Worried that you’ve left it too late to save for your retirement? Find out what you can still do if you have little-to-no pension in your 60s.
If you’re a woman in your early 60s with a modest (or no) private pension and just five or six years until State Pension age, it can be easy to panic and assume you’ve left it too late to do anything. But, as we’re going to cover now, there are still things you can do to improve your financial future.
Here’s what we will look at in this article:
- How to check your retirement income gap
- How to ensure you maximise your State Pension entitlement
- How to work out your current retirement income
- How to make the most of government pension tax incentives
- How to find more money to invest in a pension
- How compound growth can help you fill your retirement income gap
Why women might have little-to-no pension at 60
Firstly, it might help you to learn that you are far from alone. Research by the UCL Centre for Longitudinal Studies of 8,000 people from England, Scotland and Wales aged 62-65 found that 53% were still in paid work in their early 60s, 8% had no private pension or savings, and 16% had no private pension and household savings of more than £25,000.
Of the people surveyed, 49% said they didn’t have a total expected pension income that reached the Pensions Commission’s Target Replacement Rate (TRR), which would give them an adequate income in retirement from their pension alone.
Interestingly, women in this group were only slightly less likely than men to have a private pension (75% versus 82%). However, the average value of their private pensions was much lower. On average, men with defined benefit pensions were on track to get twice as much a year as their female counterparts (£13,900 versus £7,500). And men with a defined contribution pension had, on average three times as much as women (£90,000 versus £28,500).
We’ve previously explored why women have less money in their pensions than men, and the study agrees with our conclusion: “Women tend to spend more time out of paid work caring for family and they typically earn less than their male counterparts, even if they work in similar jobs”.
What you can do if you have little-to-no pension at 60
So what can you do if you are 60, or approaching your 60s and have little-to-no pension? Let’s look at some of the options you have now to improve your financial situation when you retire. Broadly they consist of:
- Knowing what position you are in
- Making the most of government tax and other benefits
- Finding ways to increase the amount in your private pension
Let’s start by establishing what position you are in.
Work out your retirement budget
You can’t know if you have saved enough for your retirement if you don’t know how much money you need when you retire! And the starting point for this is knowing what your life costs you now.
So if you haven’t already done so, start keeping a monthly budget. Track everything you spend money on, so you know what your outgoings are. Then work out what of these are essentials, and what you could cut back on. Also, how many of them will still be valid when you retire?
For example, if you pay to commute to work, or buy lunch every day when working, or have children-related costs that won’t be relevant when you retire, you can disregard these. The same applies to mortgage payments if you will be mortgage-free when you retire.
The idea is to come to a rough idea of how much you might need to live on when you retire – both the essentials, such as your utility bills, and the small luxuries that are important to you, such as eating out.
This exercise can also help you find more money to invest in a pension, perhaps by cutting down on some luxuries or reducing your outgoings.
Once you know how much you need to live on, the next step is to see how much of your outgoings the State Pension could cover.
Check your State Pension entitlement
If you qualify for it, you can receive the State Pension from the age of 66 (rising to 67 in 2028). In order to qualify for the full State Pension you usually need 35 years on your National Insurance record, and for the full basic State Pension you need ten years. Currently, the full State Pension is £241.30 a week, and the full basic State Pension is £184.90 a week.
To find out whether or not you qualify, you can check your State Pension forecast. If you are short of what you need and have any gaps in the last six years, you can backdate payments for them. This could be worth doing if you are only short of the basic or full pension by a few years.
Make sure you are claiming Child Benefit or Carer’s Credit in your name
If you are raising children or caring for someone for at least 20 hours a week, you won’t be paying National Insurance contributions. However, you can get NI credits by claiming Child Benefit or Carer’s Credit. But the benefit or credit must be claimed in your name.
If you are entitled to Carer’s Credit but missed out on claiming up to now, you can backdate it to the beginning of the previous tax year.
If you haven’t been claiming Child Benefit because your household income was too high to qualify, the government is introducing a new system that will enable affected parents to claim their missing backdated NI credits for free. This is scheduled to launch in April 2027.
Once you’ve checked your State Pension forecast, and made sure you are getting any NI credits you need, the next step is to work out exactly what private or workplace pensions you have, if any.
Do an audit of your pensions
If you have any pensions you are aware of, dig through your paperwork to get the details, then create online accounts to get an up-to-date statement of what they are worth. If you need to, call the companies up directly and ask for their help to set up an online account.
