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Early 40's, own business, no pension - options?

Hi there, have run own business for 11 year now and any extra money I had I used to pay my mortgage off early. I am on a 0.49% plus base rate HSBC deal and can over pay as much as I want. Should have been paying £700pm but was paying £2500 for 2 years or so. Reduced it this year as had an expensive holiday etc. to £1000pm and required payment is around £400pm now so still overpaying by £600pm.

It has knocked many years off the mortgage and down to around £81,000 and house is worth around £400,00. In my mind clearing that was the best thing to do although not 100% sure now.

What I don't have is any kind of pension apart from £1000 with a previous company and around £800 from a time I was self employed years ago before going to work for a company and now back with own business.

Seeing how quick the kids have grown I have realised that time really does go faster the older you get so need to start putting some away quickly for retirement.

Either that or get a 2nd house that I can rent out and almost use that as my pension so sell it when I am ready to retire and hopefully house prices will have risen and the mortgage for that will be covered by the rent I will be getting?

If going down the pension route I have seen the likes of Penfold which looks good but as only looking into it now (I know should have done it years ago) I really am unsure where to start so looking for any advice on what best to start planning for retirement?

Could put £500 away each month, possibly more.

Any help most welcome.
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Comments

  • "have own business" doesn't really tell us anything useful for pension purposes.

    Are you self employed?

    Are you in a partnership?

    Are you a director of a limited company?

    Irrespective of that though you are likely to be seen as slightly bonkers to have been paying off the mortgage like that at the expense of a pension.

    And do you really want the potential hassle of buy to let? Do you realise you could be making no money (in your terms) but still have tax to pay now that loan interest cannot be deducted as an expenses from the rental income.
  • cloud_dog
    cloud_dog Posts: 6,024
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    From a purely financial perspective you have (I'm afraid) wasted a large amount of money by overpaying your mortgage. Having said that I appreciate overpaying/reducing your mortgage is a psychological 'comfort blanket' type of thing, and it all depends on our individual choices.

    Soooo, we are where we are.

    Firstly a bit about yourself....
    1. Are you a director of your own Ltd company?
    2. Are you resident in England?

    From a pension perspective you really are late to the party and you really need to make every endeavour to catch up. I'm not that keen on property (but them that's not my thing), and from what other property people have indicated it appears to becoming less and less profitable.

    Re Penfold Pensions, it is not a name I have come across previously, although it does seem to be targeted at the self employed. Personally I would rather stick with one of the more main-stream pension providers. I see that Penfold Pensions have a funky mobile app... I'm hoping that isn't part of the equation. :)

    EDIT: <<snap>>
    Personal Responsibility - Sad but True :D

    Sometimes.... I am like a dog with a bone
  • webchap9
    webchap9 Posts: 5 Forumite
    edited 5 December 2019 at 7:10PM
    Hi both, thanks for the replies. Yes am director of Ltd company, only me, no employees and resident in England.

    Only saw Penfold as it came up as an online ad and yes interface is good but by no means would sway me to use them.

    As you say, it was more a psychological thing to clear the mortgage as quick as I could and seeing the amount of money this saves over time on the MSE over payment calculator made me think it was the best option. Could reduce payments to £500 and the £500 I am overpaying put that into a pension plus more.

    Wife has a pension but not a brilliant one. Lots of equity in the property though as a fall back if needed. Property just an idea and don’t really want to go down that route as would have added expenses of repairs etc so rule that out I’d say.

    Know very late to it so some good advice is what I’m looking for really almost ‘what would you do in my situation’ now, forgetting that I should have started a long while back.
  • It may be more appropriate for the company to contribute rather than you.

    There is no pension tax relief for such a contribution but even so that may be more than offset by the saving the company makes.

    Do you have an accountant?
  • kangoora
    kangoora Posts: 1,193
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    edited 5 December 2019 at 7:54PM
    You are late to the game but do have the time, and hopefully the means, as a Limited Company director.

    As a rule of thumb, when starting a pension, you should be contributing 50% of your age expressed as a percentage e.g. at age 40 then 20% of your take home salary per month. Note this %age is generally based upon retiring at SP age so if you want to retire earlier then you need to think about saving correspondingly more.

    As self employed you will have no employer 'match' although you will have the benefits of contributing from your limited company profits which will help.

