Pensions are awesome. There, we said it! They’re specially designed to help you save for retirement, which means they make it oh-so-easy to stash money away so you can enjoy your golden years to the fullest.
But is it possible to have too much of a good thing? Well, there’s no limit to the number of pensions you can have, and having both a workplace pension and a personal pension is a great way to boost your retirement income. However, you probably don’t want to have too many pensions as they could easily get lost! Here’s the full lowdown.
Can I have more than one pension? Really?
Yes, yes and yes again! You can have more than one pension. In fact, you could have 40 if you wanted (not that we’re recommending you get 40 pensions… they’d probably be hard to keep track of!).
Having said that, even though there aren’t any limits to the number of pensions you can have, there are some other limits you’ll need to bear in mind when it comes to how much you can pay into them. Let’s take a look at some of those here.
A workplace pension is a pension that’s set up for you by your employer. This is different from personal pensions, which you set up yourself. (Wait, what’s a personal pension?).
With a workplace pension, you usually have to contribute 5% of your earnings to your pension each month. But the really great news is that your employer has to contribute too – at least 3% of your earnings, straight from their own pocket!
Anyway, the point is that you can have as many workplace pensions as you want. In fact, the chances are you’ll have a few by the time you retire, as each time you change jobs, you’ll be set up a new workplace pension by your new employer. The average worker in the UK changes jobs 5 times (according to AAT). So, we’ll let you do the maths.
HOWEVER even though there’s no limit to the number of workplace pensions you can have, you can only pay into one at a time. In other words, you can have lots of workplace pensions lying around waiting for you to retire, but they all have to be ‘dormant’ other than the one your current employer has set up for you (a dormant pension is one you and your employer are no longer paying into).
Instead, if you want to pay into more than one pension at once, you’ll need to start a personal pension alongside your workplace one. Hint: this is a really sensible idea and can be a great way to boost your income in retirement!
Technically, you can pay as much as you want into your pensions each year. But if you want to get all the tax benefits that pensions normally come with, you’ll need to make sure that you don’t go over a limit set by the government, known as the annual allowance.
At the moment, the annual allowance is £60,000 or 100% of your salary – whichever is lower.
In other words, if you earn £30,000 per year, your annual allowance will be… wait for it… £30,000 – it’s equal to your salary because you’re earning under £60,000. On the other hand, if you earn £100,000 per year, your annual allowance will be £60,000 – because you’ve earned more than £60,000. Makes sense, right?!
The only exception is if you’re over the age of 55 and you’re already taking an income from your pension. In this case, your annual allowance will be much lower – normally £10,000.
So, what does this all mean in practice?
Well, if you stay under the annual allowance, you won’t have to pay tax on any earnings (like your salary) that you pay into your pension. This is known as tax relief and is the government’s way of helping you to boost your savings for retirement!
However, if you go over your annual allowance, you won’t be able to claim that sweet, sweet tax relief on the extra money – which might mean you’re better off doing something else with it instead (for instance, stashing it away into another kind of savings account, like a Stocks & Shares ISA).
Is it a good idea to have more than one pension?
Yes! If you have a workplace pension already and you have some extra cash, we’d usually recommend setting up a personal pension alongside it. A personal pension can be a great way to boost your income in retirement – and it’s generally a much better shout than increasing your workplace pension contributions.
Not only is a personal pension flexible (most modern personal pension providers like PensionBee and Penfold will let you pay in as much or as little as you want, whenever you want). But you’ll also be able to choose your own pension provider – unlike with a workplace pension, where your employer will pick out a pension provider for you. That means you’ll usually be able to choose a pension provider that has cheap fees and a great track record for growing pension savings quickly – we’ve put together a list of the best private pension providers so you can easily compare them.