Tips for saving
Whether you’re new to saving or you’ve saved for some time, all of us could do with a few hints and tips that could save us money for later.
Short-term debt versus short-term savings
A credit card debt of £1,000 charges 20% interest a year, which will cost £200. £1,000 in a savings account, with a rate of interest at 1.5% would earn £15 of interest in that year. So saving, rather than paying the debt, costs you £185 more.
In the short-term, it would be better to pay off the debt as the interest rate on the loan is higher than that for the savings account.
Long-term debt versus long-term savings
Another way of tackling the same credit card debt could be to get a loan that charges you a lower rate of interest. For example, if a loan has an annual 10% interest rate, this would mean an annual cost of £100 which may be less than you are currently paying.
Life changes
You might have everything planned out. Then life will throw you a curve ball. You may move house, change jobs, get married, have kids, get divorced, take a career break, get made redundant or set up your own business. Any of these events could affect your savings. Whatever happens, it’s important to review your saving plans to make sure they’re still right for you.
How having children can affect your retirement planning
Evidence shows there's a widening gap between how much men and women save for retirement. Traditionally, women have spent more time and money, than men, looking after children. So, it may be that they save less.
Retirement may not be the first thing new parents think about. But it’s worth thinking about how raising children can affect how much you save.
| Choices which may impact your savings | |
|---|---|
Maternity leave |
While you can take this for 52 weeks, maternity pay is only paid out for a maximum of 39 weeks. During the paid leave, your employer will pay into your pension, based on your normal salary. But what you pay into your pension will be based on the actual pay you receive. So you might be paying in less. |
| Staying off work to look after your child | Payments to your workplace pension will end, but you can keep paying into a personal pension. |
| Coming back to work part-time | You and your employer normally pay a percentage of your salary into a pension. If you reduce your pay by cutting back your hours, this will reduce how much you save. |
| Childcare costs | Childcare costs can take a significant percentage of parents' salaries, meaning there could be less income to save for retirement. |
| What can you do? | |
|---|---|
Keep paying into a pension |
You can pay in up to £2,880 in a tax year. Tax relief is added so if you pay £2,880, a total of £3,600 will be paid into your pension. |
| Discuss how you can share the costs | Talk about how you can share the effect of lower pension payments. See how you can cover childcare costs together. One parent can pay into the other’s pension. This still gets tax relief. |
| Understand how child benefit can impact your State Pension | You need 35 years of National Insurance (NI) credits to get the full State Pension. Even if you’re not working, if you have a child under 12, you will get NI credits if you claim Child Benefit. This can make it worth claiming, even if tax takes away what this pays you. Visit MoneyHelper for more information. |
Pensions are a long-term investment. The retirement benefits you receive from your pension plan will depend on a number of factors including the value of your plan when you decide to take your benefits which isn’t guaranteed and can go down as well as up. The value of your plan could fall below the amount(s) paid in.
We recommend that you get advice on your long term pension plans, or if you’re considering making any changes to your pension payments which may affect your financial future. You'll normally be charged for any advice.
You can normally start taking your benefits from your pension from 55. From 6th April 2028, you will need to be 57 to take money from your pension. But you need to make sure you have enough money in it to last the rest of your life, even if you have other sources of income.
If you can picture when you want to retire, you can plan a comfortable one. Think about how much you will need in your pension and other places, like savings. If you can save enough, you can make it happen. Visit www.gov.uk for up-to-date information on state pension age and amount you are entitled to.