How can stay at home parents build a pension?

Saving for a pension can be particularly daunting for those without a full time income and so it is not surprising that those looking after a family are amongst the least likely to save for retirement. 

Without an income to add to the retirement pot, full-time parents can easily find themselves having to rely on the state pension to see them through retirement. With that unlikely to be enough to fund a decent quality of life it is worth considering how else the pension could be boosted.

To qualify for the full state pension you will need to have amassed 35 years of NI credits. The good news is that years as a parent will count towards this providing you are registered for child benefit. People who don’t qualify for the full pension could consider topping up their contribution which does offer good value.  

For those about to embark on maternity leave and who are already contributing to a workplace pension scheme make sure you stay part of the scheme during you leave. This is important even for those who aren’t planning to return, as your employer will still be adding to the pot.

When you do eventually leave the workplace scheme you will have several options to consider in order to best utilise your pension pot. Opening a Lifetime ISA if you are under 40 or a personal pension could both be good options as they boost contributions by 25% for basic rate tax payers. Some consider the Lifetime ISA to be a better option than a pension as they benefit from tax free withdrawals.

We would also recommend reviewing if you have any old pensions from previous jobs, even if they were part time. Finding additional pensions gives you the option of pooling them together in a new scheme to achieve better returns. The pension tracing service is a great starting point to trace any old pensions.

 

Life changing offers for defined benefit pensions

Some of the estimated six million people in the UK with defined benefit pensions could be receiving some tempting cash offers for their pension pots.

Most defined benefit schemes give the pension holder the right to swap their pension entitlement for money and according to Royal London the offers that people are receiving are rising fast.

For someone with a pension income worth £20,000 per year, it is not uncommon to receive an offer of £600,000 in cash. These sharp increases in values are being driven by the continuing low interest rates which are leading to higher valuations of such pensions.

With such offers on the table it is of course tempting to say yes, but there ae a lot of factors to consider. For instance what would you do with the cash sum, will it provide sufficient income to last for the rest of your life and could you get a better offer if you waited?

The advantages of selling can be summarised as:

• More flexible retirement income
• Freedom to invest elsewhere
• Possibility of extra tax-free cash
• Easier inheritance to pass on to heirs

Keeping your defined contribution pension offers:

• A guaranteed income for life
• Ability to plan your future
• Pension savings protected from inflation
• Risk-free income

Currently you have to decide to sell or hold; there is no option to sell some of your pot and keep some in the pension scheme. Former pensions minister Steve Webb believes this should change "What I'm saying is there should be a middle ground where you can go on having some of your salary-related pension, so you have got this guaranteed income, but then you have got some cash you can invest or do something more flexible with."

Millions of self-employed to benefit from pension revolution

Up to five million self-employed are set to benefit from pension changes which could see them picking their own state pension age and being automatically enrolled in pension schemes.

The expected addition to pension reforms has followed pressure on the government to help avoid a pension crisis amongst the UK’s self-employed. The changes were sparked by Work and Pensions Select Committee who launched a formal review of self-employed workers' benefits; with automatic enrolment at the heart of the planning.

The change will get millions of self-employed people saving, creating a major boost to their retirement funds. The success could emulate that of the auto-enrolment scheme for employed workers, which has led to an extra 11 million people saving. 

Experts have welcomed the inclusion of the self-employed into auto-enrolment as long overdue as they had for years been excluded from major improvements to the UK's pension system. It is thought that DWP officials had already admitted that excluding the self-employed from auto-enrolment was a major problem.

The Minister for Pensions, Richard Harrington said: “It is clear automatic enrolment is playing a key role in shaping the retirement landscape for generations to come. However I want to build on this success and will be looking at how we can get even more people saving, and saving more."