'?


Pension drawdown is a method of accessing your pension savings. Instead of using your pension pot to buy an annuity, which provides a guaranteed income for life, you keep your money invested and draw an income directly from it. This allows you greater flexibility in managing your retirement finances, but it also means that the value of your pension pot can rise or fall depending on investment performance.

What is a 'SIPP'?


A Self-Invested Personal Pension (SIPP) is a type of pension plan available in the UK that allows individuals to save tax-efficiently and manage their own retirement savings. SIPPs offer greater flexibility and control over investment choices compared to traditional pension schemes.

You can start withdrawing from your SIPP once you reach the age of 55 (rising to 57 from 2028). Up to 25% of your SIPP can be taken as a tax-free lump sum, with the remaining funds subject to income tax.

What does 'transfer value' mean?


'Transfer value' refers to the amount of money that can be moved from one pension scheme to another. It represents the cash equivalent of the benefits accrued in the original pension scheme, which can then be transferred to a different pension arrangement.

Transfer values are calculated based on various factors such as the member's age, the amount of time they've been contributing to the pension, and prevailing economic conditions. It's essential to carefully consider the implications and potential consequences before deciding to transfer pension funds.


THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT.IMPORTANT: With investments, your capital is at risk. Pensions and investments can go down in value as well as up, so you could get back less than you invest.

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