What to do if you have no pension at 50

I have a confession to make. And it’s one I know many women will be able to relate to: as of my late 40s I had no pension.

Actually that is a lie. I briefly started a company pension in my 30s… about four months before I resigned! Given that this will probably be worth around £10 a year, I’m pretty sure it doesn’t truly count when considering retirement income.

So, my baby pension aside, as I got to the end of my 40s and started to think about the next decade approaching, I grew quite worried. Retirement had always seemed so far away, and I had always assume that something would come up to cover me financially.

What I hadn’t realised was that ‘something’ needed be to planned by me. And I was leaving it worryingly late.

It’s not that I’d never appreciated the importance of a pension; an IFA explained how valuable it was to start saving early when I was in my 20s. The problem is that, for most of my working years, I didn’t have the spare cash available to put into one. I was either saving for the deposit on my first property, paying off the mortgage, saving for renovations, or on maternity leave.

There was always some expense that meant that I needed every penny in my pay check for my present. I just didn’t have the luxury of putting anything away for my future. I was also wary of pensions, thanks to Robert Maxwell, and wasn’t aware of how safe pensions are today.

A third of women over 50 have no private pension

I know I’m not alone in this. According to The Guardian, a third of women over the age of 50 have no public pension, private pension or company pension. Research by Sunlife also found that 33% of women over the age of 55 were relying solely on the State Pension.

So what am I doing to prepare for my future? I have two rental properties, and I am overpaying the mortgages on them so they will both be mortgage free by the time I am 65. I also started a company pension three years ago and am putting every penny I can into that.

If you have a limited company, this might be an option worth looking at too, as it’s a tax efficient way of saving your money. By investing direct from your company (rather than paying yourself) you aren’t subject to dividend tax on the money.

Pension payments are also usually an allowable deduction for corporation tax. And as of April 2023, the annual allowance for tax relief on pension savings in a registered pension scheme rose to £60,000. So you can invest in your future and cut your tax bill. Win-win!

Even if you don’t have a limited company, it’s still worth starting to save; it’s never too late. And there are benefits if you’re self-employed or employed. We go into pension tax benefits more comprehensively here (and I highly recommend reading the article), but for a quick run-down:

  • If you’re self-employed and a basic rate taxpayer, the government will usually give you a 25% tax top up on anything you contribute to your personal pension. So if you invest £100, you’ll get another £25 from the government, making it £125.
  • If you’re a higher or additional rate taxpayer and you are self-employed, you can claim further tax relief through your Self-Assessment tax return too.
  • If you are employed and earn more than £10,000 a year, your employer must offer you a workplace pension scheme and contribute towards it.
  • If you earn less than £10,000 but above £6,240, your employer doesn’t have to automatically enrol you in their scheme. However, if you ask to join, your employer can’t refuse you and must make contributions.

How much do you need to save for your retirement?

When working out how MUCH you need to save, the first thing to consider is how much money you will need when you retire. According to the government’s Target Replacement Rates (TRRs), you take a percentage of your current salary as a target income for retirement. What this percentage is changes depending on how much you earn now:

  • If you earn less than £14,500 you need 80%
  • If you earn £14,500 to £26,999 you need 70%
  • If you earn £27,000 to £38,499 you need 67%
  • If you earn £38,500 to £61,499 you need 60%
  • If you earn over £61,500 you need 50%

So if you are earning £40,000 now, you should need around £24,000 a year when you retire.

If you have paid national insurance for 35 years, the state pension should pay £11,500 a year from April 2024, which means you’ll need to cover the remaining £12,500 through private or workplace savings or other income sources to maintain your standard of living.

Of course this is a rough guide. It might be that your expenses reduce dramatically as you get older, and you need less to live on. Your kids should become less financially reliant on you, and you may pay off your mortgage, for example.

