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Colin and Jean’s story

Withdrawing income from pensions tax-free.

Colin and Jean were about to retire and wanted to know the best way to take income from their pensions. Ideally, they wanted a household income of £40,000 per year.

Neither Colin nor Jean would receive their full State Pensions for another couple of years due to the recent changes in pension age legislation. Colin was nevertheless about to receive £4,000 per annum from an occupational Final Salary pension.

The couple had £1 million in pensions and savings; they wanted their income to be as structured and as tax-efficient as possible.

What did we do?

We discovered that is was possible to withdraw £15,800 each per year from their pension, tax-free. If they withdrew the rest of their required income from investment bonds and ISAs, all their £40,000 of required income per year would be tax-free.

We then ran some cash flow projections and were able to show Colin and Jean that if they reduced their income withdrawals by the same amount they will receive from their State pensions, they will run out of money at age 100; after which point, they will be solely reliant on State Benefits. Given the current mortality rates, there is a 17% chance that they will still be alive.

We explained that the projections built in a 2% rise in income each year, in order to offset the effects of inflation. We also discussed the couple’s requirements for long-term care and the costs which may or may not arise in later life.

The results

Colin and Jean were happy with our findings and the suggestions made; they did not believe that they would be spending anything like the income assumptions projected in later life.

They now have a plan in place that ensures they have the funds they need to enjoy their desired lifestyle in retirement.

As an additional part of the planning process, Colin and Jean also wanted to know what would happen to their income should they pass away early in retirement; we arranged their pensions so that any remaining funds would be inherited. We suggested they nominate each other as the beneficiary, and their children as well.

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Pensions case study: the final yards to retirement and beyond

In the first of a series of case studies, Craig Rickman speaks with an investor who is fast approaching retirement to learn about how he plans to tackle the big financial decisions.

8th May 2024 13:15

The final years before retirement are crucial for every investor. Not only is the clock ticking to make sure you’ve tucked enough away to pack up work on your own terms, but your preference for drawing later-life income should be firming up.

From selecting the right tax wrappers to employing a suitable investment strategy, these decisions aren’t always straightforward. And while everyone’s financial situation is unique, it can be helpful to learn how others are approaching this key milestone.

• Invest with ii:  SIPP Account  | Stocks & Shares ISA | See all Investment Accounts

I recently spoke to an investor who is firmly in this camp. He’s 58 years old, married with two adult children and currently mapping out his path to retirement - and beyond. This includes gradually phasing out work, if possible.

“The kids are out of uni and off the payroll, so we’re in the accumulation phase now, thinking how to make the most of our investments,” he says.

“My goal is to retire at age 63 but I hope to drop down to four days a week for a period, then to three. Though this will depend on work being amenable.”

The investor recently switched from self-employed to employed. As with any notable life event, this has prompted him to review his finances.

With retirement edging into view, the investor aims “to make the most of any pension and investment opportunities” in the next five years, with a key focus on tax efficiency. But as with any well-rounded financial plan, funding a comfortable retirement isn’t his only goal: continuing to support his kids financially and getting ahead of expected future inheritances are also on his radar.

Before we delve into how he intends to address these goals, let’s take a glance at his current portfolio.

Self-invested personal pension - £240,000

Current company pension - £50,000

Wife’s pension - £10,000.

Defined benefit (DB) pensions - £10,000 a year, him and his wife combined

Savings and investments

Stocks and shares individual savings account (ISA) - £25,000

Company shares - £40,000-£50,000

Instant access savings - £10,000

Business affairs

His business is still running, and he owns 51% of the shares. For tax reasons, he has made his children shareholders. He hopes the dividend payments will give them a head-start in life.

He is unsure whether the business has sufficient value to realise a healthy lump sum to beef up his retirement wealth. But says someone “might want to buy it for the name”.

The investor and his wife cleared their mortgage six years ago, so will enter retirement debt free.

No-nonsense investing style

His approach to investing is very much to keep things simple, and not try to overcomplicate matters. His ii SIPP is wholly invested in the Vanguard LifeStrategy 80% Equity  fund.

“I don’t mess about - I just diversify, leave it for the long term, and be wary about incurring large fees.”

The investor’s final point – the importance of keeping costs low - is reaching the ears of more and more people. Every pound you pay in charges that isn’t backed up by better results, is a pound less for your future.

“That’s why I came to ii,” the investor says. “I didn’t want to pay an arm and a leg to manage my investments.”

• The dangers of paying too much for your pension
• The cost of not knowing your portfolio fees

When it comes to tax wrappers, the investor’s immediate focus is to plough as much into his pension as possible – so ISA s are currently taking a back seat.

This includes maximising his employer’s contribution and paying in any work bonuses to give his pension savings an added shot in the arm and swerve higher rates of income tax.

Sources of help

Even the most sophisticated and experienced DIY investors may need expert help every now and then, particularly in the retirement planning arena. The pension landscape can be a maze at the best of times, and the margin for error is often narrow.

The investor sought advice from a regulated financial planner just before Christmas, something he says proved valuable.

Rather than pay an adviser an ongoing fee to look after his investment portfolio, he prefers to access regulated advice on an ad-hoc basis whenever he feels he needs it.

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As this means he assumes the portfolio management responsibilities, the investor appreciates the benefits of doing his own research, boning up on investment and tax matters where possible.

“I’ve been watching videos to work out how to withdraw tax-free money from my SIPP to fund the first four years of retirement before my DB pension and the state pension kick in.”

Both his and his wife’s DB pensions kick in at age 65, and both have sufficient national insurance records to pocket the full state pension once they each reach 67.

The investor’s spouse is four years younger than him, so income here will be staggered over several years. This is something they’ve accounted for.

If everything goes to plan, he will start to draw from his portfolio in around half a decade. As such, he’s already started to ponder the best way to draw retirement income.

