With rising pension ages, a plethora of new tax rules, and the 2030 Annual ISA Allowance Freeze, many savers in the UK will be figuring out how they can best prepare for retirement.
The UK government’s State Pension scheme is a great bonus when you reach the qualifying age, but many will likely rely on the funds from their personal and/or workplace pensions to enjoy their golden years.
This article will explore how much you can save in a Self-Invested Personal Pension (SIPP) and how much you will earn from your State Pension.
What Is A SIPP And How Much Can You Save?
A SIPP scheme differs from other personal pensions because it lets you decide how your money is invested. When setting up a SIPP, you can choose your provider, how often you want to contribute, and how much your contributions will be.
You can open a SIPP from the age of 18 and withdraw from it when you reach the normal minimum pension age (NMPA), which is currently 55 but will be rising to 57 from April 2028.
Any money you contribute to your SIPP is subject to government tax relief, which aligns with your usual Income Tax rate. For example, if you pay Income Tax at 20%, a £100 contribution will cost you £80, but if you pay Income Tax at 40%, a £100 contribution will cost you just £60.
If you are a higher-rate or additional-rate taxpayer, you can claim the extra tax relief by completing a self-assessment tax return or contacting HMRC.
You can get tax relief on all your pension contributions each tax year until you’re 75, as long as you don’t pay in more than you earn and all payments are less than the annual pension allowance of £60,000.
What Is A State Pension And How Much Can You Earn?
The State Pension is a welfare benefit from the UK government, paid every four weeks to those who have paid enough National Insurance (NI) contributions during their working years.
The age at which you’re eligible to receive your State Pension is set to rise from 66 to 67 on the 6th of April, 2028. However, you can withdraw funds from most personal and workplace pensions when you reach the NMPa. This means you might choose to retire before you can claim your State Pension.
You don’t contribute directly to a State Pension like you do a SIPP. Instead, the government rewards you for the National Insurance contributions you have made throughout your life.
The full amount you can currently receive on the new State Pension is £230.25 a week for those with 35 years of qualifying contributions. The lowest amount you can currently receive is £65.79 a week for those with only ten years of qualifying contributions.
Anyone with less than ten years of qualifying contributions will receive nothing, and anyone with 11 to 34 years of qualifying contributions will receive an amount between £230.25 and £65.79 a week.
Please note that the weekly amount increases in April each year, based on whichever is highest between 2.5%, inflation, and the average wage growth between May and July of the previous year.
You can check how much State Pension you’re on track to get, ways to increase it, and when you can claim it on the government website.
If you want to ensure you qualify for the full State Pension amount, there are a few things you could do:
- Check if you can claim National Insurance credits, as these help to fill gaps in your record and ensure you qualify for the State Pension. For example, if you’ve been off sick for an extended period, on maternity leave, doing jury service, receiving Universal Credit, or receiving a Jobseeker’s Allowance.
- Consider making voluntary contributions to fill any gaps in your National Insurance record.
- Check if you can claim Pension Credits. These credits don’t boost your State Pension amount but help with living costs by offering benefits, such as a free TV licence and the Winter Fuel Payment.
Prepared For Retirement?
A SIPP is an excellent option for saving for retirement, as you have complete control over how much you will have when you reach your golden years. However, taking measures to qualify for the full State Pension amount is helpful as it ensures you get the most from the government on top of any personal or workplace pensions.