HELP! Very small pot and limited means to increase. Any advice please?

shell19821982

Hi everyone I've been lurking here for a while and found there to be some very knowledgeable people here, I'm hoping that maybe someone can point me in the right direction now.
I already feel so stupid that I should have been doing this for the 20 years I've worked at my firm!! I'm only now realising my mistake that I'm gonna be very poor come retirement so trying to figure out how to change this.
Basics are I'm a 42 year old single parent of an autistic child, and in the last couple of years I've began suffering with my own personal health. Which brings me to my problem that since I've decreased my work hours to basically try and sort my life out hopefully I find myself in the awkward position that I can't increase my current contributions more as it would take my wages to below NMW. I currently make 5% contributions (the most my employer will match me) into a Standard Life workplace pension but have only been paying in for a few years so the pot currently sits at just over £12k and the SL calculator estimates if I continue with my current payments my pension will be worth less than 7k a year, my state pension will be more than this. I can't increase my contributions but there is an option to make payments myself. I've also looked at some SIPPs and comparing the two possible values by paying in for 26 years the SIPP is obviously the highest but comes with the biggest risk. My question is for those who have more knowledge on these things what would you suggest for me to do? I'm determined to do all I can to ensure I have a decent retirement eventually but I'm wary of how to go about it. Any help or advice would be greatly appreciated, thanks.

MallyGirl

you can stick with the workplace pension as is but then also contribute to a product outside of that in addition.
A SIPP is just a wrapper - any risk depends on what you choose to invest in within the wrapper.

af1963

Couple of points: 

1: yes, you can set up a pension yourself  and make payments into it, if you can spare the cash.  Once the money is paid to you, your employer has done what's needed for NMW rules, and you can choose to spend or invest it as you want. Anything you put in will be topped up with basic rate tax relief ( you put in £80, and it gets topped up to £100). You can possibly make payments into the SL scheme - might be worth considering, especially if your employer has a deal which has low charges - or if they don't allow that, you can put it in a SIPP.

2: a forecast £7k pension on top of state pension is not too bad a base , especially if you're currently used to living on a fairly low income.  And at 42 there's still a long time to build on.  That £7k probably depends on you working right up to state pension age though - if you stopped earlier, it would be less.

3: any figure you see from a SIPP provider will just use standardised assumptions about growth. You can't tell in advance which investments will do better. (If you could, Rodney, this time next year we'd be millionaires ... ) So for most people, with 26 years to go, investing in a diversified tracker with low charges would be a reasonable approach.  

4: your working hours shouldn't affect the percentage you can salary sacrifice.  You need to stay above NMW on an average hourly basis, whether you're full time or part time. (But it does obviously affect the total you end up contributing - sacrificing 5% of 20 hours pay is half of sacrificing 5% of 40 hours pay).  

tacpot12

If you did decide to save money outside of your employers pension, you should check the charges associated with any SIPP, just in case you can't find one where the charges aren't covered by the tax relief you will receive. If the tax relief won't cover the charges, you would be better off saving into an Stocks and Shares ISA.

As others have said, you do have some time left. If you save hard, you should be able to get at least £7K a year, plus a full state pension. Your child will either be working or claiming benefits as an adult when you retire, so this will also reduce the financial pressure on you a bit. Not going to work is also likely to save you some money, once you have accounted for transport and work clothes, free prescriptions, etc. 

AlanP_2

 I can't increase my current contributions more as it would take my wages to below NMW. I currently make 5% contributions (the most my employer will match me) into a Standard Life workplace pension

If you are making a personal contribution to this pension as opposed to being in a Salary Sacrifice scheme then NMW doesn't matter.

My confusion may be around the phrases used, you may mean you sacrifice 5% of your salary resulting in a 10% employer contribution in which case NMW is relevant.

shell19821982

Yeah sorry I was a bit vague with the 5% contributions, since I've decreased my work hours to 30 a week I've literally hit NMW rate after all deductions. I can't even pay 1p more currently! I'm hoping in time to increase my hours again and really throw as much of my salary into my workplace pension to attempt to make up some of my lost years but it's not going to make a massive difference unfortunately. I'd love to retire early but it's safe to assume I have another 26 years of working so I'd really like to make it worthwhile from now. I have the option to pay directly myself into the SL pension but I'm more inclined to pay into a SIPP, the financial gain is so much more but I know the risk of loss is much higher. Without any experience in this area I'm unsure of the best option for me. It would have to be funds managed by the company rather than me choosing investments which I don't mind paying extra fees for it to be well looked after. I'm not very adventurous or much of a risk taker when it comes to money so not expecting a massive windfall at the end. Just something that will grow nicely and a little bigger than my workplace pension. Has anyone got any recommendations for a SIPP for a person like me, kinda in a medium risk mindset if that makes sense? I was thinking of paying £150-£200 a month, maybe the best option would be to half that and pay into both a SIPP and my SL pension? 

Storcko14

If you can pay more yourself into the workplace scheme it might make more sense than opening a SIPP which would incur platform and possibly dealing charges on top (and if you do go down the SIPP route look carefully at the charges as you would likely be better off with a %age based platform.  Monevator.com has a great broker/platform comparison table).   Hold on to this thought too - you're doing well so far, facing into it and engaging with this community.  That's more than many do. 

AlanP_2

A SIPP is not inherently more risky than your employer's scheme. They are both pension tax and admin wrappers. The investments held inside the wrapper are the "risk" items.

I still am not clear on whether you are paying into the SL pension via Salary Sacrifice or not. If you are then the fact that you are working 30 hours is irrelevant to the NMW aspect as that is a "per hour" number.

 

shell19821982

Hi Alan_P I think I'm on salary sacrifice? I do know my contributions are taken from my earnings before tax and national insurance are deducted so assume that's it? 
And thanks Storcko you've made me feel better about myself that despite me being daft waisting a good 20 years of contributing there's still time. I really am just trying to make changes to ensure a better financial future. I began to make mortgage overpayments a couple of years ago, AGAIN wish I'd started that earlier!! But I believe I'm on track to be mortgage free by my early 50s 🤞 If I'm really honest I've lived a tough low income work life and just struggled through. I'm never gonna be rich but I want to try and have a better retirement income if that's possible. I don't want to be a pensioner who just gets by and struggles with paying for heating in the winter. I see so many pensioners, including my family struggling now and I want to do all I can now for that to not be my future. Plus I have the uncertainty of my child's future capabilities to be independent. I may be looking at a future where I will continue to care for him in adulthood so future finances are my top priority. I will look into moderator.com now and see if I can get a better understanding of my options. Thanks for all your help everyone x