Starting a pension at nearly 40.

Jet

I'm completely clueless about pensions. I have no pension at the moment and am currently paying my mortgage off - will be clear within 2 years, before I'm 38 years old. :j

My plan is to then use the money I have been using to pay the mortgage to start paying into a pension, but not really sure where to start. I work for a very small company, part time and it's unlikely I will work for a large firm who would offer a company pension as I live in the sticks and have always worked for much smaller businesses.

So is it realistic to be saving around £150 - £200 per month from that age, could I expect a decent pension with that amount? What would happen if I was unemployed or ill and couldn't afford to pay in every month for a (hopefully!) short time. Are pensions flexible like that?

Batchy

Its never too late to start a pension, but the earlier the better, but dont let that put you off though.
When you have cleared your mortgage, would it be possible to pay more into pension? Or is that equivalent to your mortgage payment
I look and think about my pension every day, I feel enough is being done, along with ISA savings. So hopefully, with a batch of Premium Bonds maxed out by retirement, tax should be a minimum, and life should be good.

You shouldnt put all your eggs into one basket thou, how much will your house be worth? could you downsize on retirement? to release some equity?

marklv

Jet wrote: »

I'm completely clueless about pensions. I have no pension at the moment and am currently paying my mortgage off - will be clear within 2 years, before I'm 38 years old. :j

My plan is to then use the money I have been using to pay the mortgage to start paying into a pension, but not really sure where to start. I work for a very small company, part time and it's unlikely I will work for a large firm who would offer a company pension as I live in the sticks and have always worked for much smaller businesses.

So is it realistic to be saving around £150 - £200 per month from that age, could I expect a decent pension with that amount? What would happen if I was unemployed or ill and couldn't afford to pay in every month for a (hopefully!) short time. Are pensions flexible like that?

You are nowhere near too old to start a pension, and the fact that you have nearly paid off your mortgage means that you will be able to make big contributions from your salary. Aim to put in 40% of gross salary into a pension plan - in 25 years or less you should have a big enough fund to buy yourself a very decent pension.

Jet

40% of my gross salary? Wow, that seems like a lot! Not that I could afford that much anyway. I only have a small house, so downsizing wouldn't be an option.

Can I pick and choose what to save into a pension and when? I understand I can't get it back out once it's in but it would be nice to have the peace of mind that if I can't afford it, I can put payments on hold for a while or reduce them.

dunstonh

40% of my gross salary? Wow, that seems like a lot!

It is but then you have 20 years to catch up on. An 18 year old can afford to put in around £50 pm (with just annual indexation for inflation) and get a decent pension in retirement. That early money is going to be invested for 40-50 years. You only have 27 years. So, not only do you have less time, you also have to catch up with what you have missed.

£200 is a start but its not a lot given your age and lack of planning.

Can I pick and choose what to save into a pension and when?

yes.

I understand I can't get it back out once it's in but it would be nice to have the peace of mind that if I can't afford it, I can put payments on hold for a while or reduce them.

Sounds like you are planning to fail. You need to start treating your retirement provision in the same way you treated your mortgage payments or the gas/electric bills.

The basic state pension is £5000 a year. pension credit can take you to around £7000 if you are single. If you cant afford living now when a good chunk of you day is at work when you dont spend money, how do you think you are going to be able to live on £7k a year with an extra 7 or so hours a day available to you where you will spend (even if you sit at home you will have heating and lighting etc to pay).

marklv

Jet wrote: »

40% of my gross salary? Wow, that seems like a lot! Not that I could afford that much anyway. I only have a small house, so downsizing wouldn't be an option.

Can I pick and choose what to save into a pension and when? I understand I can't get it back out once it's in but it would be nice to have the peace of mind that if I can't afford it, I can put payments on hold for a while or reduce them.

Well you can do pretty much what you like, but bear in mind that being older you need to put more into your pension in order to get more out. My advice is contribute the same as what you were paying for your mortgage, plus a little more if you can afford it. £200 a month doesn't seem to be anywhere near high enough to me. If you want flexibility on payments then ISAs might be your best bet.

jh2009

You might benefit from playing around with an interactive pension calculator.

This gives you an idea of what you can expect if you save either a lump sum or a fixed monthly amount.

Of course its an estimate, based on estimated growth, contributions continuing, etc. But may be helpful. Theres many out there, but the following link is one you can use free of charge:

http://www.h-l.co.uk/pensions/interactive-calculators/pension-calculator

As for 40%, whatever amount you put in remember you get tax relief. Are you a basic rate taxpayer? If so then 20% of what you pay will be tax relief, so that might help you. So if you put in £100 you are only really paying in £80.

Contribute what you can afford and wish to. The main problem though is people who pay either:

1. £10 a month in for 10 to 15 years and expect £20k pa at retirement

or

2. Those who pay a fixed amount in like £100 at 40 and never review what they pay in (so £100 contribution not increased each year becomes worth less with inflation) and expect a large pension at retirement.

They are generally the people you see on tv upset that pensions has stitched them up. So while 40% may not be realistic, pay in a decent amount and keep it under review.

The pensions advisory website may be worth a look to give you info about pensions saving:

http://www.pensionsadvisoryservice.org.uk/

jh2009

marklv wrote: »

Well you can do pretty much what you like, but bear in mind that being older you need to put more into your pension in order to get more out. My advice is contribute the same as what you were paying for your mortgage, plus a little more if you can afford it. £200 a month doesn't seem to be anywhere near high enough to me. If you want flexibility on payments then ISAs might be your best bet.

While i agree with most of this post, I dont agree with this point on flexibility.

You can stop, start, restart or change a pension contribution at any time.

marklv

jh2009 wrote: »

While i agree with most of this post, I dont agree with this point on flexibility.

You can stop, start, restart or change a pension contribution at any time.

Yes, but with an ISA you don't need to wait until 55 to take the money.

dunstonh

Yes, but with an ISA you don't need to wait until 55 to take the money.

But for income it produces less than a pension.

In reality, most people are better off with a bit of both. Get the best of both worlds rather than be 100% in either option.

Jet

Thanks for the replies and the links - really interesting stuff and I can see I really do need to put quite a bit away. I think maybe I should go for a combination of ISA and pension. I don't plan on "failing" as someone suggested, but I do keep an open mind and am naturally cautious. Never defaulted on anything in my life and having my mortgage paid off is a big acheivement and I am now going to concentrate on making sure that I'm not destitute in my old age, but I am also realistic and realise I'm not going to be sunning myself in the caribbean every weekend on the sort of pension I am talking about. I'm certainly not a big earner and I doubt if many people on my income would even consider a private pension - certainly none that I know of!

The way I see it, the more I can put away, the better lifestyle I should be able to have in old age. The thought of solely relying on the state pension (which may not even exist then) is a scary one.