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48 No pension and panicking !

20 replies 2.3K views
14 posts
Over the years I have been self employed and tried different careers. I have never really been in the position to save into a pension as I seem to have spent most of my life just about getting by. I went into debt starting my current business which has become a success giving me 50K a year and working from home dont have to pay child care costs. Debt has been paid off. I am now sweating I should have started a pension by now but even when I look online I quickly get lost in detail, I dont even know why do I start a pension or just save money.
I can put £200 month into pension at the moment which I know wont equate to much but need to start something and can possibly add to over time. I have just signed up a mortgage and have two children so looks like things will still be tight but need to start something.
Each time I search online I get info on people wanting to draw on pensions at my age not start them, its very depressing!

Any help appreciated
Many Thanks


  • JoeCrystalJoeCrystal
    2.2K posts
    Part of the Furniture 1000 Posts
    Do Not Panic.

    I do not know much about the self-employment aspects of the pension schemes, but you still got twenty years until your state pension age, so you got loads of time to build up your pension fund. You can even expect a state pension by 67 (atm), likely to be worth at least £8,767.2 in today's money, providing you paid your NI contributions of course.

    First of all, you need to think about how much you want to retire on and then work your way backwards. There are a few pension calculators online you can try to help you out.

    But, in my opinion, £200 per month is not going to be enough for someone who starts late. It is only less than 5% of your gross income, the minimum auto-enrolment for the employees, for example, is 8% combined from the employees and the employer. So you are going to need to be realistic.
  • cfw1994cfw1994
    620 posts
    Part of the Furniture 500 Posts Photogenic
    Nothing in life is worth panicking over! Whatever your age, the best time to start is now!

    I think you can check to see how many years pension you have: you may be able or need to top up there if you have “empty” years.

    Remember the government add to your pension payments, so definitely worth starting something up.

    Others will likely chip in with pointers: I have a work scheme so I don’t know so much about setting up your own, sorry.
    Enjoy the family & hope the business goes well :)
    Plan for tomorrow, enjoy today!
  • DairyQueenDairyQueen
    1.2K posts
    1000 Posts Third Anniversary
    Your sense of urgency will be helpful. The good news is that you have realised that you need to focus hard on saving and the best thing you can do is to make saving a priority. Review your current spending in order to identify where you can cut expenses in order to max your savings. Every pound that you invest now (thanks to compounding) will be worth more in retirement.

    Firstly, check your state pension forecast online. Make sure that you have sufficient future years of NI contributions to hit the maximum.

    Do you have an emergency fund? This should be a priority. Aim to stash 6 months net income in cash. This buffer to a sudden loss of income and/or unexpected major expense is an insurance policy that we all need.

    Having addressed the above basics, focus on stashing as much as possible inside a pension wrapper. This can be achieved very simply using, for example, a SIPP. As you are self-employed, you will benefit from investigating the various tax-efficient ways that you/your company can pay into your pension.

    Keep the pension simple. At this level of saving (£200p.m.) a low cost, global tracker held inside a SIPP on a mainstream platform will do the job. This forum is full of information about SIPPs, SIPP providers and passive funds.

    If you save £200p.m. (plus £50 tax relief at 20%) for the next 18 years, and receive a modest average 3% return (net of fees), your pot will be worth £72,000. However, if you increase the £200 by inflation each year (also assume 3%) the total increases to £91,000.

    If your starting amount is £220p.m., (plus £55 tax relief) increased by inflation at 3%, the total pot jumps to £100,000.

    This could sustain an income of between £3k and £5k p.a. (depending on many factors, not least when you begin drawdown and your life expectancy at retirement). However, that's in today's value. Inflation will increase the cost of living over the next 18 years and, in real terms, it will be worth less.

    I use these as examples to demonstrate the magic of compounding. Investing as much as possible monthly over the next 5 years will be of much more benefit than the equivalent invested in your 60s.

    You are already aware that, unless you are able to save a substantial monthly amount from now (much more than £200p.m. net), it is too late to expect a retirement income anything like the average. Better to know this so you can plan to, for example, work for longer or live frugally.

    As Joe mentioned, retirement planning usually begins with having an idea of how much income you will require and the size of pension pot needed to provide it. Monthly contributions are then calculated with this income aim. However, I think such an exercise would increase your panic. Better to accept that your retirement income will be low unless you can substantially increase the monthly contribution.

    No magic wand can be waved but it is definitely worth you saving into a pension. The tax relief makes this a no brainer. Any retirement income above SP will make life easier.

    The Pensions and Lifetime Savings Association have published a very useful guide to retirement living standards and income. Note that the values given are net of income tax and assume no mortgage or rent payable in retirement:
  • Triumph13Triumph13
    1.7K posts
    Sixth Anniversary 1000 Posts Name Dropper I've been Money Tipped!
    A few key questions to ask yourself:
    -Will you have other sources of income in retirement eg a spouse with own pension?

    -Do you have realistic expectations that you income will increase significantly in the future or your expenses will decrease allowing for much higher savings?

    -Can you expect any significant lump sums in the future eg inheritance or selling your business?