With his pension savings, the decision essentially comes down to two options. Either keep his pension invested and take income flexibly using drawdown, or buy an annuity and secure a fixed, guaranteed income for life. This isn’t a binary decision; he can choose a mixture of two.

At the moment, he plans to keep the money invested and opt for income drawdown, and so has no desire to derisk his portfolio to protect against market falls shortly before retirement. But says he’ll seek one-off advice from a financial planner to make sure he does the right thing.

Family matters

Something many of us may find difficult to overlook is the prospect of inheriting assets from older generations. And the investor is no exception.

“My wife and I both have elderly parents and at some point expect to get some significant windfall from these legacies. But obviously we don’t know when we will receive these,” he says, going further:  “We haven’t factored these into our financial plan as things could change but it’s something we can’t really ignore either.”

Over the coming years in what’s been dubbed “The Great Wealth Transfer”, £5.5 trillion in assets is set to pass down generations. But whether this money will end up in the pockets of younger cohorts when they need it most is another matter.

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• How to give money to the younger generation, not the taxman

The investor is conscious of this, and so seeks to financially support his children right now.

“We learnt from my in-laws as they’ve been generous with their legacy,” he says. “They sat us down 20 years ago and said if you’re in need of any money now, you can draw some.”

“When people live longer, it means the inheritance comes later. If we feel we’re in a place where we can pass wealth down, it makes sense to do it. There are the tax benefits too.”

Words of wisdom

So, what learnings would our investor share with younger cohorts? Well, one tip is to “get a good understanding of the UK tax regime and its advantages and how you can benefit as result”.

The investor also says it’s key to build knowledge of financial matters as soon as possible. He purchased an investing book many years ago, something he describes as a “light-bulb moment to understand how to manage our money”.

• How to build a £1 million pension and ISA portfolio
• Six ways to keep your tax bill low in retirement

A final pointer is to set out and prioritise your financial goals from an early age, a task that he’s now reaping the rewards from.

“When my wife and I were younger, we had very clear priorities, which were to clear the mortgage as soon as possible, and to get our kids through uni without debt. Our pension funding might have suffered, but we’re happy with that way of thinking, and can now make up for lost time.”

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

Important information – SIPPs are aimed at people happy to make their own investment decisions. Investment value can go up or down and you could get back less than you invest. You can normally only access the money from age 55 (57 from 2028). We recommend seeking advice from a suitably qualified financial adviser before making any decisions. Pension and tax rules depend on your circumstances and may change in future.

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The Pensions Commission: reforming the UK’s pensions system

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The initiative

The challenge

The public impact

• Stakeholder engagement Good
• Political commitment Good
• Public confidence Fair
• Clarity of objectives Good
• Strength of evidence Fair
• Feasibility Strong
• Management Good
• Measurement Good
• Alignment Good

Bibliography

The Pensions Commission, which had been established by the UK government in December 2002 to review the regime for UK private pensions, published a report on its findings on 2004 and 2005, in which it made a number of recommendations for reform.

Based on these findings and recommendations the government enacted two statutes: the Pensions Act 2007 and the Pensions Act 2008. Their objectives for pensions were to:

• Raise the state retirement age, reduce the contributions requirements, restore the earnings link, and end the opportunity to opt out of the additional state pension (2007 Act).
• Address the lack of pension provision in the private sector including the creation of new low cost savings vehicles and an obligation on employers to enrol all employees (2008 Act).

For many years in the UK, pensions occupational pensions had been rising in number and were relatively secure. “Before the Second World War, 1.8 million people had occupational pensions and, by 1975, this number had risen to around 12 million.” [1] However, “the costs of both public and private pensions were rising as life expectancy increased [and] in the early 2000s, the future of occupational pensions appeared in the balance: final salary schemes were closing and there was a rising concern about default risk.” [2]

By 2004, the situation had deteriorated significantly. “The proportion of UK private sector workers relying entirely on the state sector pension was 46% in 1995 and had risen to 54% by 2004. This powerfully illustrated the failure of private sector pensions and the weight of responsibility under which the state pension was labouring.” [3]

The reforms have meant that “coverage has been boosted significantly with more than 5 million automatically enrolled into a workplace pension saving scheme since 2012”. [4]

One of the most authoritative surveys of pensions worldwide is ‘The Victorian Government of Australia and The Australian Centre for Financial Studies Melbourne Mercer Global Pensions Index'. The index “objectively ranks both the publicly funded and private components of 25 countries' pension systems, which together cover 58 percent of the world's population. Since the first index six years ago, the UK has continually improved its ranking, moving from a ‘C' grade in 2009 to a ‘B' grade in 2011. For the 2014 index, the UK's pension system achieved a ‘B' grade and a score of 67.6/100”. [5]

Stakeholder engagement

Political commitment

Public confidence

The most contentious aspect of the pensions reforms was the raising of the state retirement age. “The [Pensions] Commission spent a lot of time and effort on high-risk strategies to build consensus on the way forward … The DWP held events across the UK, each attended by around 300 people, testing citizens' responses to the report's findings ... Significantly, pre-polling showed that 80% of participants were averse to raising the state retirement age at the start of the day; whereas, at the end of the day, having been taken through the analysis, attitudes were ‘fundamentally different'.”

In 2012, a YouGov survey found the state retirement age reform to be largely unpopular. The response to the question “Under current plans people born in 1977 or after will not be able to receive a state pension until the age of 68. Thinking about your current career or occupation, how comfortable or uncomfortable do you feel about not being able to claim a state pension until at least the age of 68? [was] Very comfortable 7, Fairly comfortable 24, TOTAL COMFORTABLE 31; Fairly uncomfortable 33, Very uncomfortable 29 TOTAL UNCOMFORTABLE 62 (Don't know 8)”. [8]

Clarity of objectives

Strength of evidence

The Pensions Commission carefully analysed the existing pensions system and set it against socioeconomic and demographic data and projections. For example, the Commission predicted that the percentage of the population aged over 65 would double by 2050, putting  further strain on the pension system and that 60 percent of employees over 35 were on course to have inadequate pensions.

