Pension or savings?

[Mingusthebrave]

I'm 55 and finally able to get around to thinking a bit more about my pension and how I am going to survive when I'm older.
I'm a single parent, self employed (ltd company) and am thinking that I am going to have to keep working until 67.
I currently have about £100,000 in an old pension, an outstanding mortgage of about £50,000 and am finally in a position to start putting away about £1,000 per month.
Would it be better to put it in a new pension or is it too late and I should be thinking of something else?
All the advice online is about how to drawdown my pension - not how to start one!
I'm feeling lost and paralysed by thinking about what would be best to do and time is ticking on and panicking me even more!
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I'm doing a personal finance course on Rebel Finance School. It covers a lot of this.

I'd build an emergency fund (Minimum 6 months income as you are self employed, 12 would be ideal) then put as much as you can into a pension.

Assuming you dont need to access it in the next few years as you have a separate emergency fund...

Do a SIPP with aj bell or vanguard

Also recommend rebel finance school.

pete Matthews meaningful money youtube videos also good on this. Or his book.

Definitely not too late to be investing a pension. Check out Meaningful Money on YouTube and Spotify. There's a video and podcast on starting to save/invest for retirement late.

You've already got a start and are able to invest a decent monthly amount going forward so you're not in a bad position.

Contribute to the existing pension, claim tax relief to boost your savings. Compound interest on 112k will be bigger than on 12k in a new one....
don't put it in savings as you're then giving up 20-45% (depending on your tax bracket) of additional cash.

I agree, not too late. Put it in a pension, it can grow while you drawdown during retirement. Retirement usually lasts around twenty years- I know people who even pull from one pension and put a % of that into another to pull from when they hit 80 and need a bit extra for in home care and what not.

Retirement lasts a long time.

What is your mortgage rate and what are your earnings?

Thank you for all your responses.
Some very interesting points and lots to think about and a good clear message to get the pension moving.
I'm going to get stuck into meaningful money and also consolidate my old pensions and start chucking any available money at it.
Hoping to pay off the mortgage in the next 5 years and children should surely have left home by then too and then I can add more to the pension pot.

Also I'm liking your optimism sugar and spice - I need to be planning for a good 20yrs!

Contribute to the existing pension, claim tax relief to boost your savings. Compound interest on 112k will be bigger than on 12k in a new one....

Compound interest on 100k + 12k in separate pensions is exactly the same.as compound interest on 112k in 1 pension (assuming the same fund/growth for both). There's a possibility it would make a difference to fees- but most are percentage based, so it may well not.

OP, don't consolidate pensions until you've checked whether you'd lose any benefits - protected pension age, guaranteed minimum pension etc - by doing so.

Some great advice given here.....

Can I add a few more points...

1. Do check what your existing pension is invested in. With 12 years plus of working life left, you should max out on equity exposure for the next 5-7 years. Few people have an appetite for 100% equities, but 60-80% equities is usually appropriate for all but the most risk averse.

2. As people have said, you'll get some nice tax relief on any pension contributions. A Vanguard or AJ Bell SIPP is a great idea. If you're a basic rate rather than higher rate tax payer then don't rule out using your ISA allocation instead. With a pension, you get tax relief on contributions, but will get taxed on the income in retirement. With an ISA you get no tax relief on the money you invest, but there is no income tax due when you spend it. Both accumulate in tax free wrappers, although the pension pot has the benefit of being boosted by basic rate tax at the start. What definitely swings it in the pension's favour is if you are a higher or additional rate tax payer - that doesn't boost the value of the pension pot per se, but reduces your tax liability when you do your tax return. Don't rule out labour restricting tax relief on pension contributions going forward however.... if I was chancellor I'd probably only give basic rate tax relief on pension contributions.

3. You say you plan to work until you're 67.... if you do end up working longer you can defer your state pension and get paid a little more when you do claim it.

4. As you are over 50, you should set up a FREE consultation with PensionWise (a Government funded body to help advise people what to do with their pensions). https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise

I'd work hard on paying off your mortgage. See how much you can overpay on it. You'll save loads of interest this way. Once that's paid off go for a personal SIPP. The government tops up your payments.

@QuotetheRaven whilst I appreciate that you are trying to be helpful, you have absolutely no grasp of mathematics or tax law.

@OriginalLilibet explain why savings would be better than a pension then, if I'm so wrong.

I wouldn't bother with a savings account, you'll be able to access your pension in two years. I would consider a sharia-style fund choice on the pension which is mostly equities-based and my sharia pot in Nest pensions has done really well this last year, obviously that's not financial advice - past performance is not indicative of future performance and all that...

Either way, it should absolutely trounce the 5% you'll get on a savings account.

This is of course assuming you'll have steady work for the next 2 years. If that's a concern then you will need some cash in easy access savings obviously.

Forget the mortgage, the rate of interest on that cash if it were held in the pension should be higher than the cost of the interest on the mortgage.

Once you access the pension, it drastically reduces the limit on how much you can pay into it in future. If you're planning to work until 67 it would be a very bad idea to start spending your pension at 55.

Pension for long term. Cash savings for short term. Stocks and shares ISA for the bit in between.

That’s not right. No benefit in having it all in one place. The returns will be based on your investment returns net of charges and fees

There is a benefit to combining small pension pots though- which the £12k certainly is. If you keep multiple pension pots you often end up paying multiple sets of admin fees. It is also more work to do your own life admin on them. Also there is more risk of losing a small one that is only £12k. I wouldn’t start a whole new one with so little when you might end up wanting to combine them later anyway.

https://www.thetimes.com/money-mentor/pensions-retirement/should-i-combine-my-pensions

What is your mortgage rate, and how does it compare to prevailing savings rates ? If it's noticeably higher, there is a solid case to be made for paying off your mortgage, at an accelerated pace. Paying off your mortgage is the economic equivalent of paying into a high interest savings account. You will need to check the terms and conditions to maximise the benefits of the mortgage, and make sure to avoid penalties and charges.