Worried about lack of pension

[Ritaskeeterdidit]

I’ve found myself in my late 40s with only around 50k in my pension pot. I’ve been neglecting it for years due to having seemingly more important things to pay for/working part time to raise children and now I’m really worried. I’m self employed so no workplace pension to join. I will get a full state pension (whatever that looks like by the time I reach retirement age) but I’m not sure what to do for the best to bolster my private pension. How much, realistically, do I need to have in the pot to be able to live comfortably? Do I need to open a basic pension with AJ Bell or similar (one where I can be hands off) and put away as much as possible? I won’t have a mortgage by the time I retire so that’s something but I’m worried about affording the basics.

I retired with a pension pot worth £76,000 it pays me £270 per month, I am not yet state pension age but at it moment it’s £880 every 4 weeks, so nowhere near enough to be able to live off that. I also have a Nest pension I pay into and the government tops it up 25%.

Every £100,000 earns up to £400 a month at today's interest rates so given that you have another 20 working years, how much do you think you can add to your pension in that time?

Remember that for every 5% of your salary you save, the govt adds 1.25% of your salary and your employer should add at least 3%. Check out the details of your works pension scheme.

If you save £100 a month, an extra £25 + £60 will be added, giving £185 a month. So £2,220 a year. Over 20 years is another £44,000 plus compound interest on all of it. Maybe £200k (or £800 a month) by the time you retire.

It won't keep you but it would be enough for you to go part time for the last few years and then make all the difference after you get your state pension.

Use this pension calculator on AgeUk
Where is your £50k? Is it somewhere you can continue to add to it? Remember, it will continue to grow between now and when you retire.
You should start putting money in as soon as you can because the government will add to it (give yourself a 20% pay rise!) and you can reduce your tax liability. It’s never too late to start, but the numbers needed for a ‘comfortable’ standard of living in retirement are quite scary.
My DH is self employed and pays into a Nest pension (he has absolutely no interest in investing and went for the most straightforward one he could find!). I have a SIPP with Hargreaves Lansdown where I manage the funds I’m investing in.

Very honestly... I'd be very stressed about it in your shoes.

I think you need to prioritise pension payments going forward, work out if / when you can downsize and work out when you plan to retire (probably over 65 maybe 70?). Doing this will help ypu establish what you need and you can then set a budget.

@Meadowfinch, OP has said she’s self employed, no workplace pension to join

@Meadowfinch Thank you but you'll see from my op that I'm self employed so no workplace pension, but the figures are food for thought.

@Hypercatalectic Thank you, like your husband I need something I don't have to manage (mainly due to my total ignorance). I've looked at Nest pensions but the fees seem to be really high but then I got totally confused. Can I ask how you manage your funds in your HL pension? Stupid question I know...

@Ritaskeeterdidit I'm in exactly the same situation re: age + pot amount. I am employed though. Many people are in a similar position to us, despite what MN may look like.
I am focusing on putting maximum monthly contributions into my workplace pension then I have an additional one cobbled together from various jobs which I have a direct debit of £100 per month. It's not a lot but it's the best I can manage.
I have another 20 years of working (boo) so once DD leaves home I will squirrel at least one third of my salary into the private one.
You are not alone.

How much are your outgoings at the moment minus your mortgage? That’s what you need to be aiming for income in retirement. A £50k pension pot won’t get you much in income per month so you’ll be relying on the state pension, but you’ve got almost 20 years of work left before you retire so a long time to build up the pot.

I think the media is giving an unrealistic view of what a retirement should look like. Have a look at the thread about living on a state pension. It won't be the same lifestyle you have now but it is doable. You will manage to live on what money you have available as most people do. Actually very few people have massive pensions over and above the state pension.

Obviously try and save what you can so you have money for the extras but don't stress about it.

Nest fees are high. high fees eat into returns. The Reddit U.K. personal finance board has been very helpful to me, not posting but reading it all - they have some great flow charts and lots of info.

