When I first started writing my blog I did it for two main reasons: to help me enter the degree course I wanted to do and also as a hobby to satisfy my love of English, creativity and beauty. It could have gone either way (I didn't really know what a blog was when I started one) but I quickly found that blogging gave me great fulfilment and introduced me to so many lovely, like minded people and friends for life. I started off writing about my life then moved to beauty, fashion, fitness (and still do talk about these topics daily) but actually, over the years I quickly found I also like writing about important topics such as how to save money, everything you need to know about renting or buying a house in London and todays topic? How to set up a pension, what even is a pension and do you need a pension?! Today I want to talk about something they definitely didn't teach us in school but something I hopefully can help you with. Yep, I had no idea I even needed a pension... let's discuss.
I worked really hard throughout my degree on my blog and accidentally made it into my career (you can read my how to be an influencer blog post if you missed that) I always say I feel fortunate that I was one of the naive ones, who's passion and hobby accidentally turned into a career (a career I didn't even know existed) and I am forever grateful for that. I came into this world of social media with a passion rather than any idea money could be made, again, I am so grateful for that in a world where people are now trying to jump on bandwagons for maybe the wrong reasons. I’m still here loving writing and so grateful for your support if you read my little space on the internet. As you know, I love writing about fashion, beauty, travel and personal topics but what has surprised me most is just how much interest many of you have in my posts about the more fundamental life things that we all have to deal with at some time or other. I really began to realise this when I wrote a post with everything you need to know about buying and renting a property. I’ve been overwhelmed by the response I’ve had to this post and so many of you have messaged me to say it was really helpful (thank you guys). It goes to show, we are all in this crazy life together and we are all growing up together, so whilst we love lusting over the newest foundation, knee high boots or jumper dress, it's nice to be able to talk about topics that genuinely will help you with your life too (who's to say a new pair of shoes can't change your life too though, they changed Cinderella's but that's another story ha).
I therefore thought it would be cool to talk to you about something else ‘grown up’ that I’ve had to do recently in case it helps you. This may just be the most BORING or most HELPFUL blog post you've ever read. Let's see, but I think 80 year old you is gonna thank me!
I’ve taken out a PENSION! Oh my goodness, until last week I didn’t even know what one was haha but yup, little old me, I have a pension. I'm used to telling you about the new shoes I bought but my biggest, shiniest new purchase, a pension (they don't do affiliate links for that, muahaha).
I’ve vaguely heard my Mum saying to me since leaving Uni ‘If you’re going to work for yourself, you will need a pension’ ‘If you don’t have a pension you might be left without anything once you give up work.’ It sort of went in but it sort of didn’t because well, giving up work is light years away, why should I think about it now? This is something they don't but they should teach you in school.
So, it happened that my Mum needed to speak to an adviser about her finances last year and it was through those discussions that I thought, okay, maybe I need to start at least understanding what all of this is about. Having just been through the process I thought I would let you know what I have learned about pensions, so here is everything you need to know about setting up a pension, if you need to set up a pension and also, the basics of what a pension actually is.
What is a pension?
Having a pension means that you place some of the money you earn in to an investment (either through regular payments or through a lump sum each tax year). NB: The tax year runs from April to April each year.
There are 3 types of pensions available to people who work - Workplace pensions, State Pensions, Personal Pensions. I talk about all three below.
The idea is that the total you save over lots of years will provide you with a ‘wage’ when you no longer work.
Once you place the money in the investment you can’t touch it again until you’re at least 55.
It’s an efficient way of investing money because you will receive tax relief on your pension contribution at the basic rate (currently 20%). So, for example, each £80 you pay in to your pension will get you £20 of tax relief. This tax relief is added to your £80 meaning that, in this example, you only personally outlay £80 but £100 goes in to your pension pot.
You can invest as much as little as £1.00 and as much as £40,000 per year to qualify for tax relief.
When you eventually start taking your investment out, 25% of it can be taken without paying a penny of tax on it (under current regulation - this can change).
What is a State Pension and do I need anything else?
People who pay National Insurance contributions are currently entitled to receive a regular income (known as a state pension) when they reach the state pension age. Your pension age depends on when you were born and the amount you will receive depends on many different factors. I’m not an adviser and I can only give you my opinion. The state pension sounds good because it’s given without you having to do anything other than make national insurance contributions. However, it comes quite late in life (in your 60s or 70s) and doesn’t really amount to that much if you compare it to the cost of living today. I prefer to be in control of my own destiny which is why I have chosen to take out my own personal pension. If you take a personal pension you will also get your state pension if you are entitled when you reach the age that you are allowed to take it.
What is available to those of us who are self employed?
As a self employed person the option open to me is a personal pension whereby I invest some money each month/tax year which qualifies for all the tax benefits I’ve described above.
I can control the amount of money I put in to my pension because it is flexible so I can get to the end of the tax year and look at how much I can afford to pay in to the scheme for that year and that amount can vary from year to year.
That money is then invested and looked after for me by investment experts in the hope that it grows. It is invested in all types of bonds, businesses, stocks and shares and is spread across many of these areas. The return on my investment is based on how those all perform so there are 2 important things to remember - 1. Investments can go up and down in line with the stock exchange 2. It can work out much better to invest things over a long period that try and make money over a short period.
Additionally I will also eventually qualify for the state pension too.
If you are employed:
If you are in standard employment then your employer should arrange a workplace pension for you (this is sometimes known as an occupational or company pension).
These usually fall in to 2 types:
Defined Benefit Pension Scheme - These pay you a specific income on retirement taking in to account how long you have worked in there, what salary you had etc. Your employer will contribute and you may be required to contribute too.
Defined contribution Pension Scheme - Sometimes known as a money purchase scheme. This type of pension allows you to access your pot of money from age 55. The pot will depend on how much you and your employer pay in and how your investments have performed.
As a person in employment, you can also choose to set up a personal pension (in the same way as I have). This will be a type of defined contribution pension scheme and you can ask your employer to pay in to it.
What to do next:
Protect your future and think of the long term - No matter what your earnings are, think about many years ahead when you may no longer wish to work and think about taking out a pension to give you a wage when you no longer wish to work.
If you are employed, speak to your employer about your options.
If you are self employed, speak to a trust worthy and well trained investment adviser who is registered with the Financial Conduct Authority (FCA) - this is absolutely vital to avoid any scammers/unscupulous advisers so please do take note.
Check out https://www.gov.uk/personal-pensions-your-rights and https://www.gov.uk/new-state-pension which will provide you with some helpful information.
I hope you have found this information useful. Pensions are a very complex subject and I am not an adviser so cannot recommend any particular people to speak to. However, the information above highlights the things you need to know to get you started. If you’re like me, you probably won’t want to think about things like giving up work when you’re in the middle of living your life but at the same time, it’s prudent to make sure you do something, no matter how small to make sure you are financially secure in the future.
Please do let me know if you find posts like this helpful from time to time and also if there are any other subjects you would like me to cover!
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Lots of love, Em x
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