YOUR PENSION Q&A: HOW TO IMPROVE YOUR FINANCIAL FUTURE

We all have big dreams about what we’d like to do after we’ve stopped work, and now’s the time to put some energy into making sure you have the financial future you want

Your need-to-know money guide

As women, we are at a financial disadvantage when it comes to saving enough for retirement – the gender pay gap still remains, we take career breaks to raise children or care for family, and we live longer. That means that, on average, there’s a 40% gap* between the size of our pension pots at retirement and those of men. The one thing we constantly hear is how confused everybody is about pensions. So, we asked more than 1,800 women to pitch us their burning pension questions. You asked us everything from how much you’ll need to retire on to what to do if you’re self-employed. We then asked experts for their best advice and signposted where to go next. It’s time to get pension savvy…

Q HOW MUCH STATE PENSION WILL I GET AND WHEN?

A Check when you will start receiving State Pension at gov.uk/ state-pension-age. But beware, the State Pension age is being pushed back, so your start date may change. The full State Pension is currently £168.60 per week, but whether you get the full amount depends on how many years you’ve paid your National Insurance (NI) contributions. To get the full amount, you will need 35 qualifying years. To get anything, you need a minimum of 10 years’ contributions. Find out what you’ll receive at gov.uk/check-state-pension. While you’re there, check your NI record at gov.uk/check-national-insurance-record, which will bring up a list of your contributions and show how you can boost your record.

Q HOW CAN I FIND OUT WHAT MY PERSONAL/ WORKPLACE PENSION IS WORTH?

A 94% of Red readers who had a personal pension knew how much they could expect to receive from it. If that’s not you, dig out the last annual statement from your provider(s) outlining your estimated pension income. You can also work out your likely retirement income at moneyadviceservice.org.uk/tools/ pension-calculator. You’ll need details of the current value of any pension pots and any contributions you make. Going forward, register online with your pension providers to keep an eye on your money. If you’ve lost track of past pensions, start a search at gov.uk/find-pension-contact-details.

Q HOW DO I WORK OUT HOW MUCH I’LL NEED TO RETIRE ON?

A Experts say you should aim to retire on about half your working income. We asked investment services firm Hargreaves Lansdown to crunch some numbers. For an annual income of £25k in retirement, you need a pension pot of around £490k. Only 9% of Red readers correctly estimated the size of pot they’d need for this level of income. Even fewer (4%) estimated correctly that you’d need a pot of £860k for an annual income of £50k.

Q IF I’VE HAD A CAREER BREAK, WILL I GET LESS STATE PENSION?

A Potentially. If you’ve stopped for whatever reason, you could have gaps in your NI record. You need 35 years’ contributions for a full State Pension. Your ‘qualifying years’ of NI contributions aren’t just based on years in work, but also take into account time spent raising children up to the age of 12, caring for someone who’s sick or disabled, or time spent in full-time training. You are credited automatically if you are a parent registered for Child Benefit for a child under 12. If you’re the stay-at-home parent, make sure it’s you who’s registered for Child Benefit rather than your partner, so you continue to accrue State Pension credit. You may also be eligible to pay voluntary contributions to build up additional years. Each extra year of NI credits above the minimum 10 years could give you a £244 income boost per year.

Q SHOULD I COMBINE MY PENSION POTS?

A There are lots of advantages to combining pots: it makes it easier to manage your money and will save you cash if you transfer from a scheme with high fees to one with lower fees (which should be around 1%). But, says former pensions minister Steve Webb, ‘Don’t just assume one pot is always better than four. Small pots have flexibility, which you may lose if you combine them.’ It’s generally considered a bad idea to transfer out of a defined benefit scheme (guaranteed retirement income protected from investment risk) or if any of your pension schemes offer Guaranteed Annuity Rates. Check transfer and exit penalties, too. Speak with an Fca-registered financial adviser who specialises in retirement planning (find one at directory.moneyadvice service.org.uk).

Q CAN I BUILD A PENSION IF I AM SELF-EMPLOYED?

A Around 60% of self-employed people don’t have a pension, according to investment services firm Fidelity International. With a lack of regular income and no employer pension contributions to help, it’s easy to see why so many say they can’t afford to focus on later life. But by not doing so, they are putting themselves at significant risk of pension poverty. The good news is that there are tax breaks for self-employed people saving for a pension. For example, you’ll get tax relief on your contributions of up to £40k. This means that if you are a basic-rate taxpayer, for every £100 you pay into your pension, you will get an extra £25. The main options are to join Nest, the Government-run workplace pension scheme; get a personal pension (gov.uk/personal-pensions-your-rights); get a stakeholder pension (moneyadvice service.org.uk); or a self-invested personal pension (SIPP), for which it’s best to talk to an independent financial adviser who specialises in pensions (find one at unbiased.co.uk).