I used to be scared of pensions. They seemed complicated, boring and too far in the distant future for me to worry about. But getting older has made me reconsider pensions. And you know what, there’s nothing complicated about them at all. Yet many women have rubbish pensions. Frankly, it’s time to face the facts and sort out your pension: no-one else is going to do it for you and actually, it’s all pretty easy.
1. Pensions are just savings schemes with a lovely dollop of tax benefits on top. You save money into a pension scheme and when you’re retirement age, you draw on this money for your income. What makes pensions different from other savings or investments is that you get up front tax relief. For a basic rate taxpayer, this means that putting £100 into a pension scheme only costs you £80. That’s free money: why wouldn’t you take it?
2. You get tax relief on contributions of up to 100% of your income up to a maximum of £40,000 a year. You don’t even need to have a job to contribute to a pension. Anyone can (even children). Non-taxpayers can put up to £3,600 a year costing you £2,880, the rest made of tax relief.
3. Don’t worry too much about all the technical names for different types of pensions. In the main only those who work in the public sector (NHS, civil service etc) have pensions linked to their salaries. For everyone else, you are saving towards your own pension pot whether through a company scheme or a personal one. When you retire – your age will depend on the scheme rules – you then have this pot to live on. You can use it to buy an income or just drawn down bits of it when you want to. And you can take 25% of it free from tax.
4. Few of us work for one employer all our lives. You might have pensions with past employers you’ve forgotten about. You can track down lost pensions with the free government Pension Tracing Service here. Or if you want to pay someone to do it for you, there’s Profile Pensions*
5. If you’re working then do take up your employer’s offer of a pension. If you don’t you’ll be missing out on contributions your employer will make to your pension pot to boost your own payments. That’s more free money.
6. If you have to go it alone, then it’s still worth having a pension. You might think about taking out a Self- Invested Personal Pension (Sipp). These are essentially frameworks which let you choose where you invest your pension money – funds, cash, shares – and get the tax relief on them. Flexibility in investment choice – and lower charges than traditional personal pensions – is what makes Sipps a good idea.
7. The state pension is not enough to live on. Currently it is £125.95 a week. And unless you have 30 qualifying years of National Insurance contributions, you won’t get the full state pension. Lots of women have missed NI years. If you are one, you can buy back lost years. Don’t know if you have enough years? You can – and should – get a state pension forecast. It is really easy: just use this link. And while you are at it, check what age you’ll get the state pension here.
8. Don’t forget your other half’s pension. Being practical, many marriages sadly do fail. And while the family home is central when working out the financial separation, pensions must be taken into account too.
Want more? See our beginners’ guides to pensions for more help