Money to the Masses founder Damien Fahy says it is not too late to start a SIPP at 50 (Image: Damien Fahy)
A finance expert has revealed that it’s not too late to start saving for a pension at a surprising age. Many Brits pay into a traditional workplace pension set up and overseen by their employer, who also contributes to the pot. But some people do not have this kind of pension to help them pay for retirement.
A report published in 2021 by Sun Life showed 25% of those surveyed did not have a private pension. In general, it is a good idea to start paying into a pension as soon as you can, even if only a small amount, as this can make a difference to how big your pot will be when you retire. An option available for those without a workplace pension is a Self-Invested Personal Pension (SIPP). These can be opened by people with workplace pensions too. But what if you don’t have any pension savings and you are already aged 50 or above? Is it too late?
Finance expert, Damien Fahy, founder of the consumer advice website Money to the Masses, told the Daily Express: “It is certainly not too late to start a SIPP at 50.
“Someone retiring at 67 still has 17 years to contribute and potentially benefit from investment growth, although starting later will generally mean contributing more.”
A SIPP allows savers to invest up to £60,000 per year, including 20% tax relief so for every 80p you pay in, the Government tops up to £1.
You can access a SIPP from 55, although this rises to 57 from April 6, 2028. A SIPP lets you choose your own investments or can be managed professionally by an investment platform.
Most experts agree that a SIPP is best for people who feel comfortable doing their own research and with investing. Your investment can go up, down or down even further.
Your money should be protected if your SIPP provider goes bust and a SIPP can be inherited by your loved ones.
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Mr Fahy said for self-employed people, who do not benefit from employer pension contributions, a SIPP can be an effective way to build retirement savings and benefit from tax relief.
He continued: “Limited-company directors may be able to boost their pension faster by making employer contributions directly from the company, which can also reduce taxable profits where the contribution qualifies as a business expense.”
But the final pension pot you have at age 67 is not only determined by what you pay in, but also by what you keep, according to the expert.
As an example, for £1,000 invested monthly over 17 years, reducing total annual fund and platform charges from 1.5% to 0.5% could leave you around £27,000 better off, assuming an underlying return of 5% before charges.
Mr Fahy said: “That’s why it’s important to shop around for the cheapest SIPP and keep the underlying investment costs low.”
Money Saving Expert’s current top pick providers of DIY SIPPs include AJ Bell, Fidelity, Interactive Investor, Hargreaves Lansdown and InvestEngine.
Professionally-managed SIPP platforms identified as top picks include AJ Bell, Interactive Investor and Vanguard. The above providers’ fees range from zero percent, to 0.45%.
Pensions and Lifetime Savings Association standards estimate a single person needs £32,700 a year after tax for a moderate retirement, assuming they are mortgage and rent-free at retirement.
After allowing for the full state pension, the PLSA estimates that a private pension pot of roughly £335,000 to £505,000 may be required, based on typical annuity income levels.
Mr Fahy said how you build your pension pot will partly depend on your employment status.
The Money to the Masses‘ expert said in general employees should contribute enough to receive the maximum available amount their employer will match, adding not doing so is effectively turning down free money.
The expert concluded: “So if you are 50 with no pension pot, the best time to start saving for retirement was yesterday. The second-best time is today.”