Pensions for...idiots

[Naynayba]

Nearly 32. Just emerged from a decade long marriage which sucked up every penny I earnt, no pension whatsoever in place. I'm self employed and just for the moment could only make tiny contributions but I really want to start something and can always increase over time.

Where the hell do I start?

I looked at 'pensionwise' but it's for the over 50s. I looked at the moneysavingexpert guide and it boggled my mind. No idea who else to ask so the mumsnet hivemind seemed a good option! Please speak slowly

If you are self employed,
worry about clearing all debt first
then max out your ISAs
only then are pensions worth it

as you will not have employer contributions

ah OK! I've already hammered my debt but still a little outstanding - thanks for that!!

What's your reasoning for that @TalkinPeece ?
I'm also self employed and pensionless... last year I maxed out a LISA- so got a very nice top up from HMRC- but I'm not sure what is "best".

I wouldn't max out ISA before pension as the capital in an ISA is from taxed income but the money in a pension is from pre-tax funds so you get 20% more minimum.

All the big name pension funds have a simple private personal pension option. You don't need a SIPP, just a basic pension account you can put money into. Rule of thumb is a percentage of your current income that is equivalent to half your age so 16%.

Rules of thumb

debt always costs more than savings generate
therefore whump ALL debt, ideally including mortgage as fast as you can

The tax break of paying into a pension fund has to be offset against the utter lack of flexibility
OP is 32
so money she puts into a pension cannot be touched for decades
no matter what happens in her life
but ISA money can be tapped if needs be

rules of thumb are set by those who have a vested interest
I don't

now that I have no debt I save shed loads (like thousands per month)
but I keep my options open to be able to draw down to help my kids at Uni and cover emergencies

hence why I say,
have a BIG comfy cushion
BEFORE committing to big pension savings
for the self employed

Have you looked at the Lifetime isa? Government contribution of 25% up to a certain figure. My husband is self employed and has had one since they were introduced last year. You cannot take the money out unless you are buying a home until you are 60 however, so depends on how much flexibility you need.

so as little flexibility as a pension without the guarantees of a pension
my IFA wil not touch them for the self employred

Lots of food for thought here! I kinda like the idea of inflexibility - means it'll definitely be there when i get old!

@talkinpeece - how do you recommend finding a good IFA? People often say "word of mouth" but no one I know uses one!

Is it best to pay a fee for their advice or have them gain commission from products sold.

I really need savings/pension advice!

Hi! think of a pension as a savings account that you can’t access until you are retiring. They get complicated with all of the government rules and tax information. They are a great way to save for your future because you don’t pay tax on the contributions which is going to save you 20% if you are a basic rate tax payer and 40% if you are higher. You will also get the benefit of a professional fund manager working hard to make sure you are getting good returns on this money too.

An ISA is good but you pay tax on the contributions - just don’t pay tax on any interest earned. So they can’t save as much.

All financial advisers have to charge but they will be able to explain how that works for your situation. You can find IFAs on a website called unbiased or I think money advice service hold a list for advisers qualified in pension advice. Alternatively you can use NEST or a local bank or one of the big insurance companies and get started yourself, but definitely do it - at our age it’s hard to see that there will be enough money from a state pension to live on in the future if any at all, doesn’t matter how small you start you can always increase later in life but the money you contribute now will be earning money from being invested xx

This is one occasion where it is worth paying for advice. The £50 or £100 you pay for it could mean £K in retirement.

Have you heard of NEST? It's the government pension that all employees can be enrolled in, but you can also pay in if you are self employed. It's a one size fits all so may be the worst fit for you. But you can start and stop payments whenever you want.

Also you might want to check out your NI contributions and what that will give you as state pension.

Before you go to see an adviser ask yourself a few questions specific to your needs.

Do you want a pension that can pay out if you become disabled? What happens if you do become employed? Do you want to pass a pension on to partner or child after your death? What age do you want to retire? How often do you want to pay in?

talkinpeece has some good points, one approach I have heard of is to pay weekly or monthly into an ISA and when you have a 'cushion' you have not touched for a year pay some of that into a pension and keep some as emergency money.

But as I said, pay for someone to talk through your options and pick a pension or offer alternatives with you.

Unfortunately most IFAs will not get out of bed for an ordinary person without a large lump sum to invest. If your current savings are basically zero and you are just starting out, the amount they can charge you is a pittance that isn't worth thier while when they could spend the same time earning a 1% fee advising someone else on how to invest their £200k capital. I had 3 IFAs tell me bluntly that they were not interested in my custom when I was looking. Fortunately a friend of a friend who is an IFA helped me for free out of kindness - he didn't want to charge me as the admin and paperwork involved in registering me as an actual customer would cost more than any reasonable fee could justify.

Yes i havent got much to offer an IFA right now and didnt know if it was safe to ask my bank?

If you have no savings behind you it is definitely worth building these up. Everyone needs an emergency fund. I am self employed and have a private pension with Virgin Money. I didn't take advice, it just looked like the most suitable option for me. I can change how much I pay in and can pause payments whenever I need to.

Yes i need savings too, was planning on doing a half and half split between savings and pension. So far ive relied on credit for emergencies, its worked fine because i have a good handle on things and dont go above my means but id rather have the savings for sure and might manage it without dh around #bitter

My IFA was not interested in anybody with less than £50k to invest - and they are a personal friend !

Build up your savings, make yourself secure in other ways, THEN do a pension

I wonder if OP is in the higher or basic tax bracket? If the former then contributing the right amount to a SIPP every year could shift you down to the basic rate bracket.

The good thing OP has is time. My suggestion is to open a low cost SIPP, buy highly diversified funds such as vanguard lifestrat 80, or blackrock consensus,, other similar are available. Also consider investment trusts such as SMT,CTY,PLI etc..

is it best to pay a fee for their advice or have them gain commission from products sold

Commission is illegal so I think that might be your answer

I'm either hoping to have a pension share order or the cash equivalent. Which pension company would be best to put a lump some in? My work pension won't accept a deposit.

Any advice would be appreciated.

Would you apply that logic to an employed person with a fairly crap employer contribution talkinpeece? I am early 30s, in a position to start saving and overpaying mortgage somewhat, and also feel pensions lack flexibility.

limpopobongo OP is firmly in the basic bracket for now - any chance of you spelling out these acronyms for me?

Have managed to get £1000 together to kick things off...(big deal for me)