Stakeholder Question.

Honeybee_2

Right, I'm a full time Mummy and I don't work.

I'd like to start a stakeholder pension as I have no provision for retirement (although my husband does) but don't have a clue where to start.

Any ideas?

margaretclare

Yes. Have a look at this site for a start: https://www.stakeholderpensions.gov.uk/

The idea of stakeholder pension schemes was designed for people like yourself who haven't got an earned income. Up to then, you could only save for a pension from earned income. If you can manage some savings from e.g. the housekeeping or your Child Benefit, for every 78p you put into a stakeholder scheme the taxman will add 22p thereby making a pound which can be invested.

There are people here who may advise you to save by other means first e.g. by maximising your annual ISA allowance rather than by saving in a stakeholder. However, it's a good idea to find out whether this is what you really want.

Margaret

EdInvestor

Assuming you have worked in the past, the first thing to do is to check up what provision you do already have with your state pensions.

Get a forecast here

You will get credits for home responsibilities but there may be gaps which need filling in and this might be a sensible way of spending some spare cash.

It's not generally a good idea for non-taxpayers to save in the pension wrapper - pensions are a much better deal for high rate taxpayers. It might be better to open an investment ISA. That's assuming you have no debts and already have saved a cash emergency fund?

dunstonh

Whilst i do tend to advocate the ISA more nowadays, you still need to utilise your tax free allowance in retirement first and if you arent going to qualify for a state pension in your own right, then commencing a pension instead of an ISA would be the financially better option.

It's not generally a good idea for non-taxpayers to save in the pension wrapper -

Why? The tax treatment of investment funds in ISAs is identical to pensions and a non tax payer in retirement, as well as currently, benefits from basic rate relief which wouldnt happen on the ISA.

EdInvestor

Honeybee should also bear in mind that the Government plans to introduce a new rule requiring only 30 years contributions to get a state pension.Thus for younger women toay, a full state pension is a virutal certainty and there will be no tax free allowance left over for other pensions.

What's the difference tax wise between a pension and an ISA?

EET vs TEE

A pension is exempt from tax on the way in (the first E), exempt from tax while invested (the second E), but taxed when you receive it (the T); hence EET.With an ISA you put taxed money in, (T) its investment return is free of tax (E) and the output is not taxed either (E again).

So they are like a mirror image of each other. With the pension you do get to take out 25% of the fund tax free, but to get this not only do you have to pay tax on the other 75%, you can also never take the capital out, may lose it completely if you have to buy an annuity, and can only take a restricted income from the fund after a certain age (55).

The ISA by comparison has no restrictions on either the capital or the income, no annuity requirement and the money is all tax free and available whenever you like.

When people talk about saving in a pension, they often just mean saving up for when they are old: they don't really understand that the word "pension" also has other meanings, as above.It doesn't really matter how you accumulate that pot of money for your old age - pension, ISA,BTL, BS, under the mattress, selling a business, whatever. But it's a mistake to use the word "pension" as a euphemism for "pot of retirement money" ,as many people have found out in the past.

dunstonh

If the OP is going to be a non-taxpayer in retirement and is a non taxpayer now, then a pension would be better than the ISA. She gets tax relief now and the income would not be taxed in retirement.

People should always aim to "use up" their personal allowance in retirement using pensions (state and personal) and then move to ISAs once that has been achieved.

Honeybee_2

I have worked in the past. I worked from the age of 16-22 then on and off after the age of 22. (I'm now 26)

I'm going to be taking a few years out although I do plan to do self employed work when my husband is at home to look after the children which I'm estimating will bring in approximately £100 per week. Eventually, I do plan to have a career but it won't be until the children are much older due to childcare commitments.

I have 2 small credit card debts which will be gone by Christmas so plan to start saving in the new year.

I've looked at the pensions that my building society (Nationwide) offers and I'm liking the look of the cash stakeholder, is this a good option?

Thank you for replies by the way, they're much appreciated.:o

dunstonh

As you are going to be self employed, that would mean you dont qualify for the second state pension and only the basic (subject to earnings). So, using current figures, the basic state pension at £4381 a year. Your personal allowance at 65 is £7,280. That means you can earn £2899 a year with no tax taken and a further £2150 with 10% tax taken. So utilising a pension to provide an income to that level would be ideal. Once there is enough in the pension pot to do that, then you can move to an ISA thereafter.

Honeybee_2

Thank you.

I'll start up in the new year.