Where to start?

vintagebrighton

I know, I know, I'm 53 and all this seems a bit late. And tbh, a bit overwhelming!

Anyway, following a few life events (2 divorces, 4 children as a single parent, a breakdown, bankruptcy and last, but not least cancer) I am in a seriously perilous position regarding retirement.

On the plus side I have a council tenancy so secure in that way. I also have 2 very small pensions from working over the years (mostly pt) which will give a small lump sum of 6000 (stop laughing :rotfl:). I have a full contribution record for state pension through a mixture of work and stamps paid whilst raising children.

My partner will also receive a lump sum of 14000 and a final salary pension of 100pw from 60 (he's 56). We are marrying next year.

I've been self employed since 2004 and never paid anything towards a private pension or health insurance. The idiocy of this hit home when I was diagnosed with cancer 2 years ago and was left reliant on ESA. For health reasons I cannot return to that work and am retraining. I cannot see me ever working for someone else. Not just because I'm not an attractive proposition for an employer!

So, where to start? My state pension age has moved from 60 to 67. Good in a way because I have a few years to save (but yes, I know this should have been done sooner).

Is it worth starting another pension? What about just saving as much as possible so we have money to live on? Not very effective I would think. What about buying my council place? Not something I want to do but the thought of getting caught up in UC etc when I'm a pensioner terrifies me :eek:

Partner works pt (his work in advice was cut) and is studying for a Phd. I will be working pt self employed. I get ESA contributions based at the moment but will give this up in April.

What do I prioritise? Thank you for any pointers you can give

VB x

Dunnit

First of all, fourteen years out, you are not in a perilous position with regard to your pension as there is no point in worrying about something that far away, no one is laughing at your £6k pension pot and no one will take you to task because you should have started your retirement planning earlier.

You have given no indication about when you and your partner want to retire and how much money you will want/need to enjoy your retirement.

You also state you would like to buy your council house but give no indication of how much it would cost, what discount you would be entitled to and how you would fund the mortgage.

You have given no indication about how much you will earn this or in future years. Will your partner's PhD lead to more lucrative work?

Furnishing some of this information will make it easier to help.

MoneySavingUser

vintagebrighton wrote: »

Is it worth starting another pension? What about just saving as much as possible so we have money to live on?

Yes

Because:
a) you get tax relief on the contributions you make to a pension but not on savings
b) you'll get 25% of the pension back tax-free

You'll pay tax on the remaining 75% but overall you will be better off (plus it will have grown tax-free over the next 14 years).

vintagebrighton

Dunnit wrote: »

First of all, fourteen years out, you are not in a perilous position with regard to your pension as there is no point in worrying about something that far away, no one is laughing at your £6k pension pot and no one will take you to task because you should have started your retirement planning earlier.

You have given no indication about when you and your partner want to retire and how much money you will want/need to enjoy your retirement.

You also state you would like to buy your council house but give no indication of how much it would cost, what discount you would be entitled to and how you would fund the mortgage.

You have given no indication about how much you will earn this or in future years. Will your partner's PhD lead to more lucrative work?

Furnishing some of this information will make it easier to help.

Thanks for your response. I guess I'm panicking a bit but trying to make sense of where we are and what our (realistic) options are.

I think one of the options would be to buy our flat (it's half a house so not a 'block' as such) for security. We would have approx 72000 discount which would leave a purchase price of 100000. Not sure if it's doable. It would mean saving the majority of that money rather than having a mortgage. We aren't a good mortgage proposition.

As for ages/income when we retire, we already know we can't fully retire till the state pension kicks in. We have a household income of 18000 at the moment and save 6000 of that. When I've paid my family debt we could save another 150pm. We have a good quality of life for that. From what I understand, if we both get a full state pension that would be 150 pw each? OH would also have 100 pw from his private pension. But I'm pretty sure when we retire there'll be nothing else as there is now.

I don't think our income will increase significantly. OH works pt and is self employed aswell but his contract ends soon. We're going to live in Scotland next academic year as his Phd is at St Andrews and it's his last year. He's hoping to get teaching work. After that, lot's of ifs and buts but nothing concrete.

All our work is gone, we both worked in advice (CAB's and Shelter) so it's a case of trying to keep things going financially till I can build a client base and he can get another contract.

Putting it all down it looks as though a) we'd struggle to buy at our current income b) I wouldn't want less than our current income but we'd manage c) it's a waste not to put into some sort of pension

Is 20000 pa feasible and if so how? It is if I've understood the flat rate pension properly but not sure if I have.

Thanks

VB x

vintagebrighton

MoneySavingUser wrote: »

Yes

Because:
a) you get tax relief on the contributions you make to a pension but not on savings
b) you'll get 25% of the pension back tax-free

You'll pay tax on the remaining 75% but overall you will be better off (plus it will have grown tax-free over the next 14 years).

Thanks for your response. How would I go about trying to find a pension to pay into when self employed?

