Pensions. Most of us are aware we should have one, but for a childminder they can be a little tricky. When your income varies month to month, how do you manage a pension on top of your busy schedule?
One of the many benefits when you become a childminder with Koru Kids is our business support service. As well as helping with your tax returns, record-keeping, insurance and more, we’ve partnered with Penfold to create a pension specifically for childminders. In this article, our friends at Penfold look at who should get a pension, what the benefits are and how you can start saving for life after work today.
Do I need a pension?
First things first. Do you actually need a pension?
We’re all saving for something; a holiday, a house – so saving for some date in the future just doesn’t feel vital right now.
Pensions are all about living comfortably when you retire – when childminding is no longer top of the agenda. That may be a way off, but that’s where the secret power of pensions really comes into its own. Let’s talk about compound interest.
The power of a pension
The trick to pensions is time. The longer you have your pot, the more it grows of course – but this growth doesn’t all come from your contributions. The vast majority comes from compound interest.
Compound interest is essentially interest on interest. If you save £100 and your pots grows by 5% in a year, you now have £105. You’ve earned £5.
If that same pot grows by 5% again the next year, you’ll earn 5% on £105. Same growth, but now you’ve earned £5.25. This repeats year after year so your money continues to work harder and harder.
Here’s the best way to look at it. If person A paid £50 a month into their pension age 30-60, they’d end with £41,856.47 (based on 5% annual interest).
Now, if person B instead paid £50 a month from age 20-30, then never paid into their pension again, at 60 their pot would be worth £42,171.44.
Person A paid in £18,000 of their own money, person B added just £6000 yet still ended up with a bigger pot. That is the power of compound interest. And that’s the power of a pension.
The great part is it doesn’t take a lot to get going. At Penfold, you can start saving from just £1 a month and the sooner you start putting a little away, the better. You can forecast your pension using our handy calculator here.
Remember, with pensions capital is at risk. Your investments can go down, as well as up.
How do pensions work?
At their core, pensions are simple. Contribute money while you work so when you retire, you have a nice pot of savings you can use to fund your life.
You can pay in via one-off lump sums, monthly, annually or a combination of all three. Everything you contribute is invested into a fund (a mix of different investments like company shares or government bonds) to help it grow.
You may also receive a State pension from the government when you reach state pension age, currently 66. You need to have been paying National Insurance tax for at least 10 years to qualify for this though.
For more on how pensions work, check out the handy article on Penfold’s Pension Help page.
What are the benefits of a pension for childminders?
The best thing about a pension is tax relief.
Whenever you contribute into your pension, the government will add a 25% tax bonus as an incentive. It’s great because it lets you keep more of your hard earned cash. Higher rate taxpayers can enjoy even more relief.
At Penfold, we want to help you sort your future out now so you can get back to enjoying today, safe in the knowledge the future is (finally) taken care of. Knowing you don’t have to worry about income down the road really is a weight off your shoulders. Then you can focus on the children you care for.
How do I set up a childminder pension?
As a childminder, you’ll need a private pension. You’re self-employed, so it’s not the same as an employee pension.
With Penfold, you’ll have a simple, easy to manage private pension you can set up minutes and manage online or on your phone. As a Koru Kids childminder, you’ll be guided on what to do to get set up.
Our pension was designed for how we live and work today. Top up, adjust or even pause your pension contributions at any time in a few taps. Ideal when your income fluctuates.
We’ll also take care of your tax bonus, adding to your pot every month for you. It’s all about taking care of your pension worries so you can enjoy today. You can set up your Penfold childminder pension today for as little £1 a month.
For more common queries about becoming a childminder and managing your business, read the Koru Kids ultimate guide.
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