The Commission placed a “strong emphasis on going back to original data, building models from scratch and drawing in international expertise. The Commission became expert in issues such as population dynamics and they built up data in areas which had not been previously analysed like pension provision among ethnic minorities”. [9]

Feasibility

The Pensions Commission carefully evaluated fiscal concerns, using their own models and analyses alongside the advice of international experts on the macroeconomics of pensions. Key concerns evaluated included the proportion of workers paying into private pension schemes relative to those who would have to rely entirely on a state pension, and the burden on small businesses of providing occupational pensions.

The Commission itself was an appropriate entity to design the pensions reforms, while the DWP was well placed to implement their findings. The fact that the Commission had only three members was considered to be a significant advantage in allowing “a shared sense of trust to develop between the Commissioners that allowed them to focus on the problem solving and analysis required to unpick the pension problem rather than manoeuvring to try and steer the committee in one direction or another”. [10]

The legal feasibility was addressed by the Pensions Acts of 2007 and 2008, which enshrined the reforms in statutory legislation.

The Pensions Commission consisted of three commissioners nominated by the prime minister, the chancellor of the exchequer and the secretary of state for work and pensions. They all had significant and relevant experience in economics and social issues:

• “Adair Turner was Vice-Chairman at Merrill Lynch at the time. Turner had taught economics at Cambridge and the LSE, worked at McKinsey and Company from 1982 to 1995 and had been Director General of the CBI from 1995 to 1999. [11]
• “Jeannie Drake was at the time the deputy general secretary for the Communication Workers Union and [in 2005] the president of the TUC ...
• “John Hills was, and still is, professor of social policy and director of the Centre for Analysis of Social Exclusion (CASE) at the London School of Economics.”

The implementation of the Commission's findings and proposed reforms was the responsibility of the DWP.

Measurement

As this is directly related to money, it is easily measurable. The government can measure how many are enrolled in a pension scheme and assess their contributions to see how effective the reforms have been.

Examples of tracking pension funds are common in the media e.g: “FTSE350 pension deficits improve by £17 billion”. [12]

The Labour government cooperated with the DWP and the Treasury to set up the Pensions Commission to review anomalies in the UK's pensions system and to propose recommendations for reform. Having published two reports of its findings and recommendations, the Committee then planned the reforms in collaboration with the government, the TUC and the CBI.

The Pensions Commission and the DWP also collaborated with the pensions industry and relevant NGO to validate and gain acceptance for its reforms. However, there was some resistance from UK citizens, particularly to the raising of the state retirement age.

Pensions reform: The Pensions Commission (2002-6), The Institute for Government

Security in retirement: towards a new pensions system, May 2006, Department of Work and Pensions

How does UK pension provision compare worldwide? Josephine Cumbo, 23 JUNE 2015, Financial Times

UK pensions system ranked 9th in the world, Actuarial Post

YouGov/Progressive Polling Survey Results, 18-19 April 2012, YouGov

The Pensions Act 2007, legislation.gov.uk

The Pensions Act 2008, legislation.gov.uk

The Public Impact Fundamentals - A framework for successful policy

This case study has been assessed using the Public Impact Fundamentals, a simple framework and practical tool to help you assess your public policies and ensure the three fundamentals - Legitimacy, Policy and Action are embedded in them.

Learn more about the Fundamentals and how you can use them to access your own policies and initiatives.

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Post retirement increases – The case study of Mr P

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This complaint concerns the annual increases that have been applied to Mr P’s pension. Mr P believed he has incurred a financial loss because annual increases have been applied to his pension in line with the retail price index (RPI) instead of at a fixed rate of 3%.

Mr P retired and started claiming his pension from the Scheme on 30 April 1999. On 19 March 2018, the Trustee wrote to Mr P and said that following a recent review of his pension it was discovered that some of the annual increases that were applied to his pension in the past were too high. The pension he was currently being paid was also too high. To correct the error, his pension in payment needed to be reduced to reflect the correct amount payable under the Scheme Rules (the Rules).

The reason was because when Mr P started claiming his pension from the Scheme, his annual pension was £62,469.72 which was the maximum allowed by HMRC. Under the Rules, his pension is granted a fixed annual increase of 5%. However, to ensure his pension remained at the maximum allowed by HMRC, his pension increased each year in line with the RPI. 

Mr P’s pension was increased correctly in line with the RPI until 1 April 2006. The RPI increase that was due on 1 April 2006 was 2.2%, but the actual increase awarded to his pension was 3%. This resulted in his pension being greater than the maximum amount allowed. Subsequently, since 1 July 2011, the annual increases that were awarded to his pension from 2012 onwards were 5% each year. These increases were again higher than the RPI increases that should have been awarded, to prevent his pension from exceeding the maximum amount allowed.

The incorrect increases resulted in an overpayment of pension amounting to £51,254.52 which needed to be repaid and Mr P’s pension was decreased with effect from April 2018 from £10,203.24 a month gross, to £8,834.89 a month gross. 

The Trustee offered to recover the overpayment by either withholding Mr P’s annual increases going forward, until the overpayment was recouped or alternatively, it gave him the option to pay the overpayment in full by cheque. 

Mr P agreed with the Trustee to repay the overpayment at £2,000 per month however he remained dissatisfied, and he complained to TPO. In his submissions he said that with the passage of time, he no longer wished to pursue his complaint about the overpayment but said that:

• He understood that his pension should be increased by 5% until the maximum pension allowed has been reached. 
• When the maximum pension allowed has been reached, it was his understanding that HMRC allowed increases to be paid at the higher of 3% or the RPI.
• On the occasions when the RPI has been lower than 3%, the Trustee did not agree to increase his pension by 3%.
• He believed the higher of the RPI or 3% should be applied to his annual pension in payment and that the increases should be backdated.

