Is it worth starting a pension at 59?
10 November 2017
Question by LL
I am a 59 yr old retired lady with no income but I have reasonable equity..is it worth starting a pension or is it too late?
Answered by Boring Money
It’s certainly not too late to start and a pension might be the right option. Anyone can take out a pension plan as long as they are below age 75. However, if you have no income, the maximum you can pay is £2,880 per year. They government will add another £720, giving you a total contribution of £3,600 per year. If you invest £300 a month for 10 years which returns say 5% (this isn’t guaranteed so it’s for illustration only), you’ll get a pot of £46,584.68 – that will give you an income of a little over £3,000 per year at age 70. Not to be sniffed at. We have some personal pension options here - https://www.boringmoney.co.uk/best-buys/personal-pensions/
There are also certain inheritance tax advantages. The unused pot of money can usually be passed onto children and grandchildren free from inheritance tax if that is a consideration for you. This - http://www.hl.co.uk/news/investment-times/2014/12/passing-pension-wealth-on-within-the-family - useful guide from Hargreaves Lansdown shows how it works.
Isas might give a little more flexibility and you can invest up to £20,000 per year whatever your income. Any income received is tax-free, but this is unlikely to be a consideration for you because your income will be below the personal allowance limit anyway (£11,500 for 17/18 tax year). *
You will also need to decide how to invest the money within a Sipp or Isa. In this you should consider both how much risk you want to take, and the charges associated with the product. Most investment platforms have tools to help you. Groups such as Hargreaves Lansdown and Charles Stanley have suggested lists of investments or Nutmeg do all the heavy-lifting and decision-making for you. Aviva is a more household brand which offers easy DIY pensions – if big brand matters to you this is worth a look.
* From April 5th 2020, the Lifetime Allowance rises marginally to £1,073,100.