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Come on girls - 3 things you must do now to protect your pension

Emma-Lou Montgomery, Fidelity Personal Investing, 30 November 2016

Women – and especially mothers and part-time workers – are at risk of finding themselves in trouble financially in later life if they don’t take steps to remedy the situation today.

If that’s you, here’s what you need to do to ensure that you get your future finances on track and in line with the sort of retirement you might want.

1. If you’re a stay-at-home mother register for child benefit regardless of your household income

If you’re a stay-at-home mother you need to fill in the claim form for child benefit, even if you know your spouse or partner’s earnings mean you won’t qualify for child benefit payments. That’s because you will lose out on your entitlement to the state pension if you don’t.

Even if you don’t get the child benefit payments, applying for them means you get the national insurance credits towards their state pension that you need. If you don’t fill in the claim form, you won’t get the credits; it’s as simple as that.

And ensuring you don’t miss any valuable national insurance credits is now even more important. That’s because since April, the NI record needed to claim the full state pension of £155 a week has risen from 30 years to 35. If you miss out on up to 12 years of NI credits you will undoubtedly struggle to get the full state pension.

It’s estimated that as many as 125,000 mothers have already missed out on national insurance credits by not registering for child benefit during 2015-16 alone.

Before January 2013, child benefit was paid to all families, regardless of household income, with the person claiming the benefit — typically the mother — automatically receiving national insurance credits towards her state pension.

The problem today stems from the fact that families where one or both parents earn more than £60,000 no longer receive their automatic entitlement to child benefit payments (£1,076 per year for the first child and £712 for subsequent children). These families, and those who earn more than £50,000 end up with a tax charge for claiming child benefit, which eventually rises until on earnings above £60,000 the tax charge wipes out any child benefit they receive, so many haven’t even bothered applying.

But that’s where they have gone wrong. You should still register for child benefit so you get the NI credits for any time you take off work after having a baby.

New mothers receiving maternity pay from their employer don’t need to worry, you will receive national insurance credits automatically, but if you become a stay-at-home mother you must register for child benefit, even if you won’t get it.

And do this as soon as possible, because claims can only be backdated for a period of three months.

2. Don’t allow yourself to fall through the cracks

Women often get lumped in with low-income workers when talk turns to auto-enrolment. The two it seems are destined to remain at a disadvantage when it comes to pensions. However, that’s not true.

The problem stems from the fact that you have to be earning over £10,000 a year to be automatically enrolled in their employer’s pension scheme. What it doesn’t take into account is whether your overall earnings are more than £10,000 a year.

While many women do work part-time they will often have more than one employer, and as a result total earnings of more than £10,000. But, because the auto-enrolment trigger operates on a company-by-company basis, and doesn’t take overall earnings into account, these women (and indeed there will be men among them too) will be excluded from each of the schemes run by the companies they work for – and so miss out.

The Trades Union Congress estimates that of the 4.6 million low-income workers who are excluded from auto-enrolment, 3.4 million of these are women.

If you’re one of them, either because you do earn less than £10,000 overall or you simply don’t earn more than £10,000 with any one employer, then you need to take things into your own hands.

The fact is that everyone can pay into a pension, even if they don’t earn a penny. So, if you find yourself locked out of the pension scheme of every company you work for, you need to provide yourself with a pension instead.

A self-invested personal pension or SIPP can step in where your employers’ schemes fail to provide for your future. Or indeed in addition to any other pension plans you have. And with a SIPP you won’t miss out on the tax advantages of your employer’s pension scheme either.

There is nothing you can currently do to make up for any lost employer contributions that would be available through your employer’s scheme. With a SIPP though you choose where you invest, so you have greater control of how your pension investments perform, including funds in our specially-chosen Select 50.

With a Fidelity SIPP you can invest as little as £80 into your pension every month. This will then be automatically topped up to £100 because of the tax relief that pension contributions get.

3. If you’re self-employed make sure you look after No. 1

If you run your own business, you have to be on the ball and make sure that you plan ahead for your future.

Close to 1.5 million women in the UK are now self-employed – a 22% increase in four years and twice the rate of self-employed men1. But according to recent figures, only around a third (36%) are saving adequately for their retirement, compared with 47% of self-employed men and 58% of employed women.

The findings suggest this trend is set to continue, with over three-fifths (62%) of self-employed women claiming they don’t think they will be able to save any more in the next 12 months, compared with less than half (46%) of men in the same position.

By investing in a SIPP you can ensure you are saving adequately for your future. Better still, consider making contributions from your limited company (which are considered employer contributions) and these can usually be offset as a business expense which will reduce your potential corporation tax liability. Although unlike personal contributions, employer contributions do not attract tax relief.

You can pay up to £40,000 in each tax year into your pension pot, including employer contributions (this figure does not include any transfers you wish to make from other pension providers; there is no limit to how much you can transfer). If you pay in more than this you could end up paying up to 45% tax. However, you can use unused annual allowances from the previous three tax years. So, if you haven’t made any payments into a pension over the past three years, you could potentially pay in up to £120,000 this year, without incurring any tax.

1 The Scottish Widows UK Women and Retirement Report, April 2016


Important information

The value of investments and the income from them can go down as well as up and investors may not get back the amount invested. Eligibility to invest into a SIPP and the value of tax savings depends on personal circumstances and all tax rules may change. The Select 50 is not a recommendation to buy or sell a fund. As this is a pension product you will not be able to withdraw money until you reach age 55. This information does not constitute investment advice and should not be used as the basis for any investment decision nor should it be treated as a recommendation for any investment. Investors should also note that the views expressed may no longer be current and may have already been acted upon by Fidelity. Fidelity Personal Investing does not give personal recommendations. If you are unsure about the suitability of an investment, you should speak to an authorised financial adviser.

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