"I'm 45 with NO pension – is it too late to start one?"

One reader asks whether, at 45, he should start a pension or focus on ISA saving.

I am 45 years old and haven't planned for my retirement. I don't have a pension – apart from £1,000 in a frozen policy going back 20 years – and savings of just £6,000 after divorcing my wife. I have since remarried, have three children under 18 and owe £120,000 on an interest-only mortgage. Is it too late to start a pension or should I focus on opening an ISA?

WG/via email.

Initial diagnosis

The good news is that it is never too late to start saving for retirement, according to Martin Bamford, managing director of financial planner Informed Choice.

"Whether that's contributing to a pension, investing in an ISA or saving money elsewhere, it's all about building capital you can draw on in later life," he says.

A good starting point is knowing what your future state pension will be and you can ask the Department for Work and Pensions for a free forecast.

"Your age is also an important factor in your retirement planning," he adds. "A 45-year-old can currently expect to receive the state pension at age 67."

As you have three children, savings are important.

"The £6,000 is a good start, and I'd also suggest holding three to six months of income in cash for emergencies," Mr Bamford adds.

The next task is to plan how you'll repay your £120,000 mortgage, as you must repay it at the end of the term.

Mr Bamford suggests ISAs are a good place to start building up the money required – with the added bonus that they can be accessed if needed.

"Another option is converting it into a repayment mortgage to reduce the interest you'll pay over the term," he says.

"However, this will increase your monthly payments."

Treatment plan

Your priority should be to start saving as much as you can now, advises Patrick Connolly, a chartered financial planner at Chase de Vere.

"Even if you can't afford to save very much, doing something is still better than doing nothing," he says.

"You can always increase your contributions over time."

Mr Connolly believes the best approach to long-term savings for most people is a combination of pension and ISAs.

"Pensions provide initial tax relief, which makes them especially attractive for higher and additional rate taxpayers," he adds.

Most modern-day pension and ISA products allow investors to vary regular payments, start and stop payments and to add ad hoc lump sums without any penalties.

In terms of an investment strategy, he suggests keeping it simple with diversified global equity funds or multi-asset portfolios in order to spread your risk.

"It's all about building capital you can draw on in later life"

Alternative treatment

As well as your retirement planning, it is important to help safeguard your family's future, points out Scott Gallacher, director of wealth management firm Rowley Turton.

"As you're married with three minor children, you also need to consider what would happen in the event of death or serious ill-health," he says.

This should lead you to life insurance.

"Normally you would want a protection policy that at least repaid the mortgage should the worst happen," he explains.

Overall, Mr Gallacher doesn't believe you should worry too much about not having planned ahead for your retirement as you still have time to turn things around.

"It's not so much about where you are today but it's where you can get to that is important," he says.

"In that respect, it's good that you're looking at this situation now."

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