Pensions

[Gina2012]

My sister is 58 with almost no pension provision. She lives alone apart from when her son comes to stay. He's at university.

She is working - I think her salary is around £22k pa - and she pays into an auto enrolment scheme with her current employer. But this is going to give her a tiny pension at age 65 (£18k lump sum at today's prices)

There's nothing she can do about her poor financial choices in the past , but what would you suggest she does to help herself going forwards ?

Thanks wise Mumsnetters

She could perhaps start putting money away into an ISA? I think these are a good way of saving money as you can accrue a good amount of interest and you don’t need a large amount to start one.

Or an investment bond? Those are more longer term and aren’t for dipping into if your sister is good at managing her money etc, however most do require a large amount to open - eg. Minimum £1,000 but I think these yield more, but you do have to pay monthly fees as you are ultimately investing in funds. The fees would either come out of the monthly amount being invested into the bond or out of any lump sums that are put in. She also has the option of investing a regular monthly amount or investing large sums intermittently.

Hope this helps

Thanks @A334 👍

She was wondering about paying more into her auto enrolment SIPP. I'm utterly clueless so can't advise her.

If she pays more into her pension she will get tax relief (so £100 going into her pension pot costs her £80). She should also check if her employer will match any additional contributions she makes.

She could get a State Pension forecast to check whether she's got a full NIC record and will qualify for the full state pension. If there is a shortfall she may want to look at making up any gaps.

Would she consider / has she space for a lodger? The money from this could be put towards extra pension contributions.

The auto enrolment increases in April, not by a huge amount but a little extra going in.

She'd probably be best seeing a financial advisor. She's potentially got another 12 years of working at least part time and if she owns her house she could downsize, so all is not lost. Agree with checking her entitlement to state pension, although you only have six years after a gap to make it up so remedial steps are limited if that's the case. But at least she'd have an idea of entitlement.

Thank you all ! Some fabulous ideas.

I must admit that I'm not as well covered for retirement as I'd like to be.

I am told we all need a retirement pot of around £half a million

Nah. £200k will, together with the state pension, give you an income of just over £17k. So not rolling in it but not bad either.

She should pay as much as she can afford into her pension. She still has 10 years or so for it to build. She'll get tax relief on this money, so it's better than putting it into an ISA or another savings account.

Does she own her house? Will she be mortgage free? If so, she probably won't need a lot to live on anyway. If she'll be renting, she may find things hard.

Look on moneysavingexpert.com. They have a helpful pensions forum.

Yeah I think a pension is the best way of saving for retirement, because of the tax relief and employer's contribution. Assuming she's got a few grand in already, if she could up her contribution to around £3k a year she'll have £67000 at age 68, according to this:

Woops no link

www.moneyadviceservice.org.uk/en/tools/pension-calculator

Thanks everyone! Some great advice

Does she have any debt? Last thing she wants in retirement is to have debt repayments, so I would pay off any debt, whilst paying enough into pension to get the employer contribution. Then upping pension contribution once no debt.
Pension vs ISA (stocks&shares) is often a debate... I think the general feeling is that both should be done. Does she listen to podcasts? There are several financial podcasts around, Meaningful Money is a good one by a UK financial planner.

If in UK check your state pension entitlement, you will need your National Insurance number www.gov.uk/check-state-pension It will tell you how much and when you will receive it

A334's advice is terrible, sorry. She needs to be putting extra money into a pension (which will be invested on her behalf), not random savings accounts or investments. The advantage that an ISA has over a pension is that she can access the money before she retires - and that is not an advantage she needs. The advantage that a pension has is that, as previously explained, she gets tax relief, which is massive. For a typical cash ISA, it would take over 12 years to earn as much in interest as the pension gives you as an immediate bonus - and that's before the pension earns any returns itself!

This doesn't sound that bad to me. Is the lump sum of £18,000 the only thing she is getting? I've paid into a public sector pension (full time work earning approx £30,000 pa) for over 30 years and my lump sum, will be around this amount. I ill get a much smaller amount per month totalling probably 12,000pa. Will your sister get a monthly payment or just the lump sum?

BlueWonder your public sector pension is better than anything anyone else will get. For comparison my private sector DB pension which has been frozen will give me about 10% of my current salary after paying into it for over 30 years.

From the way I read the OP her sister will have a pension pot of £18k to buy an annuity.

I see, sorry it is really hard for people starting late, thank goodness for auto-enrolment now, it was so easy to start delaying a pension years ago. Will her mortgage be paid off? She may not need as much a month if so.

Actually yes it was difficult to pay into a pension years ago. Yours came through your employer and is one of the best deals out there, and you didn't have to think about it. Prior to auto enrollment the so called choices available were bewildering, many of them were rip offs and people lost lots of money. Even if you went with an employer scheme there was no guarantee as they were so volatile and poorly managed. I personally sank thousands into two separate employer schemes that vanished due to mergers specifying no pension liability. So even people like me who paid in are left without.

There's nothing she can do about her poor financial choices in the past

Yeah I wondered about that too. Just how exactly was she supposed to pay into a pension scheme if none was provided? This was the norm for most people until relatively recently.

Her pension will total £18000.00 - so not much per annum if she retires at 65 and lives for a further 20 years

By poor choices I meant she didn't take out a private pension

I agree that there are many of us in this position

If you have a private pension, you don't have to buy an annuity any more, because the rules changed. I believe you can take some money as a lump sum. It is not compulsory to have a private pension, you can opt out. I know people who have invested in property, shares, ISAs instead or a combination of these. However, if you have a pension with an employer they may add some free money into your pot eg employer pays in 5 percent and the employer does too, I believe that it is the most tax efficient too.

Ah auto correct !- employee and employer both contribute to the pension