Can I start a pension plan if I’m unemployed?

Can I start a pension plan if I’m unemployed?

I am disabled, unemployed and have no pensions. I am 57 and looking to start a 10-year pension plan until my official retirement date in June 2030.

I am interested in the pension plan for people on low incomes, where I believe you can put in a maximum of £240 a month and the Government will add £60 a month to it.

I contacted a financial adviser who wants to charge me £900 to set this up for me.

Where can I apply to do the pension and an Isa?

Francis Klonowski
Tue, 06/30/2020 – 17:08

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RM/via email

Without earnings, you can save up to £3,600 each tax year into a personal pension or perhaps a stakeholder pension plan. The former generally offers a wider investment choice, if that is important. The latter is a type of personal pension, but with more restricted investment choices and capped charges: they are often better suited to people on low incomes.

You are correct that whatever you pay in is ‘grossed up’ by 20% tax relief – so if you pay in £240 a month, £60 tax relief is added to make a gross contribution of £300.  

However, before going down this route you need to consider what it is you are trying to achieve. For instance, do you aim to provide a regular income from the age of 65? Or perhaps just accumulate a lump sum from which to draw as and when you want? With a pension you can withdraw 25% tax-free, while any withdrawals from the remainder are potentially taxable depending on your other income.

You would also have to decide how to draw your income. You could leave the fund invested and draw as needed – though this option may be less viable, given the size of fund you are likely to accumulate – or buy an annuity to provide income for life.

Then there is the question of risk. You will not get any interest on cash in a pension, so you would have to invest your contributions in some kind of investment fund, which could fluctuate in value. 

As an alternative, therefore, you could consider an Individual Savings Account [Isa].

Just as with pensions, all returns on Isas are tax-free. Although you will not benefit from the tax relief on contributions, all future withdrawals are free of tax. You could save in either cash or stocks and shares, or a mixture of both, and you could save up to £20,000 each tax year.

If you are entitled to working tax credit or receiving universal credit, there is a third option: the Help to Save scheme. This is a government-backed savings account, which provides a bonus of 50p for every £1 saved over four years. You can save between £1 and £50 each calendar month, with your bonus added at the end of year two and year four. Your account closes after four years, but you could then put the maturity value into a pension or Isa.

You have to apply directly for Help to Save at Gov.uk/get-help-savings-low-income/how-to-apply, but for a pension or Isa you definitely do not need to go through an adviser.

Several do-it-yourself investment platforms such as Fidelity, interactive investor (Moneywise’s parent company) and Nutmeg, deal directly with investors. Most of these platforms offer both a Stocks and Shares Isa and a personal pension at very low cost, so you could have both within one account. For a Cash Isa, however, you would use a bank or building society online or in branch.

Francis Klonowski is director of Klonowski & Co.

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SAM BARKER: What no one tells you about being scammed

SAM BARKER: What no one tells you about being scammed

I thought I knew a lot about fraud, but nothing could prepare me for actually be scammed – especially not three times in one day

Sam Barker
Tue, 06/30/2020 – 12:59

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As a financial journalist I have written untold numbers of stories on fraud and scams. I’ve sat in courtrooms up and down the country reporting on fraud trials, I’ve been out with police forces when they kick down scammers’ doors at four in the morning.

In other words, I take a professional interest. But the one thing I had never experienced is the personal side of it – what it’s like to actually be defrauded.

That is, until recently. A few weeks ago, I checked my postbox only to find it unusually full of letters. Sadly, this was not due to a secret admirer or NS&I telling me I’d won a prize on the Premium Bonds.

Instead I had letters from three banks, none of which I banked with. The letters were all congratulating me on having been successful in setting up a credit or debit card, and two of the letters contained said cards.

Straight away I knew this was a deliberate fraud. The way it works is a scammer manages to find out enough information about you to convince a bank they are you.

They then apply for credit and debit cards in your name, which are sent to your home address.

A key part of this scam is something utterly mundane – what sort of postbox you have. The fraudster needs to intercept the cards before you do, which means they need to scam people with an outside postbox they can steal the cards from.

As a result, these frauds tend to happen to residents of blocks of flats with external postboxes and to country homes with isolated ones at the end of a long drive.

If successful, the fraudster goes on a spending spree with the cards, while you are none the wiser. I had inadvertently foiled the scam by getting to the letters before the fraudsters did.