Mr P’s complaint was considered by an Adjudicator who noted that while the Inland Revenue Occupational Practice Notes 2001, provided trustees with the option to increase pensions in payment annually at 3%, when the RPI was less than 3% it was not compulsory for scheme trustees to adopt this revaluation method into their scheme rules. So, there was no maladministration by the Trustee, for not incorporating this revaluation method into the Rules.

The Adjudicator concluded that having reviewed the Rules and the relevant HMRC guidelines the Trustee had correctly recalculated Mr P’s pension and applied the correct annual increases in line with the RPI. 

The Adjudicator’s Opinion was accepted by both parties. 

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Status message

• DOI: 10.3406/ECOFI.2000.4513
• Corpus ID: 154799852

Regulation of private pensions: a case study of the UK

• E. P. Davis , W. London
• Published 2000
• Economics, Law

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18 Citations

Defined benefit company pensions and corporate valuations: simulation and empirical evidence from the united kingdom, corporate expenditures and pension contributions: evidence from uk company accounts.

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Corporate Cross-Holdings of Equity, Leverage and Pensions: Simulation and Empirical Evidence from the UK

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What is a SIPP?

A self-invested personal pension (SIPP) is a type of tax-efficient personal pension that gives you control of your retirement savings. You have the ability to choose your investments, how much to top up and when you would like to invest. You may want to consider a SIPP if:

• You want to start saving towards your retirement
• You want to consolidate your existing pensions into one easy-to-manage account
• You are looking to make the most of pension tax relief.

The value of investments can fall as well as rise, and you could get back less than you invest.

Benefits of starting your own SIPP

• Choice – You won’t be restricted to pension funds offered by any single pension provider, but instead can invest in a broad range of investments from a range of different providers
• Tax-efficient  – Your returns from investments within a SIPP are protected from income tax, tax on dividends, inheritance tax and capital gains tax (CGT)
• Flexible drawdown  – You can pick from a wide range of options when you take your pension benefits, including a cash lump sum, a flexible or fixed level of income – or you can combine multiple options
• Tax-relief  – You’ll receive tax relief at your marginal rate on an Annual Allowance, which for most people is £60,000 or 100% of your earnings, whichever is lower. 1

A SIPP may be right for you if you’re confident making your own investment decisions and managing your pension payments against the relevant allowances.

Find out more about how SIPPs help save for retirement

We don’t offer tailored financial advice, so if you’re not sure about investing or how a pension works, seek independent advice. Tax rules can change and their effects on you will depend on your individual circumstances. Currently you may access your pension benefits from age 55, however, the Government has confirmed its intention to increase this to age 57 from April 2028.

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Transferring a pension doesn’t affect its tax-efficient status, but you should make sure that you're aware of all the risks and drawbacks involved. If you have access to a workplace pension, retaining that and transferring other existing pensions to it may be your best option, particularly if it offers the investment choices you’re looking for, as you’re likely to pay lower charges.

We will not accept transfers of defined benefit pensions (e.g. final or average salary pensions) or schemes that include safeguarded benefits (such as guaranteed annuity rates). If you’re unsure whether to transfer a pension, seek professional independent advice.

Read an explanation of drawbacks and risks to be aware of when transferring pensions  [PDF, 1.8MB]

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Online – using a debit card

Simply log in to Smart Investor to top up your SIPP. Once you’re logged into your account, go to the ‘pay in’ section, where you’ll find a link which takes you to the website of your SIPP administrator AJ Bell. They’ll process your contribution. You’ll be asked for your SIPP Account number and your date of birth.

Please note it will take up to five working days for the money to be available to invest in your SIPP account.

Alternatively, if you top up using any of the options below, you need to complete an Additional Contribution form [PDF, 690KB] which should be sent to AJ Bell scanned and via email to  [email protected] or by post to:

Barclays SIPP Administration Team AJ Bell Management Ltd 4 Exchange Quay Salford Quays Manchester M5 3EE

Online – by electronic transfer

Transfer money into your SIPP directly from your bank account. To make an electronic transfer, use the following details to pay in:

Account Name: STL Payments in Account Account: 06980213 Sort Code: 12-27-34 Reference: [SIPP Account number]

You should see the money on your SIPP within 3-5 days of making the payment to AJ Bell. 

To pay into your SIPP by cheque, please make it payable to “Sippdeal Trustees Ltd RE (your name)” and send together with the Additional Contribution Form. Cheques can take up to five days to clear so this can take up to 10 days to appear on your SIPP.

Direct Debit

It’s easy to make regular contributions to your SIPP by Direct Debit. All you’ve got to do is complete the Direct Debit form [PDF, 247KB] and return it to the SIPP administrator, along with your Additional Contribution form  [PDF, 690KB].

There’s a limit on the amount of contributions you can make each tax year which attract tax relief, known as your Annual Allowance. This applies to all the total pension contributions that you make in the tax year as you can pay into more than one pension. For most people, this is currently £60,000 per tax year, or 100% of your relevant UK earnings, whichever is lower.

If you have enough relevant UK earnings in the current tax year, you can increase contributions by any unused Annual Allowances from the last three tax years, provided that you belonged to a UK registered pension scheme in the previous tax years.

If you exceed your Annual Allowance you will normally face a tax charge, as any excess contribution will be subject to your marginal rate of income tax.

Your Annual Allowance will be reduced if:

• You have drawn a taxable sum from a defined contribution pension, in which case the amount that you can pay into Defined Contribution or Money Purchase pensions (excluding Defined Benefit pensions) and receive tax relief reduces to £10,000 per tax year or 100% of your income, whichever is lower (and you can also no longer make payments in relation to previous tax years);
• If your total income is above £200,000 and your income and pension contributions made on your behalf exceed £260,000 your Annual Allowance will be tapered.

