Can I still build my work pension fund at age 66?
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I reach my state pension age next year at 66. I am still working full time and my employer is happy for me to continue for several years, providing I stay healthy. I know I can delay taking my state pension, but can I still build up my work pension fund?
Richard Barker of Smith & Pinching responds:
I’m assuming that you are a member of a workplace scheme where your benefits are accrued through contributions from yourself and your employer (known as a Defined Contribution or DC Scheme), rather than a scheme where your entitlements are based on your salary and length of service (known as a Defined Benefit or DB Scheme).
Essentially, you can build further DC pension entitlements while you are still working until you reach age 75 – subject to the usual allowances, which I’ll explain below. However, you will need to check with your employer that you can continue to contribute to your workplace scheme and receive employer contributions, as there may be a scheme retirement age in place. If you have to stop contributing to your workplace scheme, there is no reason why you shouldn’t have a further private pension scheme into which you can contribute.
There are two allowances which you must bear in mind when building pension savings. Firstly, there is an annual allowance for contributions, which currently stands at £40,000 or 100pc of your qualifying earnings (whichever is lower). There are a couple of exceptions to this allowance: those who have started taking flexible benefits from their pension savings and particularly high earners. If you contribute more than the annual allowance applicable to you, you will face a tax charge.
The other allowance to be aware of is the lifetime allowance. This limits the total amount of pension savings you can build up in UK schemes in your lifetime. It currently stands at £1,073,100. Working – and therefore contributing – for a longer time could potentially allow your fund to grow beyond this figure. If your fund is in danger of approaching this threshold, it would be important to plan carefully so you don’t exceed it. There is a punitive tax charge for any pension savings above this figure.
Pension savings are tax-efficient – they benefit from tax relief which augments the amount you contribute right from the start – and they can be invested for growth, although that isn’t guaranteed. They form a pivotal part of financial planning for the majority of people. However, it’s critical to have a clear plan that ensures your pension savings continue to suit your needs.
Any opinions expressed in this article do not constitute advice. A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation.
For more information, please visit www.smith-pinching.co.uk