When we think about scams, we tend to focus on financial loss. Quite rightly, as the sums involved can be life-changing for the victim. Fortunately, I have lost no money as a result of this and consider myself very lucky. But I was unprepared for the other aspects of being scammed that no one tells you about.

First, being defrauded meant going through a wide palette of emotions, ranging from worry  and doubt to boredom.

The worry came first. I didn’t know if I would lose money or how many more frauds might occur.

But boredom quickly followed. Being scammed means calling each bank and talking to its fraud team, which then takes on the case.

But these calls can take more than an hour each, which quickly becomes a chore. I also have to say the staff at one bank’s fraud team could not have been less interested, while others were a picture of kindness and competence.

Doubt is also part of the mix. One fraud team call handler asked me if I knew anyone who might have done this deliberately as a form of revenge.

What a question! It is not a nice thought, though I think this fraud attack was random.

There was an element of fear too. The postbox in question is by the one door in and out of the flat. If the scammer comes round, there is a good chance I could bump into them leaving my building – not an interaction I would relish.

Second, fraud has a serious impact on your credit score. Mine has fallen 300 points, from ‘excellent’ to ‘poor’, as a result of this.

The banks assure me this is temporary and that my credit score will bounce back once they have sorted the situation out.

But three weeks on from the incident and nothing has happened. If I were to apply for any sort of loan, perhaps as a result of a financial emergency, this would scupper my chances of a decent deal.

I have interviewed many fraud victims, who commonly say they feel shame that they were caught out. They also felt that there was a stigma against talking about it too widely.

I always tell them that there is nothing shameful about being tricked by fraudsters, most of whom are extremely good at what they do.

But my own experience has shown me that scams are more than just financial loss and shame.

We would all do well to show more sympathy to people who have been defrauded and help reduce the stigma around being a victim of a scam. 

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Government state pension response “woefully inadequate”

Government state pension response “woefully inadequate”

Thousands of women could be missing out on pension payments but the Government says it will not contact them

Stephen Little
Tue, 06/30/2020 – 11:39

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The Government’s response to findings that thousands of women could be getting the wrong state pension has been dubbed “woefully inadequate” by a former pensions minister.

Tens of thousands of older women are being underpaid by up to £100m for their state pension, according to a recent research paper published by pension consultants Lane Clark & Peacock (LCP).

But the Government has chosen not to contact women in this position, instead relying on them coming forward.

What is the problem?

The issue appears to be particularly acute for older married women who may not realise that they had to put in a claim for a higher pension when their husband turned 65.

Before the introduction of the new state pension system in April 2016, women could claim a partial state pension based on the National Insurance (NI) record of their husband if their own contributions did not entitle them to the married woman’s rate.

Under the old system you needed 44 years of NI contributions in order to claim the full basic state pension.

The pension that a married woman can claim based on her husband’s record of NI contributions stands at £80.45 per week, provided that their husband was receiving a full basic state pension. This is 60% of the full basic state pension rate of £134.25.

Since March 2008, married women on low pensions should have been awarded this 60% rate automatically when their husband turned 65. However, before this date they needed to claim the uplift, meaning thousands have missed out.

How much is owed?

In some cases, affected women could be owed backdated payments running into thousands of pounds and the total amount owed could be up to £100 million.

Pensions Minister Guy Opperman told the House of Commons that when individual cases were brought to the attention of the Department of Work and Pensions (DWP) matters had been corrected and encouraged others to come forward.

However, he ignored calls from Labour MPs that the DWP should actively contact women who had been underpaid.

Steve Webb, former pensions minister and partner at LCP, says: “With more and more women coming forward to report underpaid state pensions, there is no doubt that there is a systematic problem here.  It is not good enough for the DWP to ask people to come forward one by one. 

“The Government has had long enough to review this issue – it is time for action. DWP must use its own records to track down the women who are missing out as a matter of urgency. The current response to this issue is woefully inadequate.”

Have you been underpaid?

If you are worried that you have been underpaid for your pension LCP has a handy tool that can help you check.

All you have to do is enter few details about you and your husband to find out if you have been receiving too little.

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Online shoppers face extra tax under Government plans

Online shoppers face extra tax under Government plans

New delivery charge proposed to help reduce pollution

Brean Horne
Tue, 06/30/2020 – 11:25

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Online shoppers may have to pay a compulsory online delivery charge on all orders under new government plans.

The Department for Transport (DfT) is considering a new fee to combat congestion and rising toxic emissions due to an increase in online shopping during the coronavirus outbreak, the Times reports.

