If you’re in your forties and have neglected your pension, you’re not alone.
With other financial priorities to juggle, like the mortgage and childcare costs, retirement saving can easily slip down the to-do list. Now, a quarter of people above the age of 40 don’t have a private or workplace pension, Government figures show.
But there is still time to turn your retirement fortunes around and build a substantial pot for your future, something Andrew Lager, 42, has managed to do.
Andrew, a project delivery manager, started a pension for the first time in 2019 when he switched from being self-employed to an employee of a large engineering company.
“I got married, had a son and thought it was time to think seriously about my future finances. I had no pension so I knew I had to put a lot in to play catch-up,” he says.
Saving specifically for retirement is important because the state pension alone, at about £12,500 a year currently, is not enough for a comfortable standard of living.
Yet, delaying saving can have a serious impact on your future pot. Figures from MoneyHelper show that someone who saves £200 a month into a pension from age 20 could have £316,000 by age 65. If they don’t start saving until age 30, they would have £224,000 by retirement age – some £92,000 less.
And delaying saving until age 40 would mean ending up with £146,000.
Andrew Lager boosted his pension pot later in life – his pot is currently worth almost £88,000It’s never too late to start though, experts say. Even small amounts add up over time and increasing your contributions each time you get a pay rise or bonus can really boost the pot.
Andrew, for example, now contributes 8 per cent of his salary and his company pays in 12 per cent, meaning a total of 20 per cent of his salary, about £1,160 a month, is paid into a pension. However, for his first two years of employment the company contributions were lower.
His pot is currently worth almost £88,000, with £60,000 paid in by Andrew and his employer since 2019 and the rest investment growth. Based on his own forecasts, Andrew believes he’ll have a total pot worth over £600,000 at age 65.
“One of the things that attracted me to this company was the great pension scheme. They’re also a great employer in general, offering flexible working and opportunities to move around the business.
“This year I also got a bonus, which I paid into my pension. It saves on tax and will compound over the years. I was late to my pension but it just goes to show you can catch up quickly.”
Joumana Medlej, similarly, never gave much thought to long-term financial planning when she moved to the UK from Lebanon 13 years ago. Her approach to money was simple: spend as little as possible and earn enough to pay her bills.
It was only after reading the book What They Don’t Teach You About Money a few years ago, that she got to grips with the basics of money and how she could plan for the future. Finally, in her forties, she opened her first pension.
“I found the book very helpful. Maths and finances have never been my strong point, and as I didn’t grow up in the UK I find the financial system here quite confusing,” says Joumana, 46. “I thought I should start thinking about the future and investing, and being more engaged with my money.”
How to save if you’re a self-employed worker
Pensions are one of the most effective ways to save for retirement because of the tax relief, which means the government tops up what you pay in or that contributions may come directly from your pay before tax.
Since the introduction of auto-enrolment in 2012, more people are saving into a pension than ever before. Under this scheme, anyone aged 22 or over and earning at least £10,000 a year is automatically opted into their workplace pension. They contribute a minimum of 5 per cent of their salary and their employer contributes at least 3 per cent.
But for Gen X (those born between 1965 and 1980), the scheme came a little too late. These workers were in their forties and fifties by the time auto-enrolment came into effect, meaning that many missed out on decades of retirement savings.
And self-employed workers, like Joumana, are among the most likely to have no pension savings, as they are not included in auto-enrolment, says Josh Toovey, head of policy and research at self-employed association IPSE.
“Most self-employed people can’t afford to lock money away in a pension when a late-paying client or a quiet month could leave them short,” he says.
Joumana Medlej didn’t start a pension until she was in her forties, but has since taken steps to change that“Without a payroll to deduct from, every pension contribution is a decision someone has to actively make and when income is irregular, that decision often gets pushed to ‘later’.”
Joumana, an Oxford-based artist who specialises in medieval Arabic art technology and calligraphy, has never had a full‑time employer and so does not have a workplace pension or benefit from auto-enrolment.
She opened a private pension with PensionBee after doing some online research, and finding the platform easy to understand and use. She began paying in a regular amount but stopped for a while when work dried up for a bit.
When things picked up again, she put in a bigger lump sum and has now has gone back to regular investing.
The pension has grown 17.84 per cent since Joumana opened the account two years ago. She has contributed a total of £7,000 and seen her pot grow to £10,261 so far. This includes £1,688 from tax relief and £1,533 is investment growth.
“I feel I’m on track with my pension now. I know I need to contribute a lot more but I still have plenty of time,” she says.
“I should also get the full state pension as I am up-to-date with my national insurance contributions. I think my finances can only improve from here and I feel more confident about the future.”
Like Joumana, others should know it’s never too late to get started, says Andrew King, a pensions and retirement specialist at wealth management firm Evelyn Partners.
Starting in your forties still gives at least two decades to benefit from tax relief and compound growth.
Someone aged 40, with no pension fund whatsoever, earning a salary of £55,000 could have a pension pot at age 68 of £353,000, according to figures by Evelyn Partners. This assumes they contribute 5 per cent of salary and their employer pays in 3 per cent, that their salary rises by 2.5 per cent a year and they achieve investment growth of 5 per cent a year.
“If they upped the payments to catch up and paid 10 per cent a year into the pension to age 68, the pot would rise to £574,000,” adds King.
How to catch up
If you’re looking to increase your pension contributions as an employee, start by seeing how much your company offers. Many employers go beyond auto-enrolment and will match your contributions up to a certain amount, or perhaps even double it.
If you’re self-employed, it’s worth exploring the many private pensions available. We explain more about opening a pension if you’re self-employed here.
Jessie Kwok, chief investment officer at investment platform Wealthify, suggests starting as early as possible and contributing regularly: “Increase contributions when you can. Small percentage increases, particularly during pay rises or bonus periods can significantly boost your final pot without drastically affecting your take-home pay.”
Tracking down and consolidating old pensions can also make a big difference to your retirement planning, helping you see how much you have in total and potentially saving on fees.
Finally, free online calculators can help you work out how much you need to save to reach your savings goals.
Even if you start saving in your forties, ultimately, it is still not too late to build enough for a comfortable retirement.
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