When you come to take up to 25% of your SIPP as a tax-free lump sum there is an upper limit of your available Lump Sum Allowance (LSA), which for most people is set at £268,275. The 25% tax-free part of an uncrystallised funds pension lump sum also counts against this allowance.

There is also another limit called the Lump Sum and Death Benefit Allowance (LSDBA), which for most people is £1,073,100. This puts an upper limit on how much can be paid out as tax-free lump sums on death if you die before the age of 75, but it’s also reduced by the tax-free lump sums you take during your life. (After 75, all death benefit lump sums are taxable in the hands of the beneficiary.)

The changes mean that you can save into your pensions without the concern of a lifetime allowance tax charge should you breach the limit. However, you should consider whether making any lifetime contributions will affect other entitlements provided under any lifetime allowance protection that you may have.

You’ll need to complete a SIPP transfer form to arrange a transfer into your SIPP. The form can be found by logging in to My hub and selecting ‘SIPP’. We accept transfers from UK pension funds such as:

• Personal pensions
• Executive pension plans
• Stakeholder pensions
• Group pension plans
• Company-sponsored money purchase schemes

Please note that we can’t accept transfers from final or average salary pension schemes into the Barclays SIPP, even if you received advice, as it’s unlikely to be in your best interests to transfer these savings into a SIPP. If you’re unsure if your pension can be transferred in, please get in touch with AJ Bell directly.

Before transferring your pensions, you should check that you wouldn't be giving up any valuable benefits of your existing pensions. This might include loyalty bonuses, guaranteed annuity rates or even spousal pensions.

You’ll need to consider any exit charges that could apply before transferring a pension, and any guarantees you could lose.

For example, you may lose your employer’s contribution as few employers will contribute to a SIPP. There could be other loyalty benefits you’ll forego such as access to a Guaranteed Annuity Rate. These can amount to significant sums of money so it’s really important to make sure you understand the possible ramifications before transferring a pension to ensure you’re making the right decision.

Also, please note that we don’t accept transfers from final or average salary schemes.

Moving your pensions into a SIPP may not always be the best decision, so if you have any doubts whether you should transfer a pension, you should seek advice from a professional financial adviser. Tax rules can change and their effects on you will depend on your individual circumstances. For more information on SIPP Transfer and possible penalties read our  factsheet [PDF, 1.3MB].

It’s important to think carefully about the impact of taking benefits or making withdrawals from your pensions on both your current tax position and how you’ll fund your retirement in the future. Remember that you can’t access your pension savings until you reach the age of 55, however, the Government have announced an intention to link this age to 10 years prior to the State Pension age. If this passes into law, the minimum pension age will increase in the future. You can either:

• Take up to 25% of your savings tax-free and then draw a taxed income as you need too; or
• Take a lump sum or even the whole fund at once and 25% will be tax-free. Beware, taking money out of one or more of your pensions in this way may increase your income in a given year significantly and result in you paying more tax than you would do if you drew an income gradually; or
• Buy an annuity – set up a secure income for the rest of your life; or
• Take smaller amounts as and when you like with 25% of each withdrawal being tax-free; or
• You can also use a combination of these options.

Read our factsheet [PDF, 1.3MB] for more information on taking benefits from your SIPP and things you should consider first.

All amounts drawn above the 25% tax-free lump sum will be taxed at your marginal rate at the time.

Learn more about SIPPs

Types of pension

Pensions can seem complex and daunting, especially if you’re new to them. But there are lots of options available to suit individual needs and circumstances. We take a look at the main types of pension and explain how they work.

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If you already have an account, log in to continue.

If you have any questions, you can give us a call on 0800 279 3667 3 . 

Important information

If you have withdrawn a taxable income from your pension the Annual Allowance is replaced by a lower Money Purchase Annual Allowance of £10,000. It is subject to certain additional rules, including the removal of the carry-forward of unused relief provision. If you are a high-income individual, your annual allowance may be reduced, if you are unsure you should take professional advice. More information can be found in our SIPP Key Features Document  [PDF, 303KB]. Return to reference

Before transferring check that you won’t be giving up any valuable benefits from your existing pensions, that our SIPP administration charges aren’t higher than your current pension plans, and you won’t be liable for an exit penalty by your current provider. See our SIPP Factsheet for more information [PDF, 1.8MB] Return to reference

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Scheme funding and clearance case studies

These scheme funding case studies (original versions published in 'scheme funding: an analysis of recovery plans' in December 2008) demonstrate how the regulator, employers and trustees have worked together to resolve funding issues.

Issued: June 2009

Introduction.

These scheme funding case studies (original versions published in 'Scheme funding: an analysis of recovery plans' in December 2008) demonstrate how The Pensions Regulator, employers and trustees have worked together to resolve funding issues. The regulatory cases on which these case studies are based were completed before September 2008. However, the principles that we apply to cases remain constant:

• Funding targets need to be set prudently.
• We expect trustees and employers to engage in positive and open dialogue.
• There is flexibility in how recovery plans are drawn up both in terms of length and structure, in all cases affordability needs to be considered; back-end loading and contingent security can provide further options.
• Conflicts of interest need to be appropriately managed.
• If scheme security is reduced, adequate mitigation needs to be provided.

We provide these case studies for illustration only. They are summary versions and cannot be relied upon as precedents for other cases. The regulator considers each case on its merits.

Case study 1

The scheme's employer was in the design and manufacturing industry. In a transition period and changing its business structure, the company had very little free cash at the time.

However, the trustees expected the business to improve in the coming years. The scheme was large in comparison with the employer.

Recovery plan

A 15-year recovery plan was submitted, with technical provisions set below both FRS17 and s179 measures. The regulator had lengthy discussions with the trustees regarding the prudence of the valuation assumptions.

In particular, the pre- and post-retirement discount rates were high for an employer that is currently unlikely to be able to make up the shortfall should the investments not perform as expected.

Following correspondence between the trustees and the regulator, the trustees agreed to revisit the valuation.