Internet retail sales jumped to 32.8% of all transactions in May, compared to just 18.9% in February before the UK went into lockdown, according to the Office for National Statistics (ONS).

This has caused an increase in the number of delivery vans on the road.

Scientific advisors are calling for “mandatory charge,” similar to the one levied on plastic bags, to be applied to all Amazon-style deliveries.

Shoppers have started to order more than necessary due to the number of free and next-day delivery deals advertised, their findings show.

Ministers were informed that the charges may encourage “more sustainable behaviour”.

A spokeswoman told The Times: “Cutting congestion and vehicle emissions in our towns and cities is absolutely key to improving air quality and building a greener transport network.”

“We continue to work closely with experts on the best ways to achieve that and to meet our ambitious 2050 net-zero target.”

Nitrogen oxide emmissions (NOx) have fallen by 74% between 1970 and 2018, according to recent data from the ONS.

However, NOx emissions from vans have risen by 43% between 2007 and 2017.

NOx can cause breathing difficulties and lead to conditions such as chronic lung disease.

The majority of delivery vans are also powered by diesel, which negatively impacts the environment.

The DfT currently offers grants of £8,000 to reduce the cost of companies purchasing electric vans, to cut down on emissions.

The proposals will be opened up to public consultation before a final decision is made.

Online delivery tax could be “counterproductive”

Experts warn that a levy on online shopping could be counter-productive and may in fact encourage shoppers to travel out to stores instead, increasing car pollution.

Andrew Hagger, personal finance expert at MoneyComms, says: “It would be a controversial move and a hugely unpopular one with consumers.

“The worry is that such a surcharge could turn into a cash cow like the Insurance Premium Tax which the Government keeps increasing as a way of trying to balance its books.

“You could also argue that the move may be counterproductive with people getting in their cars and driving to the local retail outlets to make their purchases instead.”

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Bank of Mum and Dad set to step in as high-LTV mortgages dry up

Bank of Mum and Dad set to step in as high-LTV mortgages dry up

Banks have been pulling first-time buyer loans, but parents are ready to help

Stephen Little
Mon, 06/29/2020 – 11:36

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Lenders have been pulling high loan-to-value (LTV) mortgages because of the coronavirus pandemic, but the Bank of Mum and Dad could step in to help out first-time buyers.

Mortgage broker Private Finance says that it expects a surge in capital raising for first-time buyers as the Bank of Mum and Dad fills the void left by the banks.

Many lenders stopped offering loans to first-time buyers after lockdown measures were introduced in March, effectively freezing the market.

Those who want to buy their first home are now forced to find larger deposits and apply for lower LTV loans, which are still available.

Chris Sykes, mortgage consultant at Private Finance, says: “Curtailed lending is making it harder for first time buyers to get on the housing ladder. 

“This will lead to a surge in capital raising from parents looking to release funds to help their children buy a home by financing their deposits. 

“For those who are fortunate enough, the Bank of Mum and Dad will fill the void left by the banks not doing much in the 90-95% space currently.”

Why are lenders pulling high LTV loans?

Mortgage lenders are worried about the impact of the coronavirus pandemic and weakening job market on the homeowners that owe them money. 

Many have reacted by pulling out of what they would see as riskier areas of lending, chiefly to first-time buyers, who are at greater risk of default.

Lots of lenders are also having staffing issues as a result of the pandemic and have delays with processing mortgages.

Banks and building societies have also had to shift resources because of the volume of calls from borrowers looking to take out a mortgage holiday.

The re-opening of the housing market in May has released a lot of pent up demand, leading to a surge in mortgage applications.

So in order to deal their existing workload, lenders are having to temporarily withdraw products.

Poverty in retirement

Soaring house prices combined with stagnant wage growth are making it increasingly difficult for first-time buyers to get a foot on the property ladder.

According to the Office for National Statistics, in 2019 the average house price in England and Wales reached 7.8 times average annual earnings.

As a result, parents are now spending so much money to help get their children on to the housing ladder that they are now one of the biggest lenders in the UK.

The average Bank of Mum and Dad contribution rose by more than £6,000, to £24,100 in 2019, according to Legal & General.

Collectively parents have given £6.3 billion, making it the equivalent of a top 10 UK mortgage lender.

However, parents who are gifting money to help their family onto the housing ladder could end up facing an uncertain retirement.

Many are using their pensions and savings to help out and this could leave them facing poverty when they retire.

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