One Day... | Your Money - Your Future

Busting some common pension myths

A recent study published on the Pension Bee website found that 75% of people don’t feel confident making decisions about their pensions. Don’t worry if you feel the same, because in this article, we clear up some of the most common myths about pensions.

What’s the difference between pensions and savings?

Firstly, both you and Babcock will contribute to your Scheme pension – the Company won’t make contributions to any other savings you might have. Secondly, while there are some savings arrangements that allow you to invest your money, most savings accounts rely on interest rates to build up the money you save. For defined contribution pensions, your money, on the other hand, is always invested and will rely on returns on investment and interest for growth.

Can I have more than one pension?

You can, yes. Over the course of your working life, you’ll probably work for more than one employer and build up pensions at each workplace. You can also save into a personal pension at the same time as contributing to a company pension but your employers won’t contribute to these personal pensions.

Will my pension contributions be lost if I die?

No, you can nominate anyone, e.g. your spouse, civil partner, children, parents or other close relatives or friends for the Trustee Board to consider if there are death benefits payable from the Scheme. You should make sure you have completed an Expression of Wish form and return it to the Pensions Team. The form isn’t a legal document, but the Board will take your wishes into consideration when deciding how the death benefits should be settled and to whom.

Won’t the State Pension be enough?

The Pensions and Lifetime Savings Association (PLSA) has drawn up a set of Retirement Living Standards. These Standards show the amount of income you’d need to be able to lead a Minimum, Moderate or Comfortable lifestyle in retirement. To enjoy the Minimum Retirement Living Standard, which covers your needs with some left over for fun, it recommends an income of £10,900. If you’re eligible for a full new State Pension, you’d receive £9,627.80 in the 2022/23 tax year. While your outgoings may be lower in retirement than they were when you worked, the figure still falls below the PLSA’s Minimum Retirement Living Standard.

Find out more about the PLSA’s Retirement Living Standards or you can look at our other article in the News section.

How much State Pension could I get?

This will depend on how many years you’ve been paying National Insurance contributions for – you need 35 qualifying years to receive the new State Pension. You can check your eligibility and find out what your State Pension age is on GOV.UK.

What are the benefits of building up your Babcock pension?

Saving into a pension means that you’re building up benefits for when you retire. Making contributions into the BRSS is also one of the most tax-efficient ways you can save (up to certain amounts). And, if you make your contributions through Salary Sacrifice, you may also make National Insurance savings. Babcock will also match your contribution rate to a maximum level but you can still pay more than the maximum matching amount.

How does my pension grow?

The contributions you and Babcock make into the BRSS help it to grow. They are also invested with the aim of long-term growth.

What happens to my pension if I take long periods out of work?

If you take time off work, for example for maternity, paternity, or parental leave, you may earn less, which could have an impact on how your pension builds up. However, Babcock pays contributions for any period of paid parental leave to help with this. Once you return, you can boost your savings by increasing your contributions or by making Additional Voluntary Contributions (AVCs) depending on which Scheme you’re in.

You can use AVC modeller to work out how to top up your pension.

What happens to my pension if I leave Babcock?

If you stop working for Babcock you have two choices to make about your Babcock pension:

You can leave your pension where it is – you would then become a deferred member of the Babcock Scheme(s) you’re in. You can then take your benefits when you retire. Or...

You can transfer your savings into another pension arrangement – you would then no longer be a member of the Babcock Scheme(s) you’re in, so you won’t receive a Babcock pension.

Some benefits can be costly to replace, so if you’re thinking of transferring out it’s a good idea to speak to a financial adviser to make sure this is right for you. You can find one at unbiased.co.uk. In some circumstances you’ll be required to seek independent financial advice before a transfer out can proceed.

How can I take my Babcock pension?

The options you have for taking your pension will depend on which Scheme you’re a member of.

If you’re a member of RRDPS, BIGPS or DRDPS, you can:

If you’re a member of BRSS, you can:

Take your pension when you reach your Normal Retirement Age (NRA).
Usually have the option of taking a tax-free lump sum – your pension will be adjusted downwards to reflect this.
Take your pension before you reach your NRA – this is called early* retirement. Your pension will be lower as it’s likely to be paid for longer. Currently you can take early retirement from age 55.
Take late retirement – your pension will be higher as it’s likely to be paid for less time.

Use your Personal Account to buy an annuity – this is an insurance policy that pays you an agreed income, which can be for a fixed period of time or for the rest of your life.
Purchase a drawdown arrangement – you take money out as and when you need it and leave the rest invested for potential growth. You must transfer your Personal Account to another pension arrangement that offers this facility. The BRSS doesn’t offer drawdown.
Take your Personal Account as cash. Take up to 25% of your pot as tax-free cash and the remaining 75% is taxed at your marginal rate. This can be taken as a one off payment or multiple payments over a period of time.
Take a combination of any of the above to suit your needs.
Also consider taking early* or late retirement.
Take guidance from Pension Wise to find out more about your options in the lead-up to your retirement.

*The Normal Minimum Pension Age (NMPA) is the earliest age the law allows you to start taking your benefits without paying a tax penalty. For most pension schemes, the NMPA is currently age 55, but from 6 April 2028, the government is increasing this to age 57 for some schemes. We’ll be issuing a separate newsletter about this.

Choosing how to take your pension when you retire is an important decision. To help make sure you make the right choice for you, speak to a financial adviser. You can find one at unbiased.co.uk.