VB x

vintagebrighton

Sorry forgot to say

OH salary now 11000 plus SE income 3000
My ESA now 55000 plus a few hours SE 1000

Less tax etc.

I'm aiming for an income of 10000 and think that's realistic after the first year. OH will lose his main income in Sept

VB x

MoneySavingUser

vintagebrighton wrote: »

Thanks for your response. How would I go about trying to find a pension to pay into when self employed?

VB x

You can pay into a SIPP or a personal pension with a provider such as Hargreaves Lansdown/Fidelity/Cavendish online etc. if you look around the forum you'll find more info about these providers.

Also: http://www.moneysavingexpert.com/savings/cheap-sipps

vintagebrighton

Thanks, very useful link I'll start there

VB x

atush

your ESA is 55K? Or 5500?

anyway, yes you should probably have or start a pension. but cancer if in remission doesn't mean you are not employable so do consider being an employee as employers pay into your pension alongside you and any extra you can get would be so much the better.

It doesn't sound as if you will be able to buy unless and until your OH gains a teaching position after PHD. In the meantime, do either of you have any savings towards a mtg? I assume you wont meed much of a deposit as you get a 72K discount so assuming you'd be looking at at mtg fro 100K on a property worth 172K?

Where is your 6K old pension? How has it been performing for the last 5 years?

You can open a new pension online somewhere like cavendish online or HL and invest in a range of trackers or perhaps better for you a lifestyle fund that mixes equities and other assets like bonds. Something like the Vanguard series.

And yes, getting married is wise, as his FS spousal pension would go to waste.

Good luck going forwards, it sounds as if you are due some.

jamesd

vintagebrighton wrote: »

Is 20000 pa feasible

It is. Even if you did nothing but ensure yo both get the full flat rate you'd end up on at least £21,200 plus whatever your own non-state pensions pay.

vintagebrighton wrote: »

I know, I know, I'm 53 and all this seems a bit late. And tbh, a bit overwhelming! ... Anyway, following a few life events (2 divorces, 4 children as a single parent, a breakdown, bankruptcy and last, but not least cancer) I am in a seriously perilous position regarding retirement.

Life happens. You've still got time to make a significant difference.

First thing to know is that the median average household income for pensioners is only around £18,000. Next thing is that the full flat rate pension level is likely to be around £8,000 a year per person. Because median is the level where half are above and half below that also tells you that if you're not in a high cost part of the country you could be fine just on a pair of state pensions, even more so with your private pension incomes on top.

So, first priority is to find out your single tier/flat rate state pension foundation amounts will be. You can't do that now and won't be able to until around mid to late 2016, when HMRC and the NI system get details for your 2015/16 income into the system. Once you know that you can work out how many more years of NI it'll take for each of you to get to the full flat rate. that'll be a bargain so make sure that you both do it. Once you take care of that you'll be in pretty good shape.

After thinking about that you'll need to know roughly what each £100 a month of gross pension contributions gets you in the way of pension pot and income potential. You can do that with a regular savings calculator. Put 100 into the monthly payment box, 14 into the number of years - the number until state pension age - and 4.5 into the interest rate, which is the long term average return of the UK stock market after inflation and with about 0.5% deducted for costs. The answer is a pot size of £23,343 in today's money. There's a rough rule that you can take about 4% of the pot size as income, increasing with inflation. So that pot size corresponds to about £933 a year, £77.81 a month or £17.95 a week of taxable income. You'll get at least basic rate tax relief so each net £80 of pension contribution a month, increasing each year with inflation, could get you around that much income. But you appear to already have sufficient income on the way to meet your target, so you don't need this, at least not as a first priority.

Next thing to know is that one thing that is associated with poverty in old age is not owning your own home. Owners are simply better off than renters due to lower overall costs. Even council places can't make up for the difference. I'm not sure that you'll be able to do it but it you can manage it this suggests that buying your current rented place could be a good long term deal.

But "My partner will also receive a lump sum of 14000 and a final salary pension of 100pw from 60 (he's 56)". That's £5200 a year of taxable income, taking your household income above the median pensioner household income level. And a bit more from your own pensions. This plus how much you're saving tells me that you can make pension saving for income a relatively low priority because you're already going to be in quite decent shape.

Since you can't use a mortgage at the moment, it's worth wondering why and whether that'll change in a few years. Then it's good to know that from age 55 you can get at pension money. 25% as a tax free lump sum, the rest added to taxable income in the year in which it's taken. This makes pensions a great way to save for a person of your ages, since the money isn't locked up. Either saving for a deposit of for the whole purchase price.

Saving £6,000 on a combined income of £18,000 is impressive. I suggest using heavy pension contributions with a view to getting the tax relief then using the pension pot to help to buy a home.

The home buying can be helped by "My partner will also receive a lump sum of 14000" in four years.

vintagebrighton

Thank you so much for all the information and pointers, it's really helped clarify things for me.

One last question...... if we were to use pension saving as a means to save a large sum to buy the property, how would the money be taxed when we want to withdraw it in a lump sum?

VB x