Technical provisions were increased, doubling the deficit. Contributions were increased from year 3 to reflect the expected improvement in the company's financial position. This meant that the length of the recovery plan was not increased.

Case study 2

The scheme's employer was in an industry in which technological developments had made the market very competitive. The employer and trustees were aware that the employer was in difficulties.

The trustees and the employer agreed the technical provisions and recovery plan and submitted them to the regulator.

The technical provisions were viewed as not sufficiently prudent for a weak employer. This lack of prudence arose from the choice of discount rates and the mortality assumptions adopted.

In discussions with the trustee and the employer, the regulator emphasised the importance of the technical provisions and the need to set these at a sufficiently prudent level, even if the recovery plan needed to be longer as a result.

The trustees submitted a revised valuation and recovery plan. Although the recovery plan length had greatly extended due to affordability issues, the technical provisions had increased by 30%.

Case study 3

The sponsoring employer operated in the household goods sector. The scheme was small with a stable business supporting it.

A valuation was submitted and the technical provisions were viewed as acceptable given the strength of the employer.

The recovery plan, however, was viewed as too long, given that it was likely the employer could afford to clear the deficit in a shorter time frame than the 22 years set out in the plan.

Following discussions with the trustees regarding the affordability of the employer to make payments to the scheme, the trustees renegotiated with the employer. The trustees were able to reduce the length of the recovery plan considerably by nearly doubling the contributions to the scheme from year 2 of the recovery plan.

The revised recovery plan was viewed as being more in line with the affordability of the company. It would improve the medium-term funding position of the scheme, as well as increase protection for the Pension Protection Fund in the event of future insolvency.

Case study 4

The sponsoring employer was a union for workers across the UK. The employer was considered to be reasonably strong, but with limited cash flows due to the way in which it produced income.

The technical provisions were viewed to be reasonable, given the strength of the employer. The regulator decided to investigate the scheme because the recovery plan was 15 years long, which represented an increased level of risk for scheme members.

After communication with the trustees, it was found that they had come to an agreement on a contingent assets with the employer to support the recovery plan.

As the employer did not have high levels of cash flow, the recovery plan was in line with affordability. As the contingent asset was in place, this provided the trustees with the mitigation needed to accept a longer recovery plan.

Case study 5

The employer sponsored a number of separate defined benefit pension schemes, one of which was open to future accrual.

The employer had a strong financial covenant and was a subsidiary of an overseas parent. As part of the global group restructuring plan a number of businesses, both in the UK and elsewhere, had closed and the assets were sold.

As a result of these closures, the schemes (other than the one which remained open) became frozen with no active members.

Assets were gradually sold with the intention of passing the proceeds back to the parent company by way of dividends.

The employer obtained legal advice and applied for clearance  as the dividends were seen to represent a type A event .

The original plan was to inject funds only into the scheme with active members. The regulator considered that all of the pension schemes should be treated equally. As a result, mitigation to offset the reduction of the employer's balance sheet strength was paid to each of the schemes.

The trustees of all the schemes were able to support the clearance application.

Case study 6

Clearance was requested for the refinancing of a large plc group, which would result in the new lenders acquiring significant security where previously there had been none.

The group was the sole sponsoring employer of the defined benefit scheme, which was open to future accrual.

The proposed mitigation offered by the group, which the trustees supported, was for a cash payment to be made into an escrow account as and when the group sold its entire shares in another company.

The regulator considered that the mitigation was not acceptable in view of the risk to the scheme going forward should the refinancing proceed.

The regulator held meetings with the group and the trustees.

The mitigation finally offered was for a third charge to be given to the scheme (thereby improving its outcome in the event of employer insolvency). This would be reduced when the sale of the employer's ownership in the other company materialised, and the cash payment previously discussed would go straight into the scheme.

In addition, it was promised to the trustees that no further extension to the group's borrowings would be made without their agreement. It was also agreed that cash payments over a fixed period would be made into the scheme to reduce the deficit.

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Pension Schemes Practical Examples

This is a collection of examples from pension schemes embedding ESG considerations into their investment decisions, reporting, or engagement across the investment chain, aligning with the focus areas in our ESG Maturity Map for Pension Trustees . The series is designed to enable trustees to understand the practical steps that peers are taking as well as their ‘top tips’ to taking similar action.

While the initial group of examples are from UK schemes, many of the steps taken and recommendations given can be transferable to other jurisdictions.

Please contact  [email protected] if you have an example to share.

Engaging with high-emitters

STRENGTHENING STEWARDSHIP THROUGH TCFD REPORTING

Our approach to scenario analysis

Considering climate in employer covenant assessments

Delivering a net zero investment strategy

An approach to stewardship

Putting in place TCFD metrics

TCFD Reporting

Aligning our member expectations with our investment strategies

Dedicating assets to sustainable outcomes

Securing Long-term Value Through Stewardship

Setting a Net Zero Investment Strategy

Engaging asset managers to support net zero

SETTING A NET ZERO INVESTMENT STRATEGY

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Pensions toolkit guidance.

A4S has produced guidance and other resources to help pension chairs and trustees embed ESG considerations into their investment decisions, reporting, and engagement across the investment chain.

Pension maturity map

Detailing what good looks like and enabling trustees to assess where they currently are and how they can advance to a leading position.

Stay up to date with all the latest news at A4S. Our monthly newsletter includes the latest guides, reports, stories and thought pieces from finance leaders from across the globe.

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Case Study: Future Retirement Planning & Pensions

Our client was a couple looking to retire at age 63, although their State Pension Age was 67 and the projected amount of their State Pensions would be £8,500 each per year. They had accrued £130,000 in ISAs (cash, and stocks and shares) and around £90,000 each in pensions. They also had £140,000 in deposit accounts.