When working out how much you might need, ask yourself these questions:

  • How much will your monthly outgoings be? Think rent/mortgage, utilities, gym membership etc.
  • What kind of lifestyle do you want? Do you want to travel or potter in your garden?
  • What standard of living do you want? Do you enjoy luxuries or aspire to the simple life?

Look at what kind of expenses your money goes on now, and how much they are. Do you want to maintain those as you get older, or are you happy to reduce your spending?

Also consider what sources of income you may have already, including your state pension, any company pensions you may have paid into (even if, like mine, they are tiny!), any properties you own or existing savings.

To find out exactly how much you need for retirement, you can use a free online pension calculator, like this one from PensionBee.

How can you bridge your pension gap?

Once you are done, look at your pension shortfall. Don’t be afraid to be realistic about how much you are missing. By confronting the truth now you can make changes to reduce or even eliminate it – while you still have time. It’s much worse to sleepwalk into a financially tougher retirement than you realised, or find yourself needing to work much later than you’d hoped.

Once you know what the shortfall is, you can start to make plans to bridge the gap.

Look at what your financial situation is right now. Make a record of all your monthly outgoings – including your essentials (rent, mortgage, food, council tax, heating etc) and your non-essentials, such as gym membership and subscriptions like Netflix. List the total monthly outgoings for each – essential and non-essential.

Next list all your sources of monthly income – your salary, dividends, income from properties, interest on savings… any money you have coming in. Then calculate the difference. After deducting all your monthly outgoings, how much do you have left over?

Now go through your list of essential outgoings and look for ways you can reduce them. Can you negotiate better deals, swap providers or switch to more economical versions (for example, supermarket own brands)? Challenge yourself to see how much you can reduce your monthly total by.

Then tackle your non-essentials. Are there any you can do without? Or find cheaper alternatives? Again, see how much you can cut from your monthly costs.

The goal here is to have as much money as you can each month available to start investing in a pension or savings plan. Every penny now counts!

Why pensions are the best way to save for your future

And the good news is that, even if you have left it late, you can still benefit significantly from starting a pension, thanks to tax benefits and compound interest. Let’s look at Jo as a theoretical example.

Jo’s situation

Jo is 55 and plans to retire in 10 years, but hasn’t yet started a private pension. She’s self-employed and earns £30,000 a year. Jo decides to start a pension and pay in 7% of her gross income, which is £175 a month, deducted before tax.

How much can Jo save for retirement?

If Jo continues this for 10 years and averages growth of 4%, that means she’ll have over £32,000 when she retires. However, she’s actually paid in just £21,000. For comparison, in order to achieve the same performance, an ordinary investment fund would need to return a consistent 8% interest a year.

What can Jo take from her pension when she retires?

If Jo opts for pension drawdown when she retires, she could take around £2,100 a year from it until she is 88. And remember: the pot still has the potential to grow during this time as the remainder of her pension pot is still invested.

This means she may be able to withdraw around £49,000 in total, depending on market performance. All from a £21,000 investment, which means Jo has more than doubled her money. 

While £2,100 a year may not seem a lot, that could be a nice holiday, or more money for every day luxuries like eating out with friends, or trips to the theatre – treats you may not be able to afford without your pension.

So please don’t think you’ve left it too late to start saving towards your retirement, and take advantage of the tax benefits and compound interest that pensions offer.

If you’re five or 10 years younger than Jo you have even longer to save up money, and to potentially benefit from interest-based growth. You will probably also decide to retire later, as most of us won’t start receiving our State Pension until we are 68 or even older. That should give you 18 years to save up if you are 50 years old.

Start saving for your retirement today – even if it’s not far off!

I hope this article has helped reassure you that it is not too late to start saving for an easier future, even if you are in your 50s. If you’d like to learn more about pensions, I recommend watching the free pensions class we ran in partnership with PensionBee here.

We’ve packaged it as a free mini-course with a workbook to help you take positive action for your future. Watching it could be one of the best financial decisions you make.