Starting pension savings at age 56

[HateIsNotGood]

I've got £10-20 pcm that i could put into a 'pension' - I think I should, I'm currently self-employed, already qualify for full state pension, but will probably get a paye (with pension auto-enrollment) before I 'retire'.

Are the 'stakeholder' pensions gone? I'm looking for something that isn't too rigid bu tstill something the govt will top up too.

Any suggestions please?

How about a Self Invested Personal Pension (SIPP)?

NEST Pensions accepts self employed. They would claim the tax relief on your contributions and add them to your pension.

Look at SIPP, try to establish the fees involved. A SIPP can have a lot of different things in it, something like a pension from NEST is very simple... so pros and cons to each.

£10-£20 per month - that may be a limiting factor. Not sure SIPP providers will accept that small
an amount. Will you be increasing the amount in the near future?

Many thanks for your responses and I'll look into them.

Currently I'm not looking to increase monthly payments as it's always possible my income might fall so that I couldn't even put aside that (worst case scenario), hence I don't want anything rigid, as sometimes I might want to pay in more.

I'm also putting any spare cash into making my house a bit nicer/more saleable - plan to 'downsize' in 2 years or so - which might make me mortgage-free, I currently have a small (65/70% LTV) repayment mortgage costing £300pcm inc mortgage insurance.

Anyway, at least my self-employed job is in a field that doesn't involve leaving the house just on me remaining compos mentis, so hopefully I can keep that going when I reach state pension at 67.

Thanks again for your advice.

The pension advisory service can offer a health check if you’re self employed, I requested one and it was very helpful. Most personal pensions will allow you to pay in varying amounts and all will give 20% tax relief.

£10 pcm means £120 a year. If you work for 10 more years, that's only £1,200 you are contributing. Even with any govt top ups, it's unlikely to make much difference to your retirement.

I actually don't think this would be worth the fees and hassle.

How much do you think you will have in income when retired? Do you literally have nothing else except the state pension?
I assume you are not a higher rate tax payer?

What age do you intend to draw from this pension pot?

The fees will eat away such a low amount in a pension. I would just save and look into investments.

When mortgage free save that whole amount also to invest and then use these amounts along with state pensions for your retirement.

You might be better off with an ISA if you want flexibility (or just straight savings account as you no longer pay tax on the first £1000 of interest if you are basic rate tax payer).

You won’t get the reclaimed tax you would with a pension, but pension fees would likely wipe that out anyway. You could also save into an ISA or savings account for a few years then make a lump sum contribution to a pension to unlock the tax.

Might also be worth looking into whether you’ve got any gaps in your NI record and making voluntary contributions to increase your state pension.

That's a very small amount to be saving. Are you currently earning over the personal allowance and paying tax? (£12,500). If you're earning less than this there's no real advantage to paying into a pension. You'd be better off using any spare money to pay off your mortgage a bit faster.

If you are earning more than £12,500 then you will benefit from saving into a pension because you won't pay tax on money you put into it. If you earn significantly more then you probably ought to look to put aside a bit more than £20 a month or you'll see a big income drop when you retire.

@Firefliess you don't have to pay tax to have hmrc add the tax equivalent to your pension (or LISA). In fact, even if you earn nothing you can put up to £2700 a year into a pension, which will top up to £3600.

£2,880 in fact.

For such a small amount I wouldn't have thought it would be worth starting a pension.

You'd be better off paying your mortgage off more quickly with the £120 to £240 a year.

I don't think that's correct @dustydoorframes I think you have to be a taxpayer to claim tax relief on pensions. If it is correct, could you post a link?

You have to be under 40 to take out a LISA so that's not an option for the OP.

Oops, quite right @VanGoghsDog !
@Firefliess , a speedy google turns up this link, many others available-
www.moneyadviceservice.org.uk/en/articles/tax-relief-on-pension-contributions

It's a bizarre rule but it is there - even people who have retired and are drawing pension can use it (I think there is an age limit on it though) - I keep trying to get my sister to do it, she has no earned income and could get over £700pa from the govt free but she just can't see how great it is!

And another website explaining the same thing: www.litrg.org.uk/latest-news/news/181214-do-you-understand-how-tax-relief-your-pension-contributions-works

One point to note is that if you are a low-earner (i.e. if you earn below or only just above the personal allowance – £11,850 in 2018/19), you may wish to check which type of pension scheme you are in. If you are in a ‘relief at source’ arrangement, the pension provider claims 20p tax relief back from HMRC for every 80p of your contribution received – no matter what the level of your earnings.

Basically if you earn below the personal allowance and don’t pay tax, then the government tops up your contribution as if you had paid tax. So if you’re earning £10,000 you get ‘tax relief’ on anything up to £10,000, which means you can pay in £8,000 and the government tops that up to £10,000. It’s free money - great if you can afford it.

That's actually a slightly different thing, though still possibly relevant to the OP as we don't know how much they earn.

"n fact, even if you earn nothing you can put up to £2700 a year into a pension, which will top up to £3600."

hi
I wonder if someone could explain more about this please? I'm a bit lost. I'm thinking to take a time out from work and can't work out whether or not I just keep in touch with the government to pay NIC or what I should do.

thanks - OP hope you don't mind this query on here.

@VanGoghsDog

hopeful bump and @

Ok, I’ll give it a go. I’m not an expert but I’ve taken years out from work here and there and I’ve read around how that affects my pension.

There are 2 ways you can pay into a pension when you’re not working: the state pension, which you pay through NI contributions, and a private pension.

You get a full state pension if you have paid enough NI for 35 years by the time you reach state retirement age. So you can miss the odd year here and there without it affecting your state pension. If you’re going to miss more than that then it’s worth looking at paying NI for the years when you’re not working.

(Argh, posted too soon...)

If you’re not working then the voluntary NI contributions are £15 per week, so about £750 for a year, and that buys one extra year towards your state pension. For that you get an extra £4.80 a week for life once you reach state retirement age, so about £250 a year, every year. It’s a really good deal. Look up class 3 NI contributions to read more about it.

The private pension is any pension scheme where you’re saving up a pot yourself, e.g. a SIPP. With that you can pay in £2880 and the government tops it up to £3600 automatically. You can pay in more if you want but you won’t get any extra top up.

Does that help?

Scarlet that is really helpful, thank you.

I'm thinking to take a time out from work and can't work out whether or not I just keep in touch with the government to pay NIC or what I should do.

There is way too much behind this question to go into really.

Does 'time out from work' mean no income? What will you be living on?

No-one here can tell you what you 'should' do, we're not financial advisers and even if we ere, you'd be mad to follow the advice from an anonymous internet forum.

As PP said, you can make up your NI contributions (back 6 years) and they are usually good value. You can check your record online here: www.gov.uk/check-national-insurance-record

If you have £2,880 to spare while you are off work, why wouldn't you put it into a personal pension (look for one with very low charges, a SIPP is ideal, with the money going into a fund, you can compare brokers, costs and costs of the types of holdings here: monevator.com/ ) and get the extra from the government to top it up (as well as topping up NI for the state pension if you need to)?

For me, if that was all I was doing, I would put the money in equal instalments monthly into a tracker fund of some sort.

VanGogh cross post
thanks also!

@RosaWaiting if you are taking time of work to care for someone you may be entitled to have your NI contributions credited without paying them. If you are caring for a child/children make sure you are claiming child benefit, if for an adult/adults, and you pass all the eligibility tests, carers allowance has the same effect (or did- I may be out of date on that bit)