Capital Gains Tax Concerns

They needed an income of £24,000 net per year and wanted to know how they could achieve this. They also wanted to keep an emergency reserve, which would be enough to cover any large future outgoings, i.e. a car purchase. They knew the interest rates on their deposit accounts would not provide them with the returns they needed.

Our Solution

Our financial planning team supported this client, as follows:

• We moved their ISAs into income funds, which would provide them with around £5,000 tax-free income per year.
• We advised our client to invest £100,000 from their deposits into a portfolio of income producing funds to provide them with an income of £4,000 per year. This was chosen in a way to ensure the mixture of dividends and interest would fall within the tax-free allowances. We also advised them to place the remaining £40,000 on deposit into NSI Premium Bonds as a reserve, as any winnings would be a tax-free bonus.
• We transferred their pensions into one pot, moving £60,000 each into ‘drawdown’, so they could take the maximum as tax-free cash amounting to £15,000 each. This could also be placed into NSI Premium Bonds, with £5,000 withdrawn each year to top up the income received. We advised them to draw £5,000 each per year from their ‘drawdown’ pension pot – as this amount would fall within the income tax personal allowance, no tax would be payable.
• ISAs: £5,000
• Pensions: £10,000
• Income Portfolio: £4,000
• Premium Bond Withdrawal: £5,000
• TOTAL: £24,000

With no income tax payable

• Once they reach the age of 67, their State Pensions will provide £17,000 per year. Therefore, the withdrawal from the Premium Bonds can be stopped and the income taken from the pensions reduced to £3,500 each. This will enable them to keep all pension income within the income tax personal allowance.
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Pensions at a Glance 2023

• Finance and investment
• Pensions and insurance
• Public pensions

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Cite this content as:.

The 2023 edition of Pensions at a Glance highlights the pension reforms undertaken by OECD countries over the last two years. It includes a special chapter focusing on pension provisions for hazardous or arduous work. It describes existing rules, characterises recent policy trends and assesses the design and functioning of early-retirement rules for hazardous or arduous jobs given changing working conditions and ageing pressure on pension systems.

This edition also updates information on the key features of pension provision in OECD and G20 countries and provides projections of retirement income for today’s workers. It offers indicators covering the design of pension systems, pension entitlements, the demographic and economic context in which pension systems operate, incomes and poverty of older people, the finances of retirement income systems and private pensions.

In the same series

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• Crime, justice and law
• Police Pension Scheme retrospective remedy
• Home Office

Police Pension Scheme retrospective remedy: equality impact assessment (accessible)

Updated 10 August 2023

© Crown copyright 2023

This publication is licensed under the terms of the Open Government Licence v3.0 except where otherwise stated. To view this licence, visit nationalarchives.gov.uk/doc/open-government-licence/version/3 or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: [email protected] .

Where we have identified any third party copyright information you will need to obtain permission from the copyright holders concerned.

This publication is available at https://www.gov.uk/government/consultations/police-pension-scheme-retrospective-remedy/outcome/police-pension-scheme-retrospective-remedy-equality-impact-assessment-accessible

Name and outline of policy proposal, guidance, or operational activity

Title: Police Pensions Retrospective Remedy and Police Pensions (Remediable Service) Regulations 2023.

Public consultation on police pension scheme regulation changes to enact the second phase (“retrospective”) of the remedy to the McCloud / Sargeant cases.

The second phase of the remedy is to make changes to the scheme regulations, in line with the Public Service Pensions & Judicial Offices Act (PSPJOA) 2022, to allow public service pension schemes to remedy the impact of unlawful age discrimination. That discrimination arose due to certain transitional arrangements put in place when public service pension schemes (including the police schemes) were reformed between 2014 and 2016.The second phase of the remedy, the retrospective remedy, is to remedy the discrimination that had taken place between 1 April 2015 and 31 March 2022.

HM Treasury has conducted an equality impact assessment , which considers the impact of the overarching policy, powers and requirements associated with the PSPJOA. As set out in that assessment, in particular paragraph 1.8, that assessment “does not cover secondary legislation made using powers in this Bill. Separate analysis to consider the impact of changes to scheme regulations (beyond those covered and/or directed by the measures in the Bill) will be produced when the powers to do so are exercised”

Introduction

This EIA explains how we have given due consideration and complied with our equality duties under the Equality Act 2010 throughout the development of our policy proposals to make changes to the police pension scheme regulations in line with the PSPJOA. The Home Office is required by the PSPJOA to introduce legislation and policies to implement the retrospective pension remedy in the police pension schemes by the 1 October 2023 deadline.

Summary of the evidence considered in demonstrating due regard to the Public- Sector Equality Duty

We have considered the report produced by the Government Actuary’s Department (GAD) on “Transitional Protection Remedy: Retrospective Remedy Phase Analysis to Support the Equalities Impact Assessment Police Pension Schemes (England & Wales) – June 2023”. In producing that report, GAD considered evidence including the data provided by (or on behalf of) police forces to GAD for the 2016 actuarial valuation, as detailed in their report “ Police Pension Scheme (England & Wales) - Actuarial valuation as at 31 March 2016: Report on membership data ” of 28 February 2019, and data from the police workforce statistics [footnote 1] .

Consideration of the duty

The Public Sector Equality Duty (PSED) is set out in section 149 of the Equality Act 2010 and requires public authorities, in the exercise of their functions, to have due regard to the need to:

• eliminate unlawful discrimination, harassment and victimisation and other conduct prohibited by the 2010 Act
• advance equality of opportunity between people who share a protected characteristic and those who do not
• foster good relations between people who share a protected characteristic and those who do not

This involves having due regard to the need to:

remove or minimise disadvantages suffered by people due to their protected characteristics, and

take steps to meet the needs of people from protected groups where these are different from the needs of other people.

This EIA should be read alongside the Public Service Pensions: Police Pensions (Amendment) Regulations 2023 consultation document.

The equality duty covers the nine protected characteristics: age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex (gender) and sexual orientation.

