It’s important to understand your pension options, including how different types of pension work and the benefits for people with cancer and their dependents.
A pension is a long term investment. Money paid into a pension plan becomes available when you retire. You can draw on it as early as age 55, or you can delay (defer) claiming your pension until you are 75 at the latest.
You might already have an occupational or private pension scheme. Check what it offers carefully. It might pay a lump sum or start the pension early if you need to retire through ill health. Some pension plans will pay the pension, or a lump sum, to your dependents if you die.
Occupational pension schemes are also called:
- employers pension schemes
- company pension schemes
- superannuation schemes
The employer makes all or most of the contributions to this scheme. The maximum an individual employee may put in is 15% of their salary. If the employee's current contribution is below this, then it may be increased by additional voluntary contributions (AVCs) to a private pension plan, which will then lead to increased benefits.
You can also pay into a private pension scheme while you’re a member of your employer's scheme. In any tax year you may pay in up to your annual salary or £40,000, whichever is lower. The limit of £40,000 is known as the Annual Allowance. It also includes any contribution your employer will make.
If you want to join an occupational pension scheme
It might be worth joining an occupational pension scheme through your job, if you have or have had cancer.
The main advantage of this over a private scheme is that your employer pays a large contribution and all administrative charges.
The terms of occupational pension schemes are obviously different from job to job. But they can be useful for people with cancer and their dependents. Benefits include:
- replacement income if you're off work for long periods because of ill health
- pension if you have to retire early because of ill health
- pension for your husband or wife and your children if you die
- life insurance or a lump sum for your husband or wife and children if you die before retirement age
The amount that’s paid into the scheme will obviously affect the amounts that are paid out.
Having cancer might mean you can’t join or rejoin an occupational pension scheme at your place of work. The rules and conditions vary a lot from scheme to scheme. Contact your employer's personnel department or the Trustees of the employer's pension scheme. To get independent advice, contact the Pensions Advisory Service (TPAS).
If you have an occupational pension
It’s worth checking your entitlements if you already have an occupational pension. You might want to check how any change in your financial or medical situation will affect payments to and from the scheme.
You might need to pay into the scheme for a minimum amount of time before you can receive some of the benefits. The amount of time you’ve been paying into the scheme can also affect how much you receive in terms of benefits.
Decide who you would like to benefit from your plan if you die. Tell the people running your pension scheme. You can do this on an ‘expression of wish’ form, which you can get from them. If you don’t do this, it will be up to the Trustees (the people who oversee your scheme) to decide who will benefit.
You might be eligible to receive a lump sum from your pension provider if you are terminally ill. The Trustee of your pension scheme decides about whether you can take this sum. Contact the pension scheme trustee who will be able to advise you further.
Automatic Enrolment or Workplace Pension Scheme
In October 2012, the government introduced automatic enrolment into a workplace pension. Every employer must automatically put UK workers into a workplace pension scheme if they are aged between 22 and state pension age, and earn more than £10,000 a year. Automatic enrolment will come in over a number of years, with larger employers enrolling their workers first.
The market in private pension schemes can be complicated. Talk over your financial position, needs and concerns with an authorised financial adviser.
Ask your family and friends if they can recommend a trustworthy financial adviser. Or get a list of local independent financial advisers from the link below.
Cancer and private pensions
There is nothing to stop you taking out a suitable private pension scheme if you have cancer or have had it. You don’t have to have a taxable income to join a private pension scheme. You can join a stakeholder pension plan and pay up to £3,600 per year whether you have a taxable income or not.
You might have to complete a medical questionnaire. Give details of any existing or pre existing condition to the financial adviser or broker who is arranging the plan.
Find out what would happen under your planned scheme if you could no longer make the pre arranged contributions. For example, you might need to leave your job because of illness, or draw on your pension because of enforced early retirement.
Personal pensions are very individual. Benefits and costs can vary greatly, but they can also be flexible. You'll need to shop around, with your financial adviser, before making any decisions.
Before you start to take benefits from your pension, get expert advice from a qualified financial adviser.
The decisions you make now will affect your income for the rest of your life. They will also affect what will happen to your income and savings when you die. In some cases these decisions cannot be changed.
Usually, most of your pension fund is used to buy an annuity. The annuity provides a guaranteed income for the rest of your life.
