The most common questions people are asking about pensions

With an increasing amount of ways to save for retirement or diversify your investment portfolio, pensions can be a confusing topic. Fortunately, by analysing Google search data between 1st May 2020 and 30th April 2021, we’ve been able to determine the top pension questions posed by Brits – and answer each!

Are pensions taxable?

With an incredible 5,760 annual Google searches of ‘are pensions taxable?’, Brits are clearly concerned about the tax implications of taking out a pension. Similarly, ‘how are pensions taxed?’ is posed by a further 2,040 people, each and every year. But what’s the reality?

To offer clarity: your pension is treated as earned income, and is subject to income tax. However, it’s important to remember that you’re usually able to withdraw 25% of your pension pot as a tax-free lump sum as soon as you turn 55.

Are pensions worth it?

To answer the 3,840 yearly Google searches of ‘are pensions worth it?’: in short, yes. Paying into a workplace pension is a tax-efficient way of preparing your finances for retirement. Even better, your employer is obliged to top up your pension pot with a contribution of at least 3% of your salary each month.

Can I inherit my husband’s state pension?

One of the most pressing pension concerns in Brits is in relation to spousal payments, with 2,620 typing into Google ‘can I inherit my husband’s state pension?’, and a further 1,080 wondering ‘can pensions be inherited?’. Generally speaking, if your husband, or wife, passes away, you will be eligible to inherit at least some part of their pension plan. However, there are currently some specific criteria:

  1. You must have been married before 6 April 2016.
  2. Your partner must have reached state pension age before 6 April 2016 OR would have reached state pension age by this date.

If you remarry before you reach state pension age, you will not be eligible to inherit your partner’s pension.

Pensions: can you cash them?

With a resounding 2,040 yearly Google searches for ‘pensions can you cash them?’, and an additional 1,320 for ‘can pensions be cashed in?’, there’s clearly intrigue among Brits around whether it’s possible to make our savings go a little further than our pension plans allows.

To address both queries, you can cash in 25% of your entire pension savings once you reach the age of 55, as a tax-free lump sum. After this, you can continue to withdraw the remaining 75%, but you will have to pay the standard tax rates (as well as any withdrawal charges outlined by your pension provider).

Are private pensions safe?

‘Are private pensions safe?’ is a valid concern, held by 1,680 yearly Google searches, and perhaps many more up and down the country. Fortunately, all personal pension pots are protected by the Pension Protection Fund (PPF), which covers up to 100% of your payments should your employer goes bust.

Pensions: where to start?

The great thing about paying into a workplace pension is that a lot of the work is done for you; to address the 840 annual Google searches of ‘pensions where to start?’, your employer will usually automatically enrol you into a scheme once you earn a salary of over £10,000.

If you’re not automatically enrolled, it’s well worth having a chat with your company to put you on a plan. Not only will you benefit from your own contributions, but also contributions made by your employer. Additionally, while you’ll not cash in your pension until you’re at least 55, it’s advised you start making steady savings as early as possible.

How pensions are divided in divorce

Divorce brings about many financial queries, questions, and concerns, including ‘how pensions are divided in divorce’, which is pondered by 840 Google searchers each year. Firstly, you can make an informal spousal agreement to protect each of your pensions in the event of divorce – this will need to be officially documented to hold any merit, however.

Alternatively, there may be a split. This can either come in the form of a pension transfer, or one of your can offset the value against other assets you share. For instance, you may agree that one of you gets a greater share in the family home in exchange for the other keeping all of their pension.

Finally, if you’re not married at all, no matter how long you’ve been together, you have no legal basis to claim any of your partner’s pension upon separation.

Pensions are clearly high on the agenda of Brits, contemplating their future finances. However, not every plan are a sure thing, with some mis-sold pension schemes or investment opportunities costing savers lifechanging sums. If this sounds a familiar scenario, get in touch for advice around how we can help you claim the compensation you deserve. Or head on over to our blog for even more expert guidance.