Your browser isn't supported
It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:

Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@. Skimlinks & other affiliated links are turned on

Search
  • FIRST POST
    • gif1
    • By gif1 12th Feb 18, 8:46 PM
    • 12Posts
    • 3Thanks
    gif1
    Investing or Pension?
    • #1
    • 12th Feb 18, 8:46 PM
    Investing or Pension? 12th Feb 18 at 8:46 PM
    Hello,
    I would like a word of advice from the experts here.
    I am 46 with a little pension pot from previous employers, about 42K. Homeowner with a mortgage (19 years to go). I have a good job, and currently paying, via salary sacrifice, in the new workplace pension 10% (8% core, 1% myself, 1% matched). My employer would match up to 4%.
    I have also a fair amount of cash left every month and was considering to start investing in the likes of Vanguard, HL (I have been reading a lot in this forum). Drip feed every month, my strategy.
    But now I am not sure whether it would make more sense to up my pension contributions first to cash in the extra money from my employer. The cons would be that I won't be able to touch this money until, at least, I turn 55. While if I started investing I would not have such restriction, although I am aware of the long term view to adopt with investment as well. This freedom is very appealing to me.....probably I have been making too much of a deal, not sure.
    The pension fund seems to have a 0.13% AMC which seems fairly low.
    So what would you suggest as the most sensible option given my circumstances? All I know is that I don't want to leave anymore cash in saving accounts paying a meagre 1% or regular saver you have to start over every year.
    Many thanks for any help, much appreciated.
Page 1
    • Zorillo
    • By Zorillo 12th Feb 18, 8:53 PM
    • 47 Posts
    • 26 Thanks
    Zorillo
    • #2
    • 12th Feb 18, 8:53 PM
    • #2
    • 12th Feb 18, 8:53 PM
    As a minimum, I'd suggest you up your pension contributions to 4% to get the most of the free money on offer from your employer.

    If I was you I'd also put the rest of my spare money in it, but I'm not you
    Last edited by Zorillo; 12-02-2018 at 9:27 PM.
    • dunstonh
    • By dunstonh 12th Feb 18, 8:53 PM
    • 91,147 Posts
    • 58,155 Thanks
    dunstonh
    • #3
    • 12th Feb 18, 8:53 PM
    • #3
    • 12th Feb 18, 8:53 PM
    Investing or Pension?
    Car or petrol?
    Tea or cup?

    A pension is just a container for investments. You can hold investments in a pension but you cant hold a pension in investments.

    ut now I am not sure whether it would make more sense to up my pension contributions first to cash in the extra money from my employer.
    Well that is a no brainer. You should nearly always get get the maximum matched contribution from the employer. its free money. Nothing beats free money.

    he cons would be that I won't be able to touch this money until, at least, I turn 55.
    Hardly a negative. You are 46 and doing regular contributions. So, you are looking at a 15-20 year timescale for that to be effective anyway.

    This freedom is very appealing to me.....probably I have been making too much of a deal, not sure.
    Your short-term money should be in cash savings. That is to cover your short term needs. Your long term money should be investments. The pension timescale fits that objective.

    he pension fund seems to have a 0.13% AMC which seems fairly low.
    Bloody low you mean. VLS is 0.33% (including transaction cost) plus 0.45% for HL. 0.13% leaves them standing.

    Unless you are going to be a higher rate taxpayer in retirement, then pension beats ISA.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • ValiantSon
    • By ValiantSon 12th Feb 18, 8:58 PM
    • 911 Posts
    • 731 Thanks
    ValiantSon
    • #4
    • 12th Feb 18, 8:58 PM
    • #4
    • 12th Feb 18, 8:58 PM
    Pension, pension, pension.

    Increase your contribution to at least 4% to get the matched employer contribution.

