Pension law regulates the use and management of pension schemes in all their forms, and provides a framework for resolving pension-related disputes when they arise.
Types of Pensions
There are several different ways you can contribute to a pension. The first is the state pension, which is available to anyone who makes National Insurance contributions or receives National Insurance credits for a minimum of 10 years.
The second way is to make contributions via your workplace pension scheme. By law, any business with at least one employee must offer a workplace pension scheme, so if you are employed by any business entity, a scheme should be available. Note that you’re not obliged to pay into a workplace pension scheme, but you are entitled to have access to one.
The third option is to start your own pension fund independently of your workplace pension scheme. If you’re self-employed or are employed in some other way that means you don’t have access to a workplace pension scheme, an independent pension fund offers an alternative way to save for your retirement. Even if you are eligible for a workplace pension you can opt for an independent pension instead if you wish, although this means you won’t benefit from employer contributions.
The process you go through to make pension payments differs depending on the type of pension you have.
State pension: To receive the state pension, you don’t have to do anything over and above what it takes to qualify for the pension. As long as you make the required National Insurance contributions, or receive the required credits, you’ll receive a pension once you reach retirement age and complete the pension registration process.
Workplace pension: To contribute to your workplace pension scheme, you don’t have to do anything, as you are automatically enrolled in the scheme when you become employed, as long as you are over 22 and are earning more than £10,000 a year. If you don’t want to make pension contributions via a workplace scheme, you must opt out. Once you are enrolled, your pension contributions are automatically removed from your pay packet. As well as your own contributions, your employer will also make contributions to your pension.
There are minimum contributions that employers and employees are required to make. From April 2018 these will be fixed at 2% for employers and 3% for employees. From April 2019 the minimum contribution amount will be 3% for employers and 5% for employees.
Independent pension: If you’re not eligible for a workplace pension or prefer to choose your own pension scheme, you must research the market to choose a pension scheme, or get help from a financial adviser. One option is a SIPP, a self-invested personal pension. Under the terms of a SIPP you can manage your own pension pot, and choose your own investments. If you choose a SIPP or another independent pension scheme you’re responsible for making contributions to the fund, and the way you make contributions will depend on the scheme you choose.
Accessing pension money
There are several different ways you can access the money in your pension pot. Or, you can opt to leave your pension pot untouched even when you reach retirement age. As long as the money stays in your pension pot you don’t pay taxes on it; however fees may be payable if you don’t touch the money when you reach retirement age. Other options for your pension pot include:
Paying taxes
Money that’s in your pension pot isn’t taxed until you withdraw it. When you withdraw any sum from your pension pot, 25% of the sum is tax-free. Taxes are paid only on the remaining 75%. For instance, if you withdraw a lump sum of £1,000, only £750 of that is taxable. If you use your pension to buy an annuity or adjustable income, income from the annuity or investment is taxable.
Tax is payable in certain other circumstances too. For instance if your pension pot is worth more than the lifetime allowance of £1 million some of the money is taxable.
Resolving pension disputes
If you have an issue with the way your employer is managing your workplace pension scheme, or with the way your independent pension scheme is being managed, the first step towards resolving it is find out who is responsible for the problem. It’s not necessarily your employer—it may be someone who’s involved in administering the pension scheme, for instance.
Once you know who the responsible individual or organisation is, the next step is to inform them, in writing, of your concerns about your pension. A pension management company may have their own internal procedures for resolving disputes, which typically involves an investigation of the complaint and a decision made by a nominated person. If you’re not satisfied with the decision, you can make an appeal for a second investigation.
If the outcome is still not satisfactory, you can then take your complaint to the Financial Ombudsman. This is done by filling in an official complaint form, either online or by post. The Financial Ombudsman reviews your case and makes a decision that is legally binding and court-enforceable.
Usually advice from a law firm is not required to settle issues with pensions but for the most part, pension solicitors provide help to people who are involved in a dispute with their employer over the workplace pension scheme. For instance, if the employer fails to offer a workplace pension scheme, or doesn’t contribute to the scheme as they should, an employee may have grounds to take action.
A solicitor can help in various ways; for instance, they can: