No pension at 40? Here’s a 3-step plan to get your retirement savings on track


Now that ‘automatic enrolment’ makes it compulsory for UK employers to enrol their eligible workers in a pension scheme, you’d think that most 40-year-olds would have a pension set up. However, this is definitely not the case.

Due to the fact that so many people choose to (or have to) work on a contract or freelance basis these days, there are still thousands of people across the UK who have hit 40 and don’t have a pension.

If you’re in this situation, don’t panic. There’s still plenty of time to build up a sizeable retirement savings pot. Here’s a simple three-step plan that could help you get your retirement savings on track.

Open your own pension

If you don’t already have a pension account set up, it makes sense to take control of the situation and open one.

One easy way to do this is to open a Self-Invested Personal Pension (SIPP) account with a provider such as Hargreaves Lansdown, AJ Bell, or Barclays. This is a government-approved, tax-efficient personal pension account that enables you to make your own investment decisions.

Contribute into it

Once you have a SIPP set up, start putting money into it on a regular basis.

One advantage of the SIPP is that whenever you contribute into it, the government will top up your contribution as a reward for saving for retirement. This is known as tax relief. So, for example, if you’re a basic-rate taxpayer and you contribute £800 into your SIPP, the government will top this up to £1,000 for you.

This is a super deal that could really help you boost your retirement savings. Currently, you can contribute up to £40,000 per year, or 100% of your income if you earn less than £40,000, into a SIPP and qualify for tax relief.

I’ll point out that if you run your own limited company, it may be more tax-efficient to make pre-tax contributions into your SIPP. You won’t receive the tax relief uplift, but the contribution will be treated as a business expense meaning your tax bill will be reduced. If you’re unsure as to the most tax-efficient option, it could be worth speaking to an accountant.

Grow your money

Finally, once you have your own pension set up and you’ve contributed money into your account, the key is to get that money working for you.

At 40, you still have decades to go until retirement. This means that you can afford to take on some risk in the pursuit of higher long-term returns, so stocks are probably the best place for your money. History shows that stocks tend to produce higher long-term returns than other assets such as bonds and cash savings.

With a diversified portfolio of stocks, you can probably expect to generate a return of around 6%-10% per year, on average, over the long run. Combine that kind of return with the tax relief top-ups from the government on your contributions, and you could potentially build up quite a sum of money by the time you hit retirement age.

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  • Stop saving, start buying dividend stocks: a simple plan to retire early
  • Top shares for 2019

Edward Sheldon owns shares in Hargreaves Lansdown. The Motley Fool UK has recommended Barclays and 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

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