Best way to save for a pension? Self employed, earning under personal tax threshold

[SheWouldNever]

I'm 36, self employed, earning approx £10k per year. Unlikely to rise from that amount for the next 5 or more years.

I have created a small savings pot of £2000 that I'd like to use to start a pension pot. I would be able to add £100 per month after that.

I'm looking at LISAs, to take advantage of the government added 25%. I wouldn't be planning to access this money before 60, I'm thinking of doing one of the higher risk stocks and shares LISA options, hoping that there would overall be some growth over the next 24 years.

The other option is to focus on putting all spare money into repaying the mortgage, if that will build more equity over time. The problem with that potentially being the stage between 60 - 70yrs, where I can foresee us not necessarily wanting to downsize to access equity, but still wanting to access some pension funds / work less before state pension age kicks in.

As a self employed woman, I was also looking for a fund separate to my husband's pension and our shared equity in the house, however modest that fund would be, it's a bit of extra security / savings for myself should we separate.

My husband is a high earner, over 100k a year usually, and pays into an Aviva pension fund that is topped up by his employer. I just wondered what else I can do to ensure a pension pot for myself as a self employed low earner. Are LISAs the way to go? concentrate on building equity? A scheme like People's Pension?
Or a mix of all of the above to give myself more options?

We’re in a similar situation to you, but I’m the higher earner. We decided that the best option was for me to save more into my pension, as I get higher rate tax relief. But we share all money equally, so DH is comfortable that we'll do the same after retirement. If we had extra to save, or I’d maxed out my annual allowance, we would put it into a stocks & shares ISA in DH’s name, due to the flexibility of access compared to a pension.

We’re too old for a Lisa, but the government contribution might make it a good option for you if you don’t mind not being able to access it.

@SlipperyLizard I quite like the idea of not being able to access it. We use any spare money from my husband’s earnings to put into more accessible funds / stocks and shares, so this would be a little savings pot just for me post 60, just in case.

Hi @SheWouldNever that is an enormous disparity in your incomes. Is that because as a couple you have decided you will be the main carer for children or perhaps elderly parents? If so (and to be honest even if not) then why doesn’t some of the family income get put into a pension pot in your name? Either as you say a LISA or even a stocks and shares ISA that would be more accessible. I always appear on threads warning about the need for women to be aware of the impact of potential relationship split on their financial stability having seen my mother really struggle after retirement age because of the actions of my other parent

Definitely start saving into a personal pension, as it looks like it wont impact your level of living.
I'd be inclined to put more than the 100 into it, and get your husband to pay a bit more into household spending.
I'm too old for a LISA, but ud look into that plus a stakeholder, and compare the two.

@Gassylady Yes, I am the main carer for children. My self employed job fits in really well around the kids, plus we started our family accidentally early in our twenties so I never had a career to go back to, whereas my husband has maintained a job with good career progression.

We are discussing upping his pension to pay more in for us both, or starting my own pension and pay into it with the household income. There hasn’t really been any spare household income floating around until the last year or so, hence now why I am thinking about it.

I have opened a LISA, and we are also going to open a stocks and shares ISA.

Definitely interested to hear the ways in which women can become financially vulnerable after a split. From what I’ve read, it seems all savings (including my separate savings / pension pot) would be treated as joint assets, so am I right in thinking that my own savings aren’t as protected as I thought they would be? Is there still a benefit to paying into my own pension VS us both paying more into my husband’s pension scheme, if all the assets are to be split in a separation anyway?

I’m no expert just made very wary from my mums experience. Yes you would be entitled to a share of his pension but you are doing the bulk of the work with kids running household etc why shouldn’t that be recognised with a pension of your own. There is also an annual limit on the amount that can be paid into a pension so makes sense to diversify. You’ve only to look at the number of threads on here where previously loving partners have acted like total sociopaths to feel that independent security is a good thing.

I presume that you have a mutually agreed way of splitting expenditure. It sounds like you can talk about it at least which is more than some can!

Final thought are you registered as eligible for but not claiming for child benefit? Currently need 35 years of qualifying NI contributions for full state pension. Think it counts as your NI credit until youngest is 12. Pointed this out to my SIL recently as my rather untrustworthy BIL had said it wasn’t worth the hassle of him filling in a tax return!

@Gassylady I pay NI contributions each year when I do my tax return to qualify for state pension. If I ever stop self employment, I will go down the claiming child benefit and paying it back route.

My husband isn’t trying to stop me having a pension of my own, we are just trying to work out what is the best way to do it. It might be, because of tax relief, that the best way is to pay more into his pension, but I’m also going to pay into my LISA that I just set up because it makes sense to diversify the funds a bit.

If your children are under 12 and you register as being eligible for child benefit, even if you don’t claim it, you will be credited for NI contributions. So don’t pay anything. Obviously anyone in employment doesn’t have the option of not paying.

@Oddbutnotodd I think I still have to pay the NI contributions as my profits are over the qualifying amount. But I’ve just double checked and my child benefit claim
is still active from when I was eligible for it to be paid with my eldest child, so either way, my pension qualifying years are covered.

I just looked up LISA and it says that for most people a pension is better. You will get a similar top up as you get tax back even if you don't pay tax. Do dig a bit deeper and I'd suggest you have some pension in your own name.

If you open a personal pension like a SIPP the government will still add 25% even though you’re earning under the personal tax threshold. You don’t have to open a LISA to get the top up.

If you split and needed government support a LISA would be considered an asset that you would have to draw on, a pension would not. As you don't pay tax there is little difference between the two. You get the same 'top up' for both. But, when it comes to paying out, you will pay tax on any pension over the personal allowance at that point, you wouldn't from a LISA. That might not seem relevant now, but if your circumstances change and you earn more/get a bigger pension you may push over the allowance.

In summary, based on your current circumstances a LISA is probably just a touch better for you. If you get a higher paying job or the change of employer contributions then start putting money in the pension. Bit you can have both! So get your DH to cover the bills and you save your £10k/year for later.

I was self employed and opened a Lisa, I made sure I maxed out my contribution £4K each year to get the governments £1K. Now I am employed in a still going to save into the Lisa as well and company scheme