How will changing working patterns affect your pension?
The sooner you start saving, the healthier your pension pot is likely to be when you need to draw on it.
But what happens to your pension planning if your working hours reduce, or stop?
First things first
If you join a company you may be enrolled into their workplace pension scheme which, in most cases, your employer will also pay into.
The self-employed, on the other hand, should set up a personal pension, which come in the form of a basic personal pension, stakeholder pension, or Self Invested Personal Pension (SIPP). Workplace pension schemes will have minimum contribution levels, but you should save more if you can. In fact, some commentators suggest that if you take the age you start your pension and halve it, that’s the percentage of salary you should save each year.
What’s more, as your earnings increase it makes sense to save more into your pension if you can afford to. There’s no limit on how much you save, but there are limits on the amount of tax relief you’ll receive.
What if your working patterns change?
If you reduce your hours your contributions may also reduce, so you’ll need to consider how that impacts your retirement planning.
Working part time won’t affect your state pension entitlement providing you earn at least £166 per week.
Entitlement depends on your National Insurance contribution history and if your part-time earnings are lower than the threshold you might be able to pay voluntary class 3 NI contributions to plug the gap. If you need to take time off work, you and your employer will carry on making pension contributions if you’re taking paid leave. The same applies for maternity and other paid parental leave.
If you’re taking maternity leave and not getting paid, your employer still has to make pension contributions in the first 26 weeks of your leave (Ordinary Maternity Leave). Whether they continue making contributions after that will depend on their maternity policy, so it pays to check.
To find out how much your retirement might cost, it’s helpful to ask yourself:
• When do you want to retire?
• What do you want from your retirement?
• How will your spending habits change?
• Would you move, or stay in your current home?
• Will you continue doing some form of paid work after retirement?
• Will you be entitled to the full State Pension?
Whether you’re employed, self-employed, part time or full time, please get in touch with us to explore your pension planning options.
The value of investments and any income from them can fall as well as rise. You may not get back the amount originally invested. HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
Feel free to get in touch on 0208 953 8687 or via email if there is anything we can help you with, or even just to pop in for a coffee and a chat.