Self employed - pension

[Happyinheels]

Do you think it's ever too late to start a pension? I'm 47 and self employed. A woman in the same line of work as me posted advice in a group that, at aged 50, she was advised by an independent financial advisor that it was too late and she could never save a big enough pot for retirement. This has got me thinking, and panicking a bit really. I've never really been in the position to put money away for a pension, even now it would be a stretch but I feel like surely something is better than nothing?! I've maybe got tiny bits and bobs from before I had my kids but no idea how I would even find this out. I have a small pot from my exh when we got divorced. I bought him out of the family home and got the mortgage in my own name and do have this to sell and downsize when it comes to it. But I'm thinking of trying to squirrel money away every month into some sort of pension. Realistically I have 20 years of working left 😩 I'm not sure that I will do this job for another 20 years though! When researching it says that the government top it up by 25%, and I think I can account for it in my end of year tax return. I'm just not sure what to do for the best! Interested to hear other people's thoughts and experiences.

Yes the government do top it up.

Used to be up to £40k year limit you could put in, now it's going up to £60k

Can you contact old employers to find out what you do have? How long have you been self employed?

When do you plan to downsize as you could put a lump sum in then?

Also have you been paying National insurance? You need to check your State Pension forecast too, to see what you will be due

Following with interest as DH is self-employed and yet to start a pension. He is 37. Really not sure what the best options are! I would have thought it is never too late as surely something is always better than nothing?!

@jackstini I've just checked my NI record. It says I have 27 full years of contributions and 4 years where I didn't make enough contributions - those are years when I was at college and uni though so I'm a bit confused about those ones.
Current estimate is £177.55 a week but then it says I have 20 years to pay another 5 years of contributions and then I'll get the maximum of £203 a week.

Re downsizing - currently I can pay the mortgage on my house. I think I've got 20 years left on that too. But I have a fair bit of equity in the house. The house is worth about £300k and I have a mortgage of around £112k left to pay. I've looked at downsizing now but it just doesn't seem worth my while. I wouldn't save much at the moment.

I'll have a look at old employers and contact them. A few were local government pension schemes.

Yes, it's a good "savings scheme" as HMRC top up your contributions, so for every £80 you pay in, HMRC pay in £20, making a total of £100. That's an immediate 25% "investment return".

I'd suggest, that as you're late in the day, to "invest" it in safe funds or even just in interest earning deposit accounts. Investing in higher risk investments such as stocks and shares could mean you lose some of your money with not much time for the market to recover before you start taking funds out upon retirement. There are also different levels of "investment" funds, some pretty low risk in gilts etc., others medium risk in a broad portfolio of shares, and some higher risk in very specific industries/countries etc.

You can take 25% tax free at any time after 55 (rising to 57 I believe), and then you can just "draw down" the rest as and when you want, but it will be taxable, so maybe best to draw down when you have no other income, i.e. between retiring from your current job and before starting to get your state pension.

I don't think you've started soon enough to get a huge pension pot that will give you a luxury lifestyle in retirement, but you'll almost certainly get back more than you put in, just because of the HMRC tax relief "top up", so it's better than nothing!

@taxguru thank you so much for that advice! Is there a particular company that's best to go with? I was thinking of looking at Nest. I had no idea about the investment side of it so I need to investigate that further.
I don't have a luxury lifestyle now but I definitely don't think I'll be able to manage on the projected £800 a month government pension. I realise I've left it late. I was a classic SAHM, raising the children and supporting my exh in his career. I became self employed while we were married but didn't need to worry about setting up a pension as we were in life together. I think my advice to my daughter will be to always be self sufficient and make plans that secure your future regardless of your relationship status.

If you can contribute for 20 years it's definitely not late. You could look at nest or a cheap online provider like besinvest or AJ bell invest center.

I started a Nest pension scheme with my employer when I was 57. I was made redundant at 58 and I carried on paying in £50 for a couple of years and now pay in £100 per month which is topped up 25% by the government. It won’t be much, but it’s better than interest rates at the moment. It’s worth about £6,000 at the moment, so it’s worth it for me.

OP are you a higher rate tax payer or do you pay 20 percent? Either way you can save into a pension and whatever you save in the tax year gets deducted before your tax is worked out. So if your gross pay was £40 and you paid £4k pa pension. Then your tax would be worked out for £36k. Paying into a pension scheme keeps your tax down, especially useful to increase pension to keep earnings below higher tax rate. The government tops up your pension by 25 percent also. You'd be mad not to pay into a pension pot. You can pick how much risk you want to take in investment too. If you've got 20 years left and you could put in £4k each year then that would be topped up to £5k by the government so you could get £200k in 20 years plus however well your investments do. £4k a year works out at £266 per month. You'll pay less tax.

Sorry OP I pressed the wrong key £100k not £200k.

Some money is better than no money

It's never too late and good for you for thinking about it and investigating as so many people don't bother and struggle with state pension only (appreciate that not everyone has the resources to pay into a pension but if you do then go for it).

Your NI record confirms that you have 5 more years to work and you will qualify for full style pension which is great. For your 'bits and bobs' either contact old employers and ask (I had to do this and it was a lot less painful than I imagined!!) or there is something called the pension tracing service - go to the government website and have a look.

As PPs have said the government will top up your contribution by 25%, so for every £80 you put in they put in an extra £20. Depending on your income level you may be able to claim higher pension relief plus it will reduce your taxable income so you'll pay less tax.

Regards provider, look at charges as these can make a big difference eg 1% versus 1.5%.

Money Saving Expert has a pension forum section where you'll find loads of good advice.

Wow thanks for the replies! I'm definitely of the opinion that something is better than nothing
@Mindymomo.
I'm not a higher tax payer @caringcarer. I was also working on perhaps managing to put approx £3k a year away. It would be a stretch as a regular monthly payment but I think there are schemes where I can put less or more in depending on my monthly circumstances.
@whyisitalwayswindy I was having a look on there and can't seem to find much on being self employed. Maybe I'm not looking in the right place.
I didn't want to be working till 67 but there's no way I will be able to retire before then so I need to make a plan!
Thank you so much for the advice and encouragement.