When it comes to saving, one thing you really should focus on is your pension, no matter what your age. Most people avoid saving for a pension when they’re young because retirement seems too far away, but then start panicking when they hit their 50s, realising they don’t have any money to fund old age.
Women, and mums in particular, are facing the biggest shortfall in money when they retire – one in five women retires with no pension. Not saving for old age is a dangerous game, as you could face poverty when you stop working.
Just think, all of a sudden you will not be bringing home an income, but you will need to pay bills, eat and enjoy life in retirement, so you need to prepare for this financially.
If you don’t have a pension, then don’t panic, there are things you can do now to make sure you have something put towards a pension pot.
Why don’t you have a pension?
If you don’t have a pension, ask yourself why? Do you think you’re too young? Is it because you can’t afford it? Do you think the state pension will be enough? Or maybe you have property income?
These are the most common answers people give when asked why they don’t save for a pension, but none of them are reasons not to save. If you’re young, then that’ss perfect because the younger you start saving for a pension, the better – yes, even as young as in your 20s.
If you have an income, then you won’t miss your pension coming out. If you have a workplace pension, your employer will pay into it too and you also get tax relief (the government gives you back the tax you paid on that income), so by saying no you’re essentially turning down a lot of free money. But more on workplace pension a little bit further on.
If you’re self-employed, then you still benefit from tax relief, so why give the money to the taxman when it could go towards your pension? You can set up your own private pension arrangement, but make sure you ask about fees – if they’re too high, they can eat into your income.
If you have a property, that’s great; some people assume that they can use the equity from their pension. but your property is not your pension. It won’t benefit from tax relief or employer contributions, so you’re missing out on that money. It also means that your retirement income is at the mercy of the property market, which may not be doing well when you retire. Although property can be a great way to supplement a pension, it should not replace a pension.
If you’re working, the option is simple; take up the workplace pension offering and maximise your contributions as your employer will match them up to a certain amount. Talk to your HR department about either joining the pension fund or increasing the contributions.
New auto-enrolment laws mean every employer must automatically enrol every employee earning over £10,000 a year into a pension scheme and contribute a minimum of 1%. However, employees can opt out. If you have already opted out, opt back in and make the most of the free money your employer will pump into your pension pot.
Some employers have until February 2018 to do this, so if you haven’t been enrolled into a scheme yet, you soon will be. Auto-enrolment contribution are set to increase between now and April 2019, which means your employer will pay more into your pensions but you will also have to put more in.
What if you don’t have regular income?
You may not have regular income, perhaps because you’re self-employed for example. If this is the case, put something into a pension every time you do have receive some income. If you don’t have any income at all, maybe because you’re are a stay at home mum, then consider asking your partner to contribute into a pension scheme for you; if you’re at home looking after the children, then it’s only fair your partner helps you with a pension.
Maximise your state pension
You shouldn’t just rely on a state pension, you should do all that you can to maximise it.The current new state pension is £159.55 per week, but you only get this full amount if you have 35 years’ National Insurance credits, otherwise it’s less. And if you have less than 10 years’ National Insurance credit, you don’t get any state pension at all.
If you stopped working to have children, then you will still get these credits if you register for child benefit – so even if you’re not entitled to the full child benefit, which is dependent on your total household income, you should register for it to protect you National Insurance contributions.
The Lifetime ISA
If you’re under 40, you can put money into a lifetime ISA, which allows you to save £4,000 a year into savings to use for either a pension or to buy your first home.
The government will give you a 25% bonus every tax year for whatever you put in – so, if you have £1,000 you’ll get £1,250. If you save the maximum £4,000 in any tax year, you will end up with £5,000.
If you do put money into a lifetime ISA, approach it with caution, because if you don’t use it for it’s intended purpose (pensions or first home) then you will face significant penalties and lose the bonus – you could end up with less money than you put in.
The lifetime ISA should not replace your existing pension arrangement, such as a workplace pension, as that is stronger option for anyone saving for later life.
Get financial advice
Pensions can be complicated, so if you are unsure what to do, take advice, particularly if you are making your own pension provision.
You don’t need advice if you’re just joining a workplace pension. Your HR department should be able to answer your questions.
You can find a financial adviser at Unbiased.co.uk. An adviser may charge a fee, but this fee may be worthwhile to help you get your finances in order.