    You need some background information I believe, even if you want later to out-source it all and pay an adviser for that privilege

    Some good books to start
    • Tim Hale 'Smarter Investing'
    • Lars Kroijer 'Money Mavericks - Confessions of a Hedge Fund Manager

    Also, have a good read of Monevator https://monevator.com/

    You need to understand and define your 'number', how much you want to live on in retirement. Another rule of thumb, you can reasonably expect to withdraw 4% of your final assets without exhausting your pension 'pot' e.g. £30k in retirement you need a pot of £30k - £9k (State Pension) = £21k. £21k x 25 = £525k. You could leave on less if you want to exhaust the pot but make sure you book your date of death to coincide with the pot emptying :D

    Once you've got a handle on the basics of investing and understand what you think you need to save up/income you will require then I'd suggest coming back on here and giving some more details on income, available cash, spouse, dependents (and wishes for them). Have a browse though the older forum threads, lots and lots of 'Can I retire on this amount', 'how much do I need to retire' threads - some people want £60k/year, others are happy on £18k year.

    Final point, I'd be very wary of any 'online ad' - lots of sharks out there (not saying if Penfold is one, I have no idea). Personally I would never respond to an ad on Facebook, instagram or Google search. If you do get some quotes from Pension advisers then go for an IFA (note the 'I' for independent - very important) and by all means come back on here to get feedback on what the proposed charges are before signing up to anything. There are some very well known, large pension companies with extortionate charges and exit fees that even intelligent people just get sucked into their sales patter. They aren't illegal, just extremely bad value for money.

    Final, final point - if it looks to good to be true it probably is. Anyone offering 'guaranteed returns' using 'fully investment protected assets' is 99% likely to be a scam
  • webchap9
    webchap9 Posts: 5 Forumite
    edited 5 December 2019 at 8:59PM
    Thank you for the comprehensive reply, really appreciate it. I will speak to my accountant first to see what help and advice he can give in terms of using the company and I run websites for two separate IFA's so will ask them for a couple of meetings.

    It's one of those that, having been so busy for so long (working long hours to deadlines), a slight lull in work at the moment has led me to panic a little and start looking at my finances in more detail and the lack of a pension is obviously a glaring hole in my plans. Living in the moment and nice holidays to America and buying two decent cars has taken a large chunk out of my pot plus the overpaying on the mortgage too (£1800 extra for 26 months) means I would have a much larger pot than I have at the moment and perhaps not as panicky but could be a blessing as it may not have made me look at future investments.

    Knowing how much you will need to live on in later life is a hard one also. £30k a year now won't get you as much in 24 years time if retiring at 67.

    One of the other reasons I didn't think about putting money into a pension when I started own business was I didn't want it locked away in case I needed to access the money if things didn't go well. When they did go well I should have started one I know that.

    Will read up thoroughly on some previous threads and not rush into anything, I'm years too late, I know that, so another few weeks won't make a huge difference. Thanks again.
  • Albermarle
    Albermarle Posts: 21,617
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    nd I run websites for two separate IFA's so will ask them for a couple of meetings.
    Just be aware that IFA's role is to give legally regulated advice personal to your situation . This involves a lot of personal questions about you, your situation goals etc . and of course there is a cost . On the other side you should hopefully receive good advice, and if the advice is bad you can go to the financial regulator for compensation.
    You can see from various threads on this forum that IFA's are very reluctant to give general guidance, or just to have a chat at mates rates etc as they are concerned that anything they may say will be taken as professional advice . They are happy to have a free introductory meeting but that is all it will be.
    £30k a year now won't get you as much in 24 years time if retiring at 67.
    It is good you are taking inflation into account as many people forget to .
    If somebody were to retire today ( lets say at 60) and wanted to have a pension of £30K pa that grew with inflation during their retirement and had very little chance of running out , than they would need a pot of getting on for a Million Pounds .
    Don't want to put you off starting a pension but just be aware that to generate a good pension needs a lot of money .
  • Thank you. If not a pension then what would you advise?
  • Albermarle
    Albermarle Posts: 21,617
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    Thank you. If not a pension then what would you advise
    Pension is probably the best route, but as you mentioned a pension income of £30K , I thought it was just worth being aware for your forward planning, that generating a relatively large annual income like that, really needs a large pot of money to be generated .
    A lot of people have unrealistic expectations of what income they can expect in retirement.
    However if you take state pension into account and other sources of income you or your partner might have , then hopefully you can get to where you want .
  • atush
    atush Posts: 18,719
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    Stop overpaying the mtg, it is a low rate.

    Get a pension, now. Put in the max 40K per year going forwards. It will lower your corporation tax.

    Cut back on your spending luxuries for now- no more new cars and cut back on the holidays for a bit.
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