Is It Too Late to Start a Pension in My Fifties?
Not so long ago, people in their fifties would deem themselves too old to start saving for retirement.
If you are hitting your fifties now, and you don’t have a pension pot or any savings, you’ll be pleased to hear it’s not too late to do something about it.
In fact, it is never too late to start saving for old age. Obviously, the sooner you get started the better, so why not make that now?
In this article, I’ll be looking at some of the pension and saving options for late starters. Whether you’ve just hit the big five-oh milestone, or you are creeping towards retirement, there are still ways to build a savings pot and make your money work better for you,whether that’s through a pension, learn from an investment blog or otherwise.
First up let’s take a brief look at the State Pension.
What pension will you get from the State?
The State Pension is a regular payment from the Government you can claim when you reach State Pension age. The amount you get is based on how much you have paid in National Insurance contributions.
The State Pension age has undergone radical change in recent years. Women used to be able to get the State Pension at age 60, and men at 65. From November 2018, both men and women have to be 65, but this is gradually increasing, depending on when you were born. The State Pension age will reach 67 for both men and women by 2028. It could change again in the future.
The full amount of the current State Pension is currently £168.60 per week. Check how much State Pension you could get here.
A pension is actually a tax-efficient way of saving money
Independent Financial Adviser (IFA) and pensions specialist Adam Reeves, says “No matter how old you are it is never too late to think about financially planning for your retirement and paying into a pension scheme. It is actually a tax-efficient way of saving money.”
If you are a UK taxpayer, you will can get tax relief on pension contributions of up to 100 per cent of your earnings or £40,000 annual allowance (whichever is lower).
Pension tax relief is paid at the highest rate of income tax you pay, so for basic-rate taxpayers it is 20 per cent, for higher-rate taxpayers it is 40 per cent and for additional-rate taxpayers it is 45 per cent.
What does this mean? If you are a basic-rate taxpayer if you contribute £100 from your salary into your pension it will only cost you £80 – the government pays £20 (the tax you would have paid on the £100 of your salary). Higher-rate taxpayers benefit more.
See more about tax relief on pension contributions here. As you can see, the tax relief available on pensions is particularly attractive to higher earners and additional rate taxpayers.
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What is a private pension?
Sometimes called a personal pension, and commonly referred to as a ‘Self Invested Personal Pension’ (SIPP), a private pension is a type of investment scheme. You make monthly or one-off payments into a pension plan. Your pension scheme provider adds tax relief to that. The money you put in to the pension plan is invested in a range of assets, such as bonds, shares, property and cash.
How much you get from your pension plan will depend on how much you save, how it is invested and the type of pension plan you have.
It is important to seek independent advice when considering any pension scheme or other form of investment as there are risks. The return on your investment can go down as well as up.
Workplace pension schemes
If you are working in the UK, are aged 22 or over, are under the State Pension age and earning more than £10,000 a year, then you are likely already signed up to a workplace pension scheme (unless you have opted out).
Many workers are now covered by pensions auto-enrolment. This is a government scheme to help people save for later life.
Since 1st February 2018, all eligible workers in the UK must be enrolled in a workplace pension scheme. The amount you and your employer contribute has been increasing since the scheme was introduced. From 6th April 2019 your employer pays 3 per cent of your qualifying earnings and you pay 4 per cent of your qualifying earnings.
If you have previously opted out, you can rejoin, but your employer only has to action one request from each member every twelve months. See more about rejoining your auto-enrolment workplace pension scheme here.
What are the alternatives?
As well as considering a private pension, there are lots of other money-saving tips for over-50s. Now is the perfect time to give yourself a money makeover. Any savings you can make in your expenditure now can be saved for your retirement.
ISAs are another tax-efficient way of saving money. The term ISA stands for Individual Savings Account. It essentially allows you to save money tax-free. See if an ISA could be right for you here.
