Planning for retirement

You've got a million things to do in the here and now, and as a family you're cash-strapped, so where on earth are you going to find the extra money to stick in a pension fund?

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We share your pain, but there are compelling reasons to get your pension provision sorted out sooner rather than later, namely:

  • We're all living longer, so if we want a comfortable life in our later years and to avoid becoming a burden on our children, making sure we can manage financially when we're older is paramount.
  • The pension age is increasing, for women as well as for men, so that by 2020 both sexes will be expected to work until they're 66 - and the government is already considering plans to up that again, to 68. 
  • Increasing numbers of us are ending up divorced from our partners, and that has huge repercussions for our finances in our later years.

If we don't plan for retirement when our children are young, then by the time we do start to think about it (and the panic often sets in around the time our children are leaving home, by which time we're in our mid-50s) it's too late to do much about it.

Save what you can

Pensions are just another way of saving - but in this case, the savings are earmarked for when you're older and have stopped working.

There are different ways of saving for later life, and you don't have to follow a conventional route and pay into a pension (although that's often the best way to do it because you get tax relief on your contributions).

Other ways to save include ISAs, shares and a property you've invested in and will sell when you're older. 

If you do decide to go for a pension, there are three main types:

  • Company pension - this is organised through the company you work for, and often (though not always) the company makes a contribution in addition to what you pay in. (See Automatic enrolment into a workplace pension, below, for government changes to company pensions.)
  • Personal pensions and stakeholder pensions - these are for people who don't have access to a company pension. You pay in an amount each month to a pension provider, and the funds are invested on your behalf. Stakeholder pensions are the simplest version, and you don't have to be working to have one.
  • Self Invested Personal Pension - these are personal pensions where you have more control over where the money is invested.

Automatic enrolment into a workplace pension

There's a change in the law that comes into effect in October 2012, which means every employer has to enrol all employees who meet certain criteria into a workplace pension.

Six million people have already been enrolled into a workplace pension in the past few years. If you work for a business with fewer than 30 employees, then you'll be one of the millions of workers enrolled into a workplace pension between now and early 2018.

The criteria cover employees who are:

  • Not already in a workplace pension scheme
  • Aged 22 or over
  • Under state pension age
  • Earning more than a minimum amount a year (£10,000 in 2015-16)
  • Working in the UK, or who usually work in the UK

It won't just be you contributing to your workplace pension, your employer will make additional contributions, plus you'll get tax relief. The thinking is that automatic enrolment will take the hassle out of organising a pension and give people another source of income on top of their state pension. 

Career breaks

If you decide to take a career break while your children are very young, the chances are you'll be tempted not to pay into your pension during this time. But reconsider: if you have any spare cash at all, it's a very, very good investment for the long term.

The Pensions Advisory Service has information about your pension during paid and unpaid maternity leave (it'll make a change from thinking about birth plans and maternity bras).

(You can even be super-organised and start a pension for your child - it's estimated that a monthly contribution of £83 would be enough to ensure a pension fund of more than £1 million in 60-odd years - as long as your child continues contributing in adulthood.)

And if you're panicking about your pension - or lack of - then discuss your options on Mumsnet Talk: it's no substitute for expert financial advice, but it's a dead cert for fresh perspectives and common sense.

Money Advice Service
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Disclaimer: Any content in our family money section is intended as general information only. For specific advice about your personal financial situation, get advice from qualified, independent, regulated professionals.

Last updated: over 2 years ago