Pensions

Statistically, women live longer than men and therefore , we need to find a way to ensure that we can live well at any age. Pensions are an investment into your future self. If you enjoy a certain lifestyle, you probably want that to continue well into your old age.

Pensions kick in upon retirement. The good news is that you can retire whenever you like so far you are comfortable with the life and income you are getting.  If you do not have a viable pension, you are more likely to work till you are 80+ years old.

Start early and it is not too late. 
When will you retire?
By the age of 60-64, women in the UK have an average pension wealth of £35,700 — one-quarter of the amount held by the average man, according to a study by the Chartered Insurance Institute. (ft.com)

Where will your income come from when you retire?

Company Pension

70%

State-Government Pension

10%

Personal Savings & Investments

20%
If you need £2000 per month to maintain your lifestyle in retirement, it means that you need:
£1400 from company pension
£200 from the government
£400 from your savings

hmmm…how much would you need to have saved or invested in order to get this monthly income? The response to this question should guide your pension approach.

Type of Pensions

Company Pension

What is a company pension?
Company pension is an investment contribution typically deducted from your salary on a monthly basis. Your company pension is typically invested into the stock market and is managed by pension provider or financial institution with the goals to you help grow your pension faster over time whilst managing any risks.
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How do I pay into a company pension?
When you join a company, you are either eligible to participate in pension schemes from day 1 or after you have passed your probation period. If you work in a company where there is pension matching that is, if you put up to 5% , the company will match to 5%, make sure you are matching to the maximum from the beginning. 

Pension Matching is free money
If someone told you that if you put in £100 in your account today and they will also put in £100, will you say no? probably not. This is the same mindset you should apply when reviewing a pension matching option. Matching pension allows you to build your pension net worth at an accelerated pace. In addition, as your salary increase, so does your matching contribution and your overall pension pot.

Multiple Pension Accounts
If you have worked for number of companies and have accumulated pensions within them, you can continue to keep the pensions managed by the companies or you can choose to combine them through a brokerage account and manage them in one place.

Don't Hesitate
It is very tempting today to say you'll put in the minimum amount into your pension pot but the truth is that will every delay, you miss out on the compounding effect i.e. growth of your pension overtime. When I was starting in my career, I put the minimum because I wanted to live young and prosper, and I felt that old age was very far away. This was not the right approach to building wealth so start now and reap the benefits of time
What are my next steps?
  1. Check how much you are putting into your company pension. This should be visible online or via paper statements. 
  2. Match your pension contribution to the maximum so you can double your monthly pension investment
  3. ​Keep a monthly record
  4. Read the terms and conditions of what you can do with your pension when it matures 

State-Government Pension

What is a state pension?
A state is an an amount paid to you by the government when you reach retirement age. Over the course of your working life, you contribute to the state pension in order receive state pension income. In the UK, employees also pay National Insurance (NI) which is also deducted from their monthly pay check if they reach a certain income threshold. NI is also used to contribute to your state pension.

Types of state pension in the UK
  • Voluntary state pension
    • If eligible, you can contribute into the state pension during your working life to get income when you retire.
  • Self-Investment Personal Pension or SIPP
    • SIPP is a pension scheme that allows you to contribute and invest your pension contributions as you like. In the UK, the government provides a tax relief on the contributions made and you can access the funds when you reach retirement age.  Keep in mind that there are annual limits to the amount you can contribute to a SIPP (Learn more here).
  • LifetimeISA or LISA
    • This is a government scheme that allows you to use the LISA which can be a held in a savings account or stocks/shares fund to save to buy a house or contribute to retirement. The government provides a annual bonus of 25% which is paid each month on your LISA account up till age 50. When you reach age 60, you can start to use your LISA savings as income. LISA is also tax free. If you make any withdrawals before age 60, you will pay a penalty so it is essential that you see LISA a s long term investment option and understand its terms.
What are my next steps?
  1. If you are paying into a State or Government Pension:
    1. Check your state pension age. This is the age where you will be eligible to start receiving state pension
    2. Check how much you have saved into your state pension  pot. ​Crucially, check that there are no gaps in your payment/National Insurance record
  2. If you have a Company Pension:
    1. Confirm what age you can start to access your company pension and the terms and conditions that apply
  3. If you want to boost your overall pension contribution, set up a direct debit or deposit a lump sum into a SIPP or LISA
  4. ​Keep a monthly record

 Personal Savings & Investments

To learn more about where to save and invest click on the button below to explore your options.

Questions?

I HAVE No company pension
There are multiple options available to you:
  • In the UK, you can use a SIPP or LISA to start your pension. LISA offers government bonuses that help to boost your payment and is tax friendly.
  • You can also pay into the state pension voluntarily.
  • You can start your own personal savings plan
  • You can reach out to pension providers and make monthly contributions

Want to learn more on financing a long life?
Disclaimer
The content on WealthSquats are my own thoughts. Consult certified financial experts to get information that is suitable to you.
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