Hannah Martin is a leading women’s pensions expert and the founder of the Rich Retiree platform, a website that helps women take positive steps to prepare for their future and be as financially independent as possible when they retire.
If you’re over the age of 40 with little to no money saved for your retirement, looking at a pension savings graph can be a pretty depressing experience.
Today, thanks to auto-enrolment, most employed people are saving something in a pension. But around 52% of people who are self-employed have no private pension.
We all know that the earlier you start investing for your retirement the better, but this isn’t helpful knowledge if you feel like you’ve missed the boat. The more reassuring truth is that it’s never too late to start thinking about your pension – especially if you work for yourself.
Thanks to the wonder of compound interest, any money you start saving now can potentially work hard to ensure you have a more comfortable retirement later. You’ll also benefit from tax advantages. For example, if you are self-employed and a basic rate taxpayer, you should get a 25% tax top up on the money you save into your pension. So, for every £100 you pay into your pension, you’ll get another £25 from the government, making it £125.
And if you have a limited company, any contributions you make to your pension through your business can be treated as an allowable business expense, and offset against your corporation tax. (Both have a maximum annual limit of 100% of your salary or £60,000, whichever is lower.)
So what kind of difference can you make to your future financial position by taking action now?
Let’s say you are a freelancer in your mid-50s and hope to retire in 10 years’ time. You earn earn £30,000 a year can can afford to invest 7% of your gross income, which is £175 a month, deducted before tax.
Averaging a modest 4% growth, in 10 years you should have more than £32,000 from an investment of just £21,000. If you decide on a drawdown pension, you can take around £2,100 a year until you are 88.
As your pot is still invested in this time, it can still be growing. Depending on market performance, you could potentially withdraw a total of around £49,000 – all from a £21,000 investment.
And, while £2,100 a year may not seem a huge amount, it could pay for a holiday, or give you more money for every day luxuries – treats you may not be able to afford without a private pension.
If you can invest for more years, or contribute more, you can potentially save even more. So you see, even if you feel like you have left it late, there is still time to change your financial future. The worst thing you can do right now is nothing, and let more years slip through your fingers.
