Prepare for all weathers

Like any challenge, the better prepared you are for the rough as well as the smooth, the more chance of success you’ll have in achieving your goal: a well-funded retirement! Here are some typical situations to navigate through:

 Career breaks. A break in your earnings will lead to a gap in your pension contributions, both your workplace pension and a loss of National Insurance contributions, which may reduce your state pension entitlement. Both can significantly reduce the level of your income in retirement.

Boost your contributions! The good news is that time spent raising children up to the age of 12, caring for someone who’s sick or disabled or in full-time training are taken into account in your NI record. You can build up qualifying years, which will count towards your state pension even when you’re not in paid employment. You are credited automatically if you are a parent registered for Child Benefit for a child

Work out how much it will cost to fund the lifestyle you want to live

under 12. If you’re the stay-at-home parent, make sure it’s you that’s registered for Child Benefit rather than the higher earner, so you can continue to accrue State Pension credits.

If you are a grandparent under state retirement age who cares for your grandchildren under 12 for 20 hours or more a week, you can also qualify for NI credits if the working parent donates their Child Benefit credits they receive (if they are working, they won’t need them). To find out more, call the government helpline on 0300 200 3500.  Stock market downturns. The important thing to remember is that the market normally picks up again, so don’t panic if you have seen the value of your pension pot drop. ‘Pensions are long-term investments and if you still have a few years to go before you retire, then you will make up for losses in time,’ says Rebecca O’connor, head of pensions and savings at Interactive Investor. ‘If you are close to retirement and employed, then your pension should be in a low-risk default fund to minimise losses. If you are picking your own investments, it may be worth talking to an adviser about your investment options for your pension.’

 Redundancy. After a life-changing event such as redundancy, it can be a good time to take stock of all your pensions and seek regulated advice on whether your savings are in the best

place. ‘Depending on your circumstances, you may want to consider topping up your pension using some of your redundancy severance to offset the stopping of regular contributions when your employment finishes,’ says Jackie Leiper. ‘In some circumstances, your employer may offer a “redundancy sacrifice” option, which allows part of your severance to be added to your pension without affecting the tax-free severance entitlement.’ In addition, you or your partner could continue a regular contribution on your behalf into the workplace pension even after your employer has stopped.

Seek financial guidance before dipping into your pension pot

 Self-employed. While more women are choosing to become their own bosses, this can make it even harder to save enough for retirement. The average self-employed woman earns only £11,800 compared with nearly £18,000 for a self-employed man†. ‘We’ve seen more people consider working part-time or even becoming self-employed after Covid-19,’ says Rebecca O’connor. ‘If you are considering it, make sure you plan your pension well. Work out what income you would need to live on and what you would need to put away into a pension, too. It could be worth speaking to a financial planner to ensure you have enough when you stop working.’

 Employer going bust. With the collapse of high-street retailers Arcadia, Debenhams and others in 2020 and the likelihood of more victims this year, it’s hard not to worry about company pension schemes. How much protection depends on whether you have reached the scheme’s retirement age or not.

Defined benefit schemes are protected by the Pension Protection Fund (ppf.co.uk). The level of protection depends on whether you’re already drawing benefits, still contributing or are a deferred member who has left the scheme but built up an entitlement.

With defined contribution schemes, as long as the provider (where your money is invested) is authorised by the Financial Conduct Authority (FCA), your savings are 100% protected by the Financial Services Compensation Scheme (FSCS). The exception to this is if you have a self-invested personal pension (SIPP) where only your first £85,000 has guaranteed protection under the FSCS. Read about different types of pension schemes at gov.uk/pension-types

Whatever type of scheme your pension is in, the expert advice is not to rush into decisions and potentially expose yourself to fraudsters eager to help part you from your money, and to take independent advice on how to mitigate the risks. Have a look at Take Five for advice on the latest scams (takefive-stopfraud.org.uk).

 Divorce. A third of divorcing couples or those in civil partnerships don’t know that they may be entitled to a proportion of their ex’s pension, according to law firm Shoosmiths††. Many women divorcing trade off entitlement to some of their ex-husband’s pension for the marital home, but this often is not a good deal.

‘You should always, at the very least, find out how much the pensions are worth before making any decisions and don’t underestimate this – there is a high chance they could be worth more than your home, especially if you live outside of London and the south-east,’ says Debora Price, professor of social gerontology at the University of Manchester, and a member of the Pension Advisory Group.

Think about what income you will live on when you retire, not just what you need in the immediate future. Financial services company Legal & General found those in their 50s save on average £57 less each month towards retirement after they split from their spouse – this could mean up to £30,000 less by the age of 70. The basic State Pension can’t be shared if you divorce (although any amount over this, known as a ‘protected payment’ can be split). If you are cohabiting, you have no automatic right to an ex-partner’s pension. Advice on what to do about your pensions if you are getting divorced is available from Advice Now (advicenow.org.uk/guides/ survival-guide-pensions-divorce).

 Being widowed. ‘Unused pensions are passed on at death and not liable to inheritance tax – but make sure you are named on the other person’s pension as a beneficiary,’ says Claire Walsh, chartered financial planner. ‘This is particularly important if you are not married or have children. Make sure you have nominated someone; different schemes have different rules so check who your scheme allows you to name.’

 Brexit. ‘While Brexit is likely to lead to share price volatility, pensions are for the long-term, so as long as you have a balanced and diversified portfolio, don’t panic,’ says Sarah Coles, personal finance expert at Hargreaves Lansdown.