40 year old (pension) virgin

mrlav

Hi Peeps, I hope you're all well.
It recently dawned on me that I don't have any kind of pension/investment/savings habit/plan.
Pensions give me the hebegebees, as all I seem to hear as the companies go broke and people are left without their ££.  It doesn't seem that safe an option.
Does anyone have any advice on what sort of products I should be using?
Thanks in advance.

TimSynths

mrlav said:

Hi Peeps, I hope you're all well.
It recently dawned on me that I don't have any kind of pension/investment/savings habit/plan.
Pensions give me the hebegebees, as all I seem to hear as the companies go broke and people are left without their ££.  It doesn't seem that safe an option.
Does anyone have any advice on what sort of products I should be using?
Thanks in advance.

I'm 46, had a pension since I was 19. Best thing i ever did. I have been in company schemes, private schemes, bought out of company schemes, never lost a penny and do an annual review every October which after 25+ years of saving and the miracle of compound interest is getting exciting. I save 21% of my salary currently, I save just 6% and employer adds 15%- having a pension has been the best thing I have ever done. Its not to late to start and but not having one you are missing out on free money in the form of tax rebates. The best place to start is normally with your employer as they will add money too, please sort it out today, your future self will thankyou for it.

JoeCrystal

We came a long way from the 1980s in term of pensions. The scenarios you are referring to doesn't happen anymore. 
I hope you didn't opt-out of the pension provisions in your first twenty years of working.
First, are you employed? If so, then you should be auto-enrolled by your employer, that is your first port of call. 

hugheskevi

mrlav said:

It recently dawned on me that I don't have any kind of pension/investment/savings habit/plan.

An expensive mistake, and a lot of catching up to do but at age 40 that is all possible, although you need to start correcting this as soon as possible. It is going to be difficult for you to retire any earlier than State Pension age (68) unless you make very significant changes.

Are you certain you have no pension, eg, you have deliberately opted-out of your employer scheme in recent years, after they automatically enrolled you into a pension?

Pensions give me the hebegebees, as all I seem to hear as the companies go broke and people are left without their ££.  It doesn't seem that safe an option.

A valid concern prior to 2006, but only in relation to Defined Benefit pensions (ie final-salary and career average pensions, where your employer provides you with an income each year in retirement based on your years of service and salary).

Most pensions outside of the public sector are now Defined Contribution pensions, where you and your employer put money in, the money is invested in whatever you choose, and you build up a pot of money. When you retire, you use up that pot of money. These types of pension are no more or less safe than stocks and shares ISA, and the risk you run is just investment risk. Over a reasonable period of years (10+) the probability of the value increasing above inflation is very high.

Does anyone have any advice on what sort of products I should be using?

Your employer has to offer and contribute toward a pension for you. Speak to your HR department about joining that as soon as possible. Check whether your employer matches contributions you make and ensure you contribute enough to benefit from as much employer contribution as possible..

Once that is done, contributing more to your employer's pension scheme is probably going to be most sensible but you can worry about that once you have enrolled into it and got all the scheme details.

For example, it is likely to be desirable to put any income subject to higher rate tax into the pension (especially if you receive Child Benefit), and if your employer offers salary sacrifice contributions that makes pension contributions very attractive so those are a few things to consider and look out for in the scheme literature. Also, if you are in receipt of any means-tested benefits such as Universal Credit, pension contributions can be particularly good value.

Whilst you are doing the above, you may as well check your State Pension forecast, and that you are on course to get the full amount when you retire. Also check for any mention of contracted-out years in the State Pension forecast, as that would suggest you would have an old pension somewhere.

MovingForwards

Perhaps provide a little more information:
Employed?
Private or public sector? 
Salary (approx)?
Rent / own (with / without mortgage)?
Leftover monthly wage after everything has been paid out?
Partner?
Children?

What kind of lifestyle you want when retired? Eg 1 holiday or several? Eating out once a month or several times? Do you drive / own a car? Do you like the latest gadgets or after they've been out a few years?

What kind of lifestyle you have now?

The basic guide is take your age, divide by 2 and that's the % that should be going into a pension each month. The great thing is anything your employer pays in goes towards that % 

steampowered

It's worth educating yourself a bit on this. Over the course of your working life, having a decent understanding of pensions is worth hundreds of thousands of pounds. Imagine someone offered you £100k for 10 hours work - you'd do it, right? That's what 10 hours of time spent educating yourself on pensions is worth to your long term wealth.

You have been reading about "old fashioned" type defined contribution pension schemes - i.e. where your employer is responsible for paying the pension. That type of scheme has an issue if the employer that is meant to be paying it goes bust. These days, it's a bit different. A typical pension now is a bit like a personal savings account - the money you put in is yours; it isn't tied to your employer; if your employer went bust that wouldn't affect your pension at all.

The full state pension is worth £9.1k per year, so that's what you will have to live on unless you do some serious saving.

As you have now been through around half your working life without any retirement savings, you need to save twice as hard if you wish to have a reasonable standard of living in retirement.

You don't have to save through a pension - you could also save into a stocks & shares ISA or Lifetime ISA. However, pensions tend to be the best way of doing it - because (1) if you are employed your pension contributions get topped up by your employer, (2) the government tops up your pension contributions via tax relief.

barnstar2077

No point beating yourself up about it, just get a pension sorted out now.  You can definitely make a big difference to your retirement by doing so.  Also, as I have said many times before, having a pension/investments gives you options.  Say you got to 64 and developed some kind of health issue, wouldn't it be great to be able to cut back your hours etc.  Your future self will thank you!

mrlav

Thanks for the responses from you all.  I'll have a read this evening and update.  Thanks again.

mrlav

Yep, the good news is I don't have any debt mortgage is paid off.  This means I should be able to start saving hard.  When you pay into the pension can you decide how its invested?  Also, I guess the diff between pension and investing is you can't access the pension until retirement + company pays in? Cheers. 

Mutton_Geoff

mrlav said:

Also, I guess the diff between pension and investing is you can't access the pension until retirement + company pays in? Cheers. 

The difference is tax treatment in pension wrappers (eg SIPPs). You can’t draw from the SIPP before age 55 except in special circumstances like a terminal illness with short life expectancy.
You don’t have to retire to draw it after your 55th birthday and nor do you have to draw it when you do retire. Plenty of options.

Albermarle

 When you pay into the pension can you decide how its invested?  Also, I guess the diff between pension and investing is you can't access the pension until retirement + company pays in? 

Normally a pension is invested , so the difference between investing in a pension and outside a pension , is only the tax regime .

You can decide what to invest in within the pension . Some  pensions have a simple choice of less than 10 options , which suits many people. Some have 50/100/300  choices and some a few thousand .

In a traditional personal pension or a workplace pension , if you do not choose an option ( and most people do not ) the money is automatically invested in a middle of the road default fund.

If you have a SIPP , then you have to choose or the money just stays as uninvested cash usually earning zero interest.