    Absent the above, unless you are happy to accept a massive drop in lifestyle when you retire the aim of the game is to work out what level of spending you can sustain for the rest of your life - which is going to mean cutting back a lot now in order to build a pension for later. The often-quoted rule of thumb is to take your age at the time you start saving for a pension, divide by two and that is the kind of percentage of income you need to be saving - that would suggest 24% in your case which probably sounds terrifying / impossible. Your realistic aim probably needs to be a smaller percentage now, building to a significantly larger one over time.
    The £200 a month is a start and it's great that you are doing that. The priority is to get that higher over the next few years through some combination of increasing earnings and decreasing expenditure. The second of those is, in many ways, the more powerful one as the less you are accustomed to spending, the less you need to save to support that lifestyle in retirement.
    You have demonstrated by building a successful business that you have the drive and determination needed to build a successful retirement for yourself. Don't panic, but recognise that this has to be an increasingly important priority for you and work out a 'business plan' for what you need to do to get to where you want to be. Think about how your income and expenses are going to vary over the next two decades (children, mortgage, etc) work out how much you need to invest and when in order to balance your lifestyle now with your lifestyle in the future then commit to those plans. There are plenty of people on here who would be happy to help you run the numbers. You can do this!
  • SpreadsheetmanSpreadsheetman
    334 posts
    Fifth Anniversary
    Triumph13 makes some good points. Another thing to consider is getting the mortgage paid off, essential if income is going to drop massively in retirement.
  • barnstar2077barnstar2077
    235 posts
    Third Anniversary 100 Posts Photogenic
    A SIPP is also a good way to help your family should you die before your 75th birthday (and without having accessed the pension) as they will be able to take the whole thing tax free, or leave it invested to draw an income from. This has given me some real peace of mind, knowing that my ex will be okay If I am not around to look after her.

    Hargreaves Lansdown are a good place for beginners to start as their website is considered one of the easiest to use. Their costs make them less favourable once your pot reaches 50k, but then you can always transfer to another provider. A lot of people recommend using Vanguard's Life Strategy funds as your base. You could open your SIPP today and drop some money in the VLS 60 fund while you continue to read up on things. Just get started!
    If you don't have your own plan, then you're following someone else's!
  • To say I am grateful for these responses would be an understatement I have this lingering concern over me for some time but want to enjoy family life and dont want to find myself drinking the odd glass of wine here and there just to feel upbeat.

    Here is my situation with NI from the website

    24 years of full contributions
    19 years to contribute before 5 April 2038
    8 years when you did not contribute enough

    My goals
    In my retirement I have lots of low cost hobbies and interests to pursue, my main concern is not costing my children money or make them feel I am poor . I am not looking to go traveling or have luxury holidays etc both me and my wife are happy with simple living.

    We will of course have to maintain a car pay mortgage etc, house repairs and birthday christmas presents etc.

    My outgoings
    We got caught up in London on high rents when we had our baby and got stuck in the trap of not making a deposit to buy while paying the cost of living. We had to stay for my wifes job, we gave away £140K on rent in the last 7 years which should have been half way through a house but we are not, we just signed up on 10% deposit on £306K with £5K owed to parents to pay for stamp duty but we will have this back to them before January.
    No child care to pay out as i work from home and have them here.

    Working life
    I can happily taper down my work and be working late in years I guess something like 20K a year at 65 without too much stress health permitting, I wouldn't want to forecast past that but might go further.

    Other info
    My wife has a good pension set up but this is also part of my concern, I dont want to be funded by her or feel I am holding her back from doing what she can afford, but again we both have simple needs in terms of days out and what we see ourselves doing in retirement.

    Both our parents own their own homes split between 3 of us on each side but we always assume we might have to pay for care homes and see them out nicely so dont really add this into our plans.

    Many thanks any more info that would be a help let me know will start on the super advice given here and feedback as I go but in the space of one day I have moved very much forward in my mind..... Thanks every one !
  • atushatush
    18.4K posts
    Ninth Anniversary 10000 Posts
    First congrats for having your lightbulb moment.

    My wife has a good pension set up but this is also part of my concern, I dont want to be funded by her

    Forget this. You are a couple, a financial unit. She will not be funding you, she will b e helping as you do fund your joint life. Given your type of work, she may retire before you, and you will be funding her?

    So start your pension asap, with your 200/m (which will be 250/m after TR. More if you go into HRT. Open a Sipp or PP online and choose a low cost global equity fund or mixed asset fund. High diversification, low cost. Add more to your pension as soon as you can afford it.

    Talk to your accountant. If you earn 50K you might be better off becoming a LC and paying your pension as a business expense. And taking some of your salary as dividends rather than income.
  • SpreadsheetmanSpreadsheetman
    334 posts
    Fifth Anniversary
    atush wrote: »
    First congrats for having your lightbulb moment.
    Forget this. You are a couple, a financial unit. She will not be funding you, she will b e helping as you do fund your joint life. Given your type of work, she may retire before you, and you will be funding her?

    ..and also think about what happens if one of you dies early/first. i.e. deceased state pension stops, the deceased DB pensions reduce to survivors level (often 50%). How much money will the survivor then have to live on?
  • pkpkpkpk
    55 posts
    Would the Vanguard VLS60 be a good place to start? It can be bought through HL I think so there are options to choose other funds.
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