No pension and fast approaching 40

Alison_B

Hi, I am new to the site and really could do with some advice.

I am fast approaching 40 and I haven't got a pension.   I feel really worried about this and have done so for quite a while but we just can't afford to put any money aside.

I worked from being 18 until 26 when I had my first child, I now have 2 children.  We own our home so are mortgage free but are still paying the endownment policy, we were led to believe when we took it out that it would be about £40,000 when it matures in 2015, so that is going to be put aside for retirement.  My husband has got a reasonable pension from his works.

Am I correct in thinking that unless I go back to work, I won't qualify for a state pension (if it still exists when I am due to retire).  What are the best sort of pensions that I could look that are affordable.

Many thanks

AJ

MarkyMarkD

No you are not correct.

If you are the person named on a child benefit book, you qualify for Home Responsibilities Allowance which is effectively an exemption from the year requiring NI contributions to qualify for state pension.

So, if you work all the years except those during which your children are under 18, you will get a full state pension.

That said, proposals to de-link state pension from NI contributions may put a spanner into this.

dunstonh

What are the best sort of pensions that I could look that are affordable.

A pension is just a savings product like an building society account, ISA, Nat Savings or bond. It just has different rules on how you can take the money out and when. All savings/investment products have different tax rules and the same applies to pensions.

So forget looking at a product becaue one may take £20pm and another £100pm as at the end of the day, you only get back what you pay in.

What you should be looking at first is what you want in retirement. You should perhaps look at this as a couple. You should also consider death of your husband. It may be morbid but if his pension dies with him or halves in payment, it could leave you in lurch.

You can also both earn over 6k a year tax free after age 65. You cant pass your allowance to your husband so it also makes sense to have some of the retirement planning in your name for that reason.

Lola.G_2

DD
Are you saying that you may as well just put money aside i.e. in a bond, as go through the rigmarole of starting up a pension fund?

I'm in similar circumstances, although have got 2 (extremely) small pensions I contributed to through different employers which are now frozen.

Now working part-time and have been thinking about paying into a stakeholder pension, although as this isn't going to be a huge amount from your reply above wonder if I should just build up a building society fund then stick it in bond when I get to a reasonable amount.

dunstonh

Are you saying that you may as well just put money aside i.e. in a bond, as go through the rigmarole of starting up a pension fund?

No, i was inferring that a pension product is just a savings product with different rules. Some of the rules are beneficial, some are less beneficial. Tax relief on the contributions is one of the biggest benefits but having to purchase an annuity at the end up which is classed as taxable income may be less beneficial.

A pension shouldnt involve any more rigmarole than any other product when it comes to setting it up.

One way to look at it is like this:

1 - how much income do I want in retirement?
2 - how much lump sum is needed to provide that income?
3 - which is the best method to achieve that lump sum?

So work it out in that order and think product last. It may be that a combination of products achieves the goal. It is possible a bond could be more beneficial for someone very close to retirement whereas the tax advantages of the pension would make that more beneficial the further away you are. Equity ISAs may be considered for some of the planning.

Now working part-time and have been thinking about paying into a stakeholder pension, although as this isn't going to be a huge amount from your reply above wonder if I should just build up a building society fund then stick it in bond when I get to a reasonable amount.

You put £78 in a building society and £78 goes in. The interest may be taxed depending on your circumstances. You put £78 into a stakeholder and £100 goes in. Thats a 22% gain overnight and then compound the growth on that over the years and the pension looks very attractive.

Lola.G_2

Thanks for your assistance.

Alison_B

Yes, thanks for you help. Will have to start cutting back even more and try to put into a pension. Its a little unfair that my neighbour that is on benefits and hasn't ever worked will get her state pension but I will have to go back to work in a few years time to make up my contributions.

Thanks again.

Alison

dunstonh

Yes, thanks for you help.  Will have to start cutting back even more and try to put into a pension.  Its a little unfair that my neighbour that is on benefits and hasn't ever worked will get her state pension but I will have to go back to work in a few years time to make up my contributions.

Thanks again.

Alison

Your neighbour may be on benefits and you may feel its unfair but he/she will be looking at a pension of around £160.95pw in retirement (if married or £105.45pw if not). Try and have a decent lifestyle on that!!

If you do nothing, that is what you are looking at. Possibly lower if the pension credit is phased out (unlikely under Labour but who knows long term?).

So, anything you do for yourself is going to improve your standard of living in retirement. Yes its a pain having to see your money put aside for upto 40 years time but you will appreciate it when you get there.

Milarky

If you are the person named on a child benefit book, you qualify for Home Responsibilities Allowance which is effectively an exemption from the year requiring NI contributions to qualify for state pension.

So, if you work all the years except those during which your children are under 18, you will get a full state pension.

Alison,
HRP also entitles you to accrue state second pension [S2P] at the 'basic' rate - in addition to the basic state pension [BSP]. This is a valuable benefit [eg for this year you will get about £85 annual pension from the BSP and about another £84 annual pension from S2P - in constant price terms at age 65]

There are big changes already pencilled on for 2006, which will make pensions-saving much more flexible. Also, in a year's time the Turner Commission will report on the issue of compulsion. Whatever they recommend there will almost certainly be big changes to the rules around the state pension and means testing. The thrust of any changes will be to make it either more attractive for your to save in this way OR compel you to do so. You can justify putting off any decision now therefore on the grounds that in one or two years time a lot of the current uncertainties will be firmed-up. In the meantime you could get into regular savings into a non pension product so that you will have a lump sum to play with later.

happygolucky_4

AJ, In way of an answer and a question, I'm in a similar boat to you. I have a pension of sorts but it's not worth a lot, but I have recently come into some money. I'm thinking about buying a villa abroad and paying the mortgage instead of paying pension contributions, the rent should let it pay for itself, if it goes well I may be able to have 2 or 3 places by the time I retire and at todays tourists rates I should be seeing about £30K a year, all mine (and the tax mans) with no pension broker to pay!

dunstonh

I'm thinking about buying a villa abroad and paying the mortgage instead of paying pension contributions, the rent should let it pay for itself, if it goes well I may be able to have 2 or 3 places by the time I retire and at todays tourists rates I should be seeing about £30K a year, all mine (and the tax mans) with no pension broker to pay!

A pension broker?

A stakeholder pension has a maximum of 1% a year annual management charge and gets at least 22% relief.

You will be borrowing money and paying interest higher than 1%. You will have property maintenance to pay and a bad tenant can cost you a fortune. Until April 2006, you cannot benefit from tax relief either.