Make a record of what pensions you have, the account numbers and how much are in them. If you want to go one step further (and I’d recommend this), check their performance and how much you are paying in fees. If you have a few small pensions it may be worth combining them into one, to make it easier to keep track of and manage.
Check if you have a lost pension
You may assume you have no old private or workplace pensions, but are you sure? According to the Association of British Insurers, over £30 billion is lying in unclaimed, lost or forgotten pension pots across the UK. That’s worth around £9,500 for each person who has lost a pension. You can find out how to track down any lost pensions here.
Bear in mind, some pensions will be defined benefit and others could be defined contribution. You can learn the difference between them and how they work here.
Work out how much your retirement income could be short by
By this point, you should know three important things:
- How much you might need to live on when you retire
- How much you should get from the State Pension
- How much you currently have in your private or workplace pensions
Before we calculate the retirement income gap you need to fill, we need to work out what your pension pots might be worth annually to you.
To estimate this, take total any defined contribution pension pots and work out what 4% of them is worth. As a rule, this is the amount recommended to withdraw (with annual increases for inflation) if you want your money to last about 30 years.
This isn’t a hard and fast rule, but it’s good guidance to start with. Some people choose to increase the amount they take, with the rationale they’d rather have more money from travel and fun when they are younger and in better health.
Here’s what I recommend doing at this point:
- Calculate your annual retirement income needs
- Deduct your potential State Pension
- Deduct any annual projections from a defined benefit pension
- Deduct your 4% (plus inflation) defined contribution pension income
What is left is your retirement income gap. The is the amount we need to now try to fill. But where could the money you invest in a pension come from, especially if it feels like things are already tight now?
Make the most of your pension tax benefits
The first thing to remember is that the government incentivises you to save for your retirement via tax benefits when you pay into a pension. So any money you can find for your pension could potentially work harder for you than is saved or invested elsewhere (or spent!).
Pension tax benefits if you are employed
If you are employed and quality for pension auto-enrolment, your employer must pay into a pension for you. The minimum contribution is a total of 8%, which includes government in tax relief and employer contributions. Even if you don’t earn enough to qualify for auto-enrolment (this is £192 a week, £833 a month or £10,000 a year) you can still request to join.
If you earn over £6,240 a year (£520 a month or £120 a week), your employer must also pay into your pension as you’re classed as a ‘non-eligible jobholder’. If you earn less than £6,240 a year, you’re classed as an ‘entitled worker’, and your employer is not obliged to contribute to your pension.
Pension tax benefits if you are self-employed
If you are self-employed and a basic rate taxpayer, you will usually get a 25% tax top up on any contributions you make to your pension. This means that, for every £100 you invest in your pension, you’ll get another £25 from the government, making it £125.
Pension tax benefits if you have a limited company
And if you run a limited company, any contributions you make to your pension through it are usually treated as an allowable business expense, and are offset against your Corporation Tax bill.
Please note: The most you can pay into your pension each year and benefit from tax relief is £60,000 or 100% of your income or profit, whichever is lowest. You can, however, use any unclaimed allowances from the past three years.
Claim your pension tax benefits even if you are not employed
Even if you are not currently working and are under 75 years old, you can still receive pension tax benefits. You can pay in up to £2,880 per tax year and the government will top it up with basic rate tax relief of 20%. So if you pay in the maximum, you’ll receive £720 from HMRC, giving you a total of £3,600.
It’s worth noting that anyone can give you the money to pay into your pension, including your partner or spouse, a family member, or friend. And given that you get, in effect, £720 of free money from the government, it’s an important benefit to use if you can.
Manage any debts
If you have debts to are trying to manage, check that you aren’t over-paying on interest on them. Some forms of debt, such as credit and store cards, can grow much faster than others thanks to a higher interest rate. We cover how to manage expensive debt, such as credit cards, here.
The more quickly you can pay down your debts, and the lower the interest rate you can secure for them, the more money you could have to save towards your future.
So how can you find more money to invest in a pension? Let’s explore some quick ideas.
Earn more money from your job
If you are working, is there an opportunity to increase your income so you can pay more into your pension? For example, when is the last time you asked for a pay rise? Or a promotion? Is there any opportunity to work more hours or pick up overtime?
If your ability to earn more at your current job is capped, could changing job help? What are the current salaries advertised for your role?
If you can increase your income by just £1,200 a year (£100 a month), that’s an extra £96 a year in your pension under basic auto-enrolment. And of course, you can always choose to contribute more to boost your pot further.
