By Rachel Efetha, Chartered Financial Planner with Anstee & Co.
Whilst the 40 somethings parents and grandparents enjoyed a job for life and a pension from their employer based on the number of years service and their final salary. This, along with a state pension at 60 for women and 65 for men, most non-public sector employees do not have that luxury, with final salary pensions schemes closing in their droves.
Most employed people are now enrolled in Workplace Pensions, which means that our children will be fine and start paying into a pension as soon as they are 21 and earning above a minimum threshold.
But what about those of us in between with no Final Salary scheme, no workplace pension and various jobs with or without money purchase pension schemes and the odd personal pension thrown in? What if you have reached your forties thinking that pensions are something way in the future and haven’t got one?
Is it too late to start now?
My answer is no, it’s never too late to start a pension, and my reason is FREE MONEY! For every £100 you put in, the government tops it up to £25, and if you’re a higher or additional rate taxpayer, you get an extra £25 or £31.25 respectively through your tax return. What other investment would give you a guaranteed, risk-free return of 20%, 40% or 45% on day one?
Of course, you do have to take some risk with where your pension fund is then invested, and that should be carefully discussed with an Independent Financial Adviser to make sure that it is in line with your own individual attitude to risk. If you’re 40 now and planning to retire at 60 or later, you have at least 20 years to ride out the short-term peaks and troughs of the investment markets, and over that period of time, you’ll be very unlucky to end up at a loss (although there are no guarantees I’m afraid).
How much should I be saving?
So, what will £100 pm get you at the state retirement age of 67? You will have a fund value of just under £63,000, assuming a 5% growth rate. This will get you an income of around £3,150 pa until you are 99. Ok, so it’s not a huge amount, but you’re paying in £1,200 pa for 27 years to get more than 2.5 times the amount back over 32 years.
When you consider that and the fact that £100 pm into a bank account will get you just over £33,000 at age 67 and an income of £1,000 pm until you’re 99 then a pension does start to look very attractive.
Of course, the more you pay in, the more you’ll get out, so if you want £6,300 pa then you need to pay in £200 pm and so on. If this amount feels unaffordable to you, then simply adding a 5% increase every year on a £100 pm contribution, will increase your fund size, and ultimate pension by around a third.
Don’t forget that a personal pension is just one part of your retirement savings, you should have a State Pension of around £8,000 if you’ve paid enough National Insurance contributions. to check how much you’ll get follow this link. You might have business assets to sell, a house to downsize, an Inheritance and savings such as ISAs.
If you think that it’s just not worth paying into a pension this late in life, think of the alternative. Could you live on the state pension on its own? Just google ‘state pension and poverty’ to see for yourself.
How Anstee & Co can help you with your pensions.
If you have existing pensions that you feel may need reviewing then why not give us a call. We are Independent Financial Advisers giving unbiased financial advice. We can also help you plan your retirement with cash flow modelling. This helps you see what your finances will look like going forward.
We have offices in Kettering, Stamford, Towcester and London. However, due to government guidelines on coronavirus (COVID-19), we are making use of video conferencing such as-
- Microsoft Teams
We can also arrange a conference telephone call. It’s the new normal just in a different way so why not contact us today?
If you have any thoughts or comments on this article, “Pensions – It’s never too late to save for your retirement”, then please let us know. We would welcome your thoughts.
The information contained in this article is for information purposes only and does not constitute advice. No action should be taken based on this information alone. Anstee & Co is authorized and regulated by the Financial Conduct Authority (FCA).