You can choose to take up to a quarter (25%) of the fund as a tax-free lump sum if you are under 75. The more you take as a lump sum, the less you will have to buy an annuity.
There are many annuities to choose from. Most companies offer an open market option. This lets you use your pension fund to buy an annuity from your choice of provider.
A good adviser will discuss the options with you and help you to choose the annuity that best suits your circumstances.
Some types of annuity
Most annuities stop paying out when you die. But some have an option to guarantee payments for 5 or 10 years, even if you die before that time. In that case, the remaining guaranteed income could be paid as a lump sum into your estate (minus taxes). Or it’s more likely that your income is paid to your estate as if you had lived for 5 to 10 years.
Some annuities pay a fixed amount for life. The income from others may change over time. They may increase by at a fixed rate such as 3% a year, or they may change in line with the Retail Price Index (RPI). The RPI is a way of comparing the cost of living from year to year to see how much it has changed.
Joint Life Annuity
You can also take out a joint life annuity with your spouse or partner. This means that if you die before your partner, they will continue to get an income for the rest of their life. This may be the same amount as you were getting, or two-thirds (66%) or half (50%) of that amount. Generally a joint life annuity will provide a lower income than a single life annuity.
Impaired Life Annuity
You might qualify for an Impaired Life Annuity if you have cancer when you want to start drawing on your pension. This means that you should get better terms because of your ill health. Discuss this with your financial adviser.
Capital Protected Annuity
Another option that could give you more control over what happens to your money is a capital protected annuity. This is also called an annuity protection lump-sum death benefit. It means that if you die before you are 75 years old, a lump sum is paid into your estate. This lump sum is the amount you paid to buy your annuity, minus the amount that has been paid out to you through your pension. It will be taxable and there may also be inheritance tax to pay on it.
Unsecured Pension Plan
Another way of taking income from your pension is called an Unsecured Pension Plan. This is also known as Flexi Access Drawdown. It means that you can take a tax-free lump sum of up to 25% of the value of your pension fund. And you can put off buying an annuity altogether and leave the remainder of your pension (minus any lump sum) invested.
If you leave some of your pension invested, then you withdraw your income from your pension fund. Since the pension reforms in April 2015, you are free to withdraw any level of income that you like. It is possible to draw another lump sum, or future lump sums when you need them.
In theory you can now take all your pension in one lump sum. This option may appeal to people who are seriously ill. But you are strongly advised to get advice from an authorised financial adviser before you draw funds from your pension. This is because there may be serious income tax implications.
Drawing your pension income through Flexi Access Drawdown is considered to be a riskier way of using your pension. This is because you’re relying on the performance of your investments and you don’t have the security provided by an annuity. Flexi Access Drawdown is probably not suitable for you if you will only have a small pension fund (after any lump sum is taken off) or you have no other assets.
If you choose to use an Unsecured Pension Plan, you can now delay taking benefits until whichever age suits you best.
Your chosen beneficiaries will receive the value of your pension if you die before retirement (or before conversion to annuity).You can fill out an ‘expression of wish’ form so the Trustees know who you want the value to go to.
Uncrystallised Funds Pension Lump Sum
Another way to draw funds from your pension is to take an Uncrystallised Funds Pension Lump Sum (UFPLS). This is a new option available since April 2015. It allows you to take a one off payment or several lump sum payments directly from your pension fund itself. Each time you take a lump sum through UFPLS, 25% of that withdrawal will be tax free and the rest will be taxed at your marginal rate of Income Tax.
Money Advice Service
Helpline: 0300 500 5000 (8am - 8pm Monday to Friday, 9am - 1pm Saturday)
An organisation set up by the government to give clear, unbiased money advice.
The Pensions Advisory Service (TPAS)
Helplines open 9am -5pm Monday to Friday
Webchat: Monday to Friday 9am to 5pm, Tuesday extended opening 7pm - 9pm
Pensions helpline: 0300 123 1047
Helpline for women: 0345 600 0806
Helpline for self employed: 0345 602 7021
Email: online enquiry form
An independent voluntary organisation that provides advice on all types of pension. For help with clarifying your pension entitlements, you can also contact your local Citizens Advice.
The Pensions Ombudsman
Phone: 020 7630 2200
The Pensions Ombudsman deals with complaints about pension schemes. You can send complaints in writing directly to this address.