Take a hybrid retirement
We tend to think of retirement as a hard ending: we work, and then we stop working and retire. However, of the nine million people in the UK who work part time, more than one million are over the age of 65.
Working later in life doesn’t have to be seen as a chore. It can be a chance to do something you enjoy, keep active (your body and your mind) and mix with different people, while topping up your retirement income. And remember: if you are under the age of 75 and haven’t started taking taxable income from your defined contribution pension pot, you can still enjoy pension tax benefits on your income.
Working later in life comes with plenty of potential longevity benefits too; an 18-year study of around 3,000 people found that working even just one year past retirement age was associated with a 9% to 11% lower risk of dying, regardless of health.
Earn money working for yourself
If you don’t want to, or can’t, work for someone else, can you find a way to make money working for yourself?
What can you do, make or sell that other people may pay for? Obvious examples include cleaning, ironing or gardening. Perhaps you’re good at fixing things? Or dressmaking? Are you talented artist? Maybe you could sell portrait or pet portrait commissions? If you are a keen baker, can you sell cakes, bread or cookies? Could you work as a delivery driver in your spare time?
Again, remember that any money you pay into your pension if you are self-employed could attract tax benefits, giving you a valuable top-up.
Why you still have time to benefit from compound growth
It can feel disheartening having little-to-no pension in your 60s, but the good news is that, even this late, you still have time to benefit from compound growth.
Basically compound interest or compound growth, is growth that comes not just from the money you invest in your pension, but the interest you have already earned. For example, if you invest £1,000 in your pension and it grows by 5%, in one year you will have earned £50 interest. The next year, even if you don’t add any more to your pension, you’ll earn interest on both your original £1,000 plus the £50 interest from the previous year, giving you a potential growth of £102.
Let’s look at how this could work in actual pension numbers.
What your pension could be worth in five years
If you can find between £100 and £500 a month to add to your pension, and you achieved an average annual growth rate of 5%, here’s what it could be worth in five years:
- If you invest £100 a month you could have £6,630, £630 of which is compound growth
- If you invest £200 a month you could have £13,261, £1,261 of which is compound growth
- If you invest £300 a month you could have £19,892, £1,892 of which is compound growth
- If you invest £400 a month you could have £26,523, £2,523 of which is compound growth
- If you invest £500 a month you could have £33,153, £3,153 of which is compound growth
And don’t forget, if you are working or self-employed, pension tax benefits can boost your savings even further. So:
- £100 a month becomes £125, giving you a potential £8,288 (from your total investment of £6,000)
- £200 a month becomes £250, giving you a potential £16,576 (from your total investment of £12,000)
- £300 a month becomes £375, giving you a potential £24,865 (from your total investment of £18,000)
- £400 a month becomes £500, giving you a potential £33,153 (from your total investment of £24,000)
- £500 a month becomes £625, giving you a potential £41,442 (from your total investment of £30,000)
What your pension could be worth in 10 years
If you can wait 10 years until you draw your private pension, and continue paying in at the same rates with an average of 5% interest, here is what you could have with tax benefits and compound growth:
- £100 a month becomes £125, giving you a potential £18,866 (from your total investment of £12,000)
- £200 a month becomes £250, giving you a potential £37,733 (from your total investment of £24,000)
- £300 a month becomes £375, giving you a potential £56,600 (from your total investment of £36,000)
- £400 a month becomes £500, giving you a potential £75,467 (from your total investment of £49,000)
- £500 a month becomes £625, giving you a potential £94,334 (from your total investment of £60,000)
Why it could be worth living frugally now
I hope these calculations give you hope that you still have time to close your retirement income gap – even in your 60s.
And I appreciate that £500 a month might be a lot of money to find, but I do recommend saving as much into your pension now if you can, if you are in good health. Personally, I prefer to live more frugally in the present in order to maximise my pension savings, especially if I am playing catch up. This enables me to make the most of both tax benefits and compound growth to ensure I have as much as possible when I retire.
And as you can see, if you are able to invest £500 a month for 10 years, while qualifying for pension tax benefits, you could end up with a pot just shy of £100,000.
You still have time to change your financial future
It’s easy to assume that, if you are already in your 60s , you’ve left it too late to start a pension, or significantly improve your prospects if you only have a small amount saved for your retirement. I hope this article has changed your mind and given you hope. You now have some positive actions you can take that could change your financial future – however close to retirement you may be.