I’m self employed and use interactive investor. It’s very easy. Set up a DD with an monthly automatic investment into a low fee global tracker. Government money is added automatically.

You can call them and they are very helpful but after it was all set up I don’t need to.

Not a stupid question at all, we’re not born knowing this stuff!
if you have a stocks and shares ISA, it works in exactly the same way. Pay money in and it goes into buying units in investment funds. A lot of these pension platforms have a ready made portfolio you can opt for, depending on your risk appetite. So if you decided you were happy with a medium level of risk, they would set up your money to automatically go into that selection of funds. They do make it very easy, but it is good to improve your knowledge about how it works. I review the fund options myself and have put together my own portfolio - I have spread my investments across regions (global, US, Europe, Asia, emerging markets) and strategies (environmental, special situations, etc). I find it all quite interesting 🤓
Have a look on MoneySavingExpert and also a couple of the pension platforms, see how straightforward they make the process. Have a look at Hargreaves, Vanguard is another popular one, AJ Bell, there are loads of them.

I’m in a similar position, but have even less in my pot than you do. Pretty worried about how I’m going to pay bills, feed myself and maintain a house on a low income but a plan I have is to get a lodger - could this also be an option for you?

I feel a bit better by guessing that the state pension, within twenty years, will likely be means-tested. As a country, we just can’t afford for much longer to pay state pensions to those people with big or relatively big pension pots. I’ve read you need a pot of at least £200k to have a comfortable retirement.

Generally the UK government say minimum of 8% but you are starting much later, another guideline is half your age as a %. Personally I would try and save at least 15% you can get tax relief if into a pension rather than ISA which although no tax on interestwhat you put in has already been taxed but what goes into a dedicated pension is not taxed making it a better option

Will you be able to downsize or move to release some funds from your property?

Check out Rebel Financial School it’s a series of YouTube videos that go through all of this step by step - personally rather than NEST I’d look at investing into a SIPP , you can do this from your limited company if you have one , the Government add on 25% or if pre tax you will pay less income tax and you can choose which fund to invest in. I merged about 70k of old pensions into a Vanguard SIPP in June and it has risen by 10%

@Hypercatalectic Thank you for explaining. I've looked at an AJ Bell Ready-Made Pension as it seems to be a good hands-off option and appears to have lower fees that my old workplace pension (where the £50k pension pot is currently sitting). I might look at transferring my pension to them then pay in as much as I can every month (not easy as I'm on a fairly low income but I think I need to prioritise this).

@1975wasthebest Very good point about a lodger. A relative did this (also due to low pension) and it worked out really well.

Is your old workplace pension a defined contributions pension or a defined benefits/final salary pension? If the later probably better to leave it there.

@JaninaDuszejko Defined contributions

Do the rebel finance school course (free)

@Ritaskeeterdidit, take advice regarding transferring your existing pot, it isn’t always the right thing to do depending on what kind of pension it is.
Well done on being proactive about it, you will thank yourself in 20 years!

@Ilovemyshed Thank you, I'll look at that.

@Hypercatalectic That's really kind, thank you. I feel stupid for being in this situation but you're right, in 20 years time I'll be grateful I finally got on top of this!

The positive is you're on to it now and aware of your position.

Kindly, I'd ignore any advice or encouragement from others re others managing on state pension just fine and having to adjust expectations. We do not know what state pension might even look like, if triple lock was removed, it would become much less strong vs inflation.

SiPs are really good like the ones suggested. I would also recommend as your self employed looking at a form of income protection if you can. In case of period where you can't work if you don't already have this.

Unfortunately, we all need to be saving a lot more than we realise and there's quite a contingent of "we aren't promised tomorrow" people who say not to worry about it. Which is scary. Because tomorrow will happen for a vast majority.

I would consider taking a job now while you’re young enough to still be employable and in enough energy to fulfil it
And then revisit the self-employed stuff later on in life when you’ve got less capacity to physically get out and meet other people’s expectations.
Ideally, if you can, I would do both.