I am a mum. A mum who has had a decent chunk of time out of work to raise my children and then returned to work part-time.
As a woman, I am likely to live for longer than my husband.
I am also 37 and realise that there is a good chance that by the time I reach state retirement age, the state pension as we know it now will be a distant memory. That puts me slap bang in the melting pot of a huge group of people who just aren’t prepared financially for old age.
We need Operation Old-Age Finances.
I started off with good intentions. When I started work at 21, I knew that investing in a pension was a good idea even though retirement seemed a long way off. I put away 3% of my monthly salary, enjoying generous employer contributions at the same time.
I figured that I had never had a proper pay packet before so I wouldn’t notice what was being taken out each month for my pension, I just enjoyed the money I did receive!
When I moved to Australia aged 26, their pension regulations are much tighter than here and everyone has to save 9% of their salary each month anyway, so I built a nice little pot over there during the seven years I was there.
Then I became a mum. And suddenly this mumma’s nest egg stopped having its monthly contribution from my pay packet, especially when after maternity leave, I decided to have time out of the workforce as a stay at home mum for a few years.
I was a career girl earning good money. I was financially independent.
We have always had a joint bank account and never had ‘my money’ or ‘your money’ but what I mean by this is that I considered myself able to provide for myself if I needed to. So it was a shock to go on maternity leave. Not so much because we went down to one income but more because I didn’t like being dependent on someone else for my financial security.
Women are the ones who take time out for maternity leave and often the ones who care for children. But if it means that because a woman has taken on this responsibility, she is financially dependent on her partner in later life, this is a scary, scary thought. Retirement is a long way away and if in the meantime, you get divorced or your partner dies, your financial independence has the potential to be severely compromised.
With this in mind, it is important to try to keep saving towards financial independence in later life even if you are not earning or not earning as much as your partner. If you are out of work for a period of time, do consider asking your partner to contribute to your pension pot.
We had a nanny when I went back to work full-time; under today’s rules we would be paying in to a pension for her as her employer. If you start thinking of caring for your own child as a job of work, you should be receiving a pension – so pay yourself one (via your partner’s wage)!
As long as you are working, or registered for Child Benefit (even if you are not receiving it), you will be receiving national insurance credits. You can check how many qualifying years you have currently here: Personal tax account checker (its a rather depressing read when it also tells you how many years you still need to work to receive the full state pension – you need 35!)
Your summary will show any years in which you don’t have national insurance contributions. You have the option to pay a make-up payment for any missing years.
I have 6 missing years for the period I was in Australia and the government wants an average of £600 per year for me to get credits. I still haven’t decided whether I want to pay this – given I am pessimistic about what the state pension will look like when I reach retirement age, I think I will keep hold of my money and invest it elsewhere. This is an option if you have a gap in your record though.
Remember you currently need 35 years of contributions to get the full state pension.
I stupidly didn’t register for Child Benefit as we weren’t eligible. I didn’t know I would be missing out on national insurance contributions. Don’t be like me (and 38,000 others apparently) – make sure you register and you will automatically get the national insurance credits if you are not working while children are little! If you register now, you will only receive 3 months of back-dated credits so don’t delay. I have been actively campaigning with The Daily Mail to get the government to back date belated claims for state pension credits – watch this space!
With the state pension currently paying out £125.95 per week, you will be wise to have another source of retirement income if you want to retire in comfort.
Recent changes in the law mean that all employers have to provide a workplace pension. Do not opt out! There is free money in it for you!
The government tops up any contribution you make, plus your employer will also make contributions. This is the easiest way to really build your nest-egg. Plus, the more you earn, the better the benefit as the tax-relief you receive relates to your tax rate. If you are able to increase your contribution as your salary increases over time, consider doing it – you’ll quickly see the benefits in your monthly pension contribution.
The Lifetime ISA which was launched in April 2017 is seen as the alternative to a traditional pension (although it can be used for buying your first home too).
You can pay in up to a maximum of £4,000 per year, and you receive a 25% bonus from the government (maximum of £1,000 per year). You have to be between the ages of 18 and 40 when you open the Lifetime ISA – if you are approaching 40, you will need to get one open before you hit that milestone or the option is completely closed off to you.
This is a good option to have to keep your money locked away until retirement (you will pay a penalty if you withdraw it before you reach 60) but if you are saving for retirement, a workplace pension is seen as superior as you receive contributions from your employer too.
Hunt down old pensions
The Department for Work & Pensions estimates there is £400 million in unclaimed pension savings. £400 million! This got me wondering whether I had any pensions out there in no-mans land from two work placements I did while I was at university. So I checked….
It’s straightforward enough to find hop on the website and search by employer name. I was expecting it to either say I had nothing there or pop up with a figure sitting there. Instead, you get the details of the pension provider for that employer who you can contact with your name, address and email to see if they have any records associated with you. I had assumed you would need quite detailed information to send them your request but no, it really is that simple. So now, its a waiting game for me….
Transfer old pensions in to one pot
In the meantime, I have decided to sign up with PensionBee which allows me to transfer all my pensions in to one place. It’s so simple –
- You pick from three plans the one which you want your pensions transferred in to (they differ by what the money is invested in and therefore what management fees are charged)
- You give them details of your old pensions – you don’t even need to have the policy number if you have lost track of the pension
- Once confirmed, you will be allocated a dedicated BeeKeeper and PensionBee will start transferring your old pensions in. If they come across any exit fees on old pensions over £10 or valuable benefits you should know about, they will let you know.
I like PensionBee as a product because the money is managed by BlackRock and State Street who are two of the heavy hitters in the world of money management. There’s no exit fee if you ever decide to transfer your pension of out PensionBee which is another huge plus point. Also, the lowest management fee is 0.5% which is more than half what I pay for one of my old pensions with a fair bit of money in it.
Once it is set up, I’ll be able to see my combined pension pot all in one place, projected retirement income and set up my additional contributions, similarly to online banking. I think having an app on my phone will mean that I try and add extra contributions more readily. At the moment, pension contributions seem to fall right to the bottom of my never-ending mum to-do list.
I’m excited to be a bit more on top of Operation Old-Age Finances and sorting out my pension…. If you want to find out more about pensions in general, Emma Drew has a great guest post written by Warren Shute CFP, a Chartered Wealth Manager and CISI Financial Planner of the Year – ‘Tell me all I need to know about pensions – but please don’t bore me!