A reader is currently self-employed and not saving into a pension – they are wondering what to do to get their retirement saving on track

In our new Pensions Crisis Coach series, we aim to help ease your retirement worries. Are you concerned you’re not saving enough for your later years, or don’t know how to find your lost pensions? Email us at money@theipaper.com. We’ll seek to get you on the right track with help from some of the best financial experts and advisers in the business.

Grace writes: I am about to turn 40 and currently have no pension plan. I am self-employed and work in PR. I have two pots from previous employers, but I’m not currently paying into a pension.

Since I’ve been self-employed for the last year, my income varies but it goes between £5,000 and £8,000 per month.

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My husband and I have quite high outgoings currently with nursery fees and a big mortgage – both of which come out of my salary, but I would also like to have a healthy income in retirement.

My aim would be maybe to have around £30,000 to £40,000 a year. We will have some income from my husband, too, though I think he has less in his pension than I do.

Callum, The i Paper’s Deputy Money Editor, responds: After our initial back and forth on email, you were able to track down your two pension pots from previous employers. You discovered you had £31,000 in one pot and £25,000 in another, totalling around £56,000.

You were worried that overall, your £56,000 would only last around 18 months based on your current desire to have £30,000 to £40,000 a year to live off in retirement.

You said that at the moment, you and your husband have a mortgage on your home in London with £418,000 left to pay on it, but you thought it would be possible that you would be able to pay this off by your retirement.

This is, of course, a great plan, as most calculations for how much you need in retirement assume you own your own home outright – an often problematic assumption given it is becoming ever more tricky to get on the property ladder.

Though you are not saving into your pension at the moment because your income is fluctuating, you do plan to start doing so.

One option you had considered was paying a lump sum into a self-invested personal pension (SIPP) at the end of the tax year, once you have a better idea of how much spare cash you have.

Being self-employed, you are not automatically enrolled in a pension like most employees are, and I wanted to know if paying a lump sum into your own pension was the right thing to do.

I contacted Henrietta Grimston, a chartered financial planner at wealth management firm Saltus, to ask if this was the right approach for you, based on your circumstances, and how you could ensure you end up with the retirement income you want.

She said many self-employed people do opt to pay a lump sum at the end of the tax year, while another option is paying a monthly amount – either option is reasonable.

She said your aim of £30,000 to £40,000 per year was realistic, but that you would need to save consistently and invest appropriately to reach it.

First of all, she pointed out that, as well as any income you save privately, your income in retirement will also likely include money from the state pension. This currently sits at around £12,000 a year.

Henrietta said she estimated that you would need around £800,000 – in today’s money – in a retirement pot to enjoy the income you want once you retire, assuming you retire at 68, which is where the state pension is likely to be when you reach it.

Remember that although £800,000 seems a long way off, you can benefit from compound investment growth on the money you put into your pension.

Using Saltus’s pension calculator, with an adventurous investment approach, assuming around 7 per cent growth, you would need to contribute roughly £5,500 per year to a pension to hit £800,000.

If you have more moderate growth, 5.5 per cent, you would need to increase contributions to around £10,000 per year to reach her target income.
If you and your husband contribute jointly, a combined annual contribution of around £16,000 could be enough, according to Henrietta.

So what do you need to know about the different investment approaches?
Essentially, over a long period, if you are more adventurous, or some might say – risky – you can generally get better returns, but you need to be comfortable that at times your pension may go down as well as up.

Generally speaking, it’s normal for people to take higher levels of risk the further away they are from retirement, and then moving to more stable assets as you approach retirement, though readers wondering what’s right for them in their specific circumstances would need to speak to a financial advisor.

Of course, you can also grow the pots you already have.

Henrietta says it is worth checking whether your existing workplace pensions offer appropriate investment options.

She says that if the funds are limited or the plans do not provide modern death benefits, it could be worth opening a new pension with broader investment choice and then reviewing whether the old plans should be retained or consolidated into a single pot.

Henrietta says: “The encouraging news is that Grace still has time on her side. She is not starting from zero and has already accumulated a meaningful foundation. With nearly 30 years until retirement, she has significant potential to benefit from compound growth.

“Engaging now, reviewing her pensions, contributing regularly and ensuring her investments are aligned to her goals will put her in a far stronger position.”
You writing in shows that you are looking to address your pension saving now and get yourself on track for retirement.

As a final point, please remember that the above is not intended as financial advice – for specific tailored advice, you’d need to go directly to a financial advisor and give them a run-down of your finances holistically. The information is for guidance only.

Best of luck, and I hope it is helpful.