UK Markets open in 4 hrs 11 mins

No pension at 50? This 3-step plan could save your retirement

Edward Sheldon, CFA
Family relationship with bond and care

Having no pension at 50 is not an ideal situation. Yet at the same time, it’s also not the end of the world. Act quickly and you still have the best part of two decades to build up a healthy retirement pot. You’d be surprised at what can be achieved, savings-wise, over that kind of time frame, especially if you get your money working hard for you.

With that in mind, here’s a simple three-step plan that could help you salvage your retirement if you’re 50 with no pension.

Open your own pension account 

If you have no pension set up at 50, it makes sense to set one up as soon as possible. The reason it’s a good idea to save into a pension for retirement, as opposed to a savings account, is that pensions come with tax relief. This means that your contributions are topped up by the government. Basic-rate taxpayers receive 20% tax relief (higher rate taxpayers can claim back more) meaning that an £800 contribution is topped up to £1,000.

There are two main ways to open a pension. The first way is to open a personal pension account. These are offered by a number of financial services companies such as Aviva and Fidelity. The second way is to open a Self-Invested Personal Pension (SIPP) account. This is a government-approved personal pension scheme that enables you to make your own investment decisions. These are also offered by a range of companies such as Hargreaves Lansdown and AJ Bell.

Get saving

Once your pension is open, start making regular contributions. The more you save into your pension, the more tax relief you’ll receive and the quicker you’ll build up your retirement pot. You can contribute up to £40,000 per year, or 100% of your income if you earn less than £40,000, into a pension account and qualify for tax relief.

Start investing

Finally, the most important step is to invest the money within your pension so that it grows over time.

The best way to do this is to put your money to work in the stock market through either investment funds or individual shares. Over the long run, the stock market tends to generate returns of around 7%-10% per year, meaning that it can boost your wealth significantly over time.

For example, let’s say you saved £500 per month from the age of 50 into a pension, picked up 20% tax relief (taking your annual savings to £7,500) and then generated a return of 8% per year through the stock market on your money. According to my calculations, by 67, your pension would be worth over £250,000. That’s certainly not a bad result from savings of just £500 per month, starting at 50. 

Of course, you could potentially save much more than this if your income permits. Raise your savings to £1,000 per month, and you’re looking at pension savings of over £500k by the age of 67.

Ultimately, the key, if you have no pension at 50, is to act sooner rather than later, and get your money working for you as soon as possible.

More reading

Edward Sheldon owns shares in Aviva and Hargreaves Lansdown. The Motley Fool UK has recommended Hargreaves Lansdown. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2019