No pension, should I worry about this?

Unicorn79

Hi there

I am a single parent and I claim UC whilst earning a small income, this year it was £10k after expenses. I have never paid into a pension and I feel my income is too low to be paying into one now and I am trying to focus on having savings, a nest egg for security.  The question is, should I be paying into a personal pension e.g. NEST, even if this is just £20 a month?

I am early 40's so a bit old to have something big, but something is better than nothing or is it best to focus on building savings?

Please let me know if you have any advice.  

Thank you

eskbanker

If your earnings are from employment, your employer should offer you access to a pension scheme and make contributions, which is free money that would be difficult to decline.

Beyond that, it's a judgement call about whether to prioritise short/medium term savings versus longer term pension, so only you can really decide which is more important, although it may be possible to hedge your bets by splitting your surplus across both?

Unicorn79

Thank you My earnings are self-employed.  I think if I sign up to a NEST, the gov contributes a % to it. I do not know how this compares to a pension.  Indeed this sounds like it could work if I do both, I feel like it is a bit of a gamble!

MallyGirl

NEST is a pension.

WillowCat

Contributions made while you are working and on UC are the greatest bargain available.  However as you are self employed, there is one caveat - if you are subject to the minimum income floor, there's no point in making a contribution so large that it takes you below this level.

Although less likely, you shouldn't make a contribution that takes your earnings below the level of your work allowance if you have one.

Assuming neither of these are applicable (MIF is not being applied at the moment anyway due to Covid) not only do you get the uplift from tax relief, but in addition you will get an extra 63p UC for every pound you put into your pension.

So £20 per month into your pension would turn into £25 in the pension due to tax relief, and in addition you would get an extra £12.60 UC meaning the £25 in your pension has only cost you £7.40 from your pocket.

Any savings into your pension are disregarded from your capital - meaning that once over £6,000 including any other savings, it won't affect the amount of UC that you get.

The other scheme to consider, for shorter term savings, is the 'help to save' which allows you to save up to £50 per month and get a 50% bonus after 2 years.

Albermarle

but something is better than nothing or is it best to focus on building savings?

Contributing to a pension, or building savings for retirement, is essentially a similar thing ,

The difference is that with the pension you get a tax benefit but the money is inaccessible until your mid to late Fifties.

Unicorn79

Thank you That is right the MIF is not applied due to Covid and I have just discovered the Help to Save scheme which I initially did not know about!!!

I think with a NEST pension you can add in what you like per month, so if I have a low income some months I do not have to add and other months I can add more?

Re: UC, do you mean they add money into the pension bot - rather than my monthly UC payments?

WillowCat

Unicorn79 said:

Thank you That is right the MIF is not applied due to Covid and I have just discovered the Help to Save scheme which I initially did not know about!!!

I think with a NEST pension you can add in what you like per month, so if I have a low income some months I do not have to add and other months I can add more?

Re: UC, do you mean they add money into the pension bot - rather than my monthly UC payments?

They increase your UC award.  It's treated in the same way as your business expenses - you report your income, your expenses, your tax and NI payments and finally your pension contributions.  The earnings UC then use to calculate your award is income minus all of the rest.

If you can afford to put £20 into your pension a month, you should actually make a contribution of £50.  This will gross up to £62.50 in your pension, and will increase your UC by £31.50 so the loss to your pocket is £18.50.

xylophone

It doesn't have to be Nest.

A simple stakeholder might suit.

Example

https://www.standardlife.co.uk/pensions/personal-pension/stakeholder

MX5huggy

My question is (and it is a question because I don’t know the answer). 

Are you pay or getting enough NI or NI credits for your state pension qualifying years to be ticking up? 

steampowered

The full state pension is currently £9,110 per year - if you qualify for the full amount.

So, if you do not contribute to a private pension, that is the income you would expect to have in retirement.

It is your judgment call whether that will be enough for you to live on. Do check whether you will actually qualify for the full state pension or not.