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Starting A Pension At 40 Plus

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Published: 5 Jun 2013      

Forty is a little ‘late’ in life to be thinking about your retirement plans, but it's by no means too late. According to the state pension age calculator on Directgov, you've still got another 27 years before you retire and this is based on current legislation ( we had better not rule out that age increasing either).


pencians_internal.jpgThey say that life begins at 40 and if you started work at the age of 16 that means that you're not even halfway through your working life!  Sorry that might be a depressing fact, but it does reinforce what we said earlier: it's not too late!

Having said that, starting later obviously isn't as good as starting earlier when it comes to saving for your retirement as it doesn't give your money as long a period to grow.

The Government places so much importance on private pensions, that all workers (except those on very low incomes) will be automatically enrolled from next year in a pension by their employer. But that doesn't mean that you have to wait to be enrolled why not start now, at the spritely age of 40, to make sure you have a better retirement.

How much will you need when you retire?

It's surprising how many people don't actually think about how much they'll need for a "comfortable" retirement. Yes we all must acknowledge that we're going to be receiving less in terms of income and our comfort is probably going to be linked to the lifestyle to which we have become accustomed to.

Think about what you might need or want as a proportion of your salary and think about your current bills as well (and what they might be in 30 years – hopefully you won't have that mortgage, but your energy consumption is may be higher).

Try making a list of what you expenses might be and consider where you might be living. Is it your intention to downsize the family home after the kids have flown the nest? As well as freeing up some extra money (we'll talk about this more later), a smaller home doesn't cost nearly as much to run. Once you have a rough figure based on today's prices and your income, you have an income goal to aim for.

When will you retire?

It might have always been your intention to retire when the state pension kicks in, but you don't have to retire at this point  and you don't have to take your state pension straightaway either.

New legislation came in from April 2011 means that your employer can't terminate your contract when you reach state retirement age, leaving you free to continue in your job for as long as you like (subject to your health and ability to do the job in question). That means you don't have to take any income from your pension and you can carry on building your retirement pot for longer as well.

Other rules that came into force in April end the practice of effectively railroading you into purchasing an annuity (if you haven't converted your pension to an income by that point) by the age of 77. With current life expectancies for one in six of us expected to reach 100 (according to the DWP), this is significant.

Retiring later means you can maintain your quality of life for longer, as well as allowing for a greater income when you finally do retire.

As i previously said you can also defer when you start to receive the state pension. When you finally do take your state pension you can either receive this money as a lump sum, or as an additional amount on top of your regular state pension payment.

What have you already got?

Over the course of a lifetime you might collect many things; pensions are no different! From previous, long forgotten employers you might have pensions that are still accumulating, but do you know what they're worth? Make it your business to find out what you've got, how much it's worth, how well it's performing and how much the charges are. Transfer any pensions that aren't pulling their weight.

Have you got any money tucked aside in savings and investments?

You've got two options here, leave the money where it is so you have more flexibility (if this is the case make sure your savings account, cash ISA, or investments are performing competitively  and switch them if they're not). The other option is to pay surplus savings into your pension. You can pay up to a maximum of £50,000 per year into your pension tax free.

You should also consider any debts you have such as paying off expensive credit card and overdraft debt in the near term, this will free up more money to pay into your pension long term, so prioritise this first (transferring expensive balances onto a top 0% balance transfer credit card is a good idea as well). 

Look at your mortgage, will the term extend into retirement? Can this be reduced so you're mortgage-free earlier? Don't sit on the time bomb and expect it to defuse itself, you must take action. Now!

Start a pension

Your employer's pension scheme is always a good starting point, so find out how much they would contribute if you join the company's pension scheme. Saving into a pension is tax-free as contributions are deducted straight from your wages; so, coupled with any employer contributions, this means that you can accumulate a much bigger pot than you could get when investing in normal savings or investment products, yes even ISA’s! 

See this guide for more information.

  • You can contribute up to 100% of your earnings into a pension tax-free (subject to the annual allowance of £50,000); any savings above this are taxed.
  • Save as much as you possibly can into your pension. Taking a detailed look at your current finances and budget can really help here.
  • Review your outgoings: things like your mortgage (even if it doesn't cost a great deal) to make sure you're repaying debts as cheaply as you can.
  • Reviewing your insurance and utilities can save money as well.


For example, even if you can only free up £50 per month, an extra £50 into your pension would be an extra £16,200 you could contribute to your pension over the next 27 years. That's before any investment gains over that period!

Using your home to fund your retirement

More and more of us who are approaching retirement are considering using property to help fund our life after work. Partly, this is due to spectacular gains in property prices over the past few decades, meaning that lots of us are sitting on pots of cash in the bricks and mortar of our own. However, although property has performed well over the past 27 years, this is no guarantee that it will perform well over the next 27.

When it comes to using your home to fund your retirement, you have two options open to you: to downsize to a smaller house, bungalow or flat, or to take out a lifetime mortgage (or equity release scheme) on your existing house. Both these options could seriously impact any inheritance you leave behind, so think carefully about this decision and involve your children as well as your financial adviser.


Selling up and moving to a smaller property can free up tens, even hundreds of thousands of pounds for your retirement. If you own a house worth £300,000 for instance, and you downsize to a bungalow worth £150,000; you've freed £150,000 to put towards your retirement fund. Not only does this option release money, it can also mean that you're in a property that's easier to move around, more economical to run and not to mention clean,  than the family home where you currently reside.

However, downsizing will depend on you owning a property big enough to downsize from, as well as your own feelings, you may not want to move from the home you raised your children in. If these are concerns you have, maybe a lifetime mortgage, or equity release scheme, might be a way for you to stay in your home, whilst unlocking some money for retirement.

A lifetime mortgage (or equity release plan)

A lifetime mortgage is basically a type of financial product where you "borrow back" some of the equity, or cash, you have tied up in your home. Whilst you are borrowing, interest is charged, although you won't have to make repayments as the lifetime mortgage provider usually gets their money when your house is sold.

The advantage of a lifetime mortgage is that you can release money whilst staying in your home (without paying any rent), although it is a complex option and must be considered very carefully as there are considerable risks.

Finally, when considering your retirement strategy it is best to seek independent financial advice. Professional guidance can really help you make sense of the options available to you; as well as setting your mind at rest if there's something you don't understand or are worried about.

So not to worry it’s not to late to start saving for your retirement.