Having considered the analysis set out below, we are content that this policy is consistent with the PSED. Its whole purpose is to eliminate unlawful discrimination and foster good relations between younger and older members of the police pension schemes who are eligible for remedy and, by giving all eligible members a choice, advances equality of opportunity for that cohort. The cohort is defined by having to have service in the remedy period and having been in a public service scheme on or before 31 March 2012 [footnote 2] .

The Courts determined that the transitional protection element of the 2015 public service pension scheme reforms treated those members who were closest to retirement more favourably than younger members, and this amounted to direct age discrimination.

These changes are being made to satisfy the requirements of the Public Sector Pensions and Judicial Offices Act (PSPJOA) 2022. This is in order to remedy the unlawful age discrimination identified in the McCloud/Sargeant litigation.

Direct and Indirect Discrimination – All members of the police pension schemes who were affected by the McCloud/Sargeant discrimination are eligible for the remedy and can benefit from these provisions. Through membership of the police pension scheme, all members in scope for the remedy will have equal access to the remedy, irrespective of any protected characteristic that may apply to them.

Members eligible to choose between legacy and reformed scheme benefits are slightly older than the overall active member population, and older than those members not eligible for Transitional Protection Remedy. The EIA carried out as part of the Public Service Pensions and Judicial Offices Act recognised this point in section 3.6 (page 22). As expected, the eligible members in the 2006 Scheme are younger than those eligible for Transitional Protection Remedy in the 1987 Scheme. The Protected members are much older than the Unprotected and Tapered members.

Members expected to be most likely to benefit from being offered a choice of benefits in the Remedy Period are younger than the eligible member population. Furthermore, younger members are more likely to a member of the 2006 Scheme. However, given that this policy decision aims to ensure all eligible members are treated equitably with those members closest to retirement (i.e. Protected members), this was to be expected.

There is no available data on these protected characteristics in relation to the membership of the police pension schemes in England and Wales or Police (England and Wales) workforce.

Gender reassignment

Marriage and civil partnership, pregnancy and maternity.

The following Data shows an increase in the proportion of police officers identifying from an ethnic minority to 8.1% in 2022. This might suggest that members eligible to make a choice of legacy or reformed scheme benefits over the Remedy Period might be less likely to class themselves as from an ethnic minority compared with those not eligible to make a choice.

• Data as at 2013 - Police workforce, England and Wales, 31 March 2013 - GOV.UK
• Data as at 2016 - Police Workforce, England and Wales, 31 March 2016 (publishing.service.gov.uk)
• Data as at 2022 - Police workforce, England and Wales: 31 March 2022 - GOV.UK

Religion or belief

The Equality Act 2010 lists ‘sex’ as a protected characteristic. Data for the membership of the police pension schemes in England and Wales is also available by sex. However, it is important to note that sex and gender are two different concepts. A person’s gender identity is not always the same as the sex assigned to them at birth, and some people may not identify as having a gender or as non-binary. Gender reassignment is also a protected characteristic under the Equality Act 2010.

In determining that the transitional protection arrangements discriminated on the grounds of age, the Courts also concluded that if older members in a scheme were more likely to be male, providing older members with preferential terms amounted to indirect sex discrimination.

The following table sets out the sex profile of all active members in the Police Pension Schemes (England & Wales) as of 31 March 2016, as well as the sex profile of the active members eligible to choose between legacy and reformed scheme benefits, and those not:

This analysis identifies that:

• The majority of active members are male, and so too are the majority of active members who are eligible/ineligible to choose between reformed and legacy scheme benefits over the Remedy Period.
• The percentage of the eligible members who are male is the broadly the same as the percentage of the overall scheme population who are male (70%).
• The percentage of the members not eligible to choose between reformed and legacy scheme benefits over the Remedy Period who are female is slightly higher than the percentage of female members eligible to make this choice. This follows because more recent joiner are more likely to be female.

The table below sets out the percentage of males in both the overall scheme population and the population eligible to choose benefits in the Remedy Period, at each age range:

• The percentage of the active member population that is male is greater at older ages. Accordingly, the overall percentage of members eligible to make a choice of benefits in the Remedy Period, and who are male, is also greater at older ages.
• The percentage of members who are not eligible to make a choice of benefits in the Remedy period and who are males, is broadly consistent with the overall scheme population at younger ages. However, in general, the percentage of male members who are not eligible for remedy is smaller at older ages than the general male active membership.

The analysis supports that members who are eligible to choose between legacy and reformed scheme benefits in the Remedy Period are more likely to be male, since we have seen that they are more likely to be older.

Sexual orientation

Summary of foreseeable impacts of policy proposal, guidance or operational activity on people who share protected characteristics.

In light of the overall policy objective, are there any ways to avoid or mitigate any of the negative impacts that you have identified above?

As this policy is about remedying a previous age discrimination, the identified impacts are positive. Other than age, we have not been able to identify any differences of treatment between members who are the same but for one of the protected characteristics.

Review date: ongoing

Declaration.

I have read the available evidence and I am satisfied that this demonstrates compliance, where relevant, with Section 149 of the Equality Act and that due regard has been made to the need to: eliminate unlawful discrimination; advance equality of opportunity; and foster good relations.

SCS sign off:

Name/Title: Peter Spreadbury

Directorate/Unit: Police Workforce and Professionalism Unit

Lead contact: Sara Alderman

Date: 12 July 2023

For monitoring purposes all completed EIA documents and updated EIAs must be sent to the [email protected] .

Date sent to PSED Team: 12 July 2023

Police workforce, England and Wales, 31 March 2013 - GOV.UK (www.gov.uk) Police Workforce, England and Wales, 31 March 2016 (publishing.service.gov.uk) Police workforce, England and Wales: 31 March 2022 - GOV.UK (www.gov.uk)   ↩

Without a break in service greater than 5 years that means the member’s service prior to 1 April 2012 and post 31 March 2015 is disjointed.  ↩

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