    Basically, do what dunstonh says!
    • gif1
    • By gif1 12th Feb 18, 9:12 PM
    • 12 Posts
    • 3 Thanks
    gif1
    • #5
    • 12th Feb 18, 9:12 PM
    • #5
    • 12th Feb 18, 9:12 PM
    Hi dunstonh, thanks so much for such a quick, detailed and convincing reply! I think I will look now at options to consolidate the old pension pots in the current one, unless you advise against :-)
    At this point, shall i discard completely the option of investing (after upping the pension)?.
    Thanks again.
    • Alexland
    • By Alexland 12th Feb 18, 9:20 PM
    • 1,690 Posts
    • 1,159 Thanks
    Alexland
    • #6
    • 12th Feb 18, 9:20 PM
    • #6
    • 12th Feb 18, 9:20 PM
    I don't see the point in you investing in a S&S ISA etc if you can do so much better with making additional workplace pension contributions. Fill your boots with all those salary sacrifice efficient contributions!
    • Audaxer
    • By Audaxer 12th Feb 18, 10:40 PM
    • 926 Posts
    • 514 Thanks
    Audaxer
    • #7
    • 12th Feb 18, 10:40 PM
    • #7
    • 12th Feb 18, 10:40 PM
    At this point, shall i discard completely the option of investing (after upping the pension)?.
    Thanks again.
    Originally posted by gif1
    As dunstonh indicated, you will be investing with the pension, as the pension is only the wrapper to contain the investments. As you will be able to access a pension in 9 years time, it's probably more advantageous to invest as much as you can within the pension, rather than in an S&S ISA, although best to research a bit more and carefully consider what is best for you.
    Last edited by Audaxer; 12-02-2018 at 10:43 PM.
    • Thrugelmir
    • By Thrugelmir 12th Feb 18, 10:48 PM
    • 57,577 Posts
    • 50,902 Thanks
    Thrugelmir
    • #8
    • 12th Feb 18, 10:48 PM
    • #8
    • 12th Feb 18, 10:48 PM
    1% myself, 1% matched). My employer would match up to 4%.
    Originally posted by gif1
    Base level auto enrollment contributions are increasing this April and again in April 2019.

    https://www.nowpensions.com/help-centre/faqs/contributions/what-are-auto-enrolment-contribution-rates
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
    • kidmugsy
    • By kidmugsy 13th Feb 18, 12:25 AM
    • 10,200 Posts
    • 6,927 Thanks
    kidmugsy
    • #9
    • 13th Feb 18, 12:25 AM
    • #9
    • 13th Feb 18, 12:25 AM
    (8% core, 1% myself, 1% matched)
    Originally posted by gif1
    What do you mean by "core"?
    Free the dunston one next time too.
    • atush
    • By atush 13th Feb 18, 1:29 PM
    • 16,551 Posts
    • 10,282 Thanks
    atush
    Hi dunstonh, thanks so much for such a quick, detailed and convincing reply! I think I will look now at options to consolidate the old pension pots in the current one, unless you advise against :-)
    At this point, shall i discard completely the option of investing (after upping the pension)?.
    Thanks again.
    Originally posted by gif1
    No dont discard.

    Increase your contribution to at least 4% to get the matched employer contribution. Then you can invest- I suggest a S&S isa.
    • Alexland
    • By Alexland 13th Feb 18, 1:42 PM
    • 1,690 Posts
    • 1,159 Thanks
    Alexland
    Increase your contribution to at least 4% to get the matched employer contribution. Then you can invest- I suggest a S&S isa.
    Originally posted by atush
    Why would the OP want a S&S ISA when they only have only accumulated a £42k pension pot so far? We obviously don't know their full circumstances but with such a small pension pot a fair proportion of the additional salary sacrifice pension contributions are likely to be drawn tax free.

    In their position I would be putting a lot more than the 4% into the pension pot. I would be behind sofas looking for coins, selling organs and sending our cat to get a job such that I could throw a high proportion of my income at the pension to improve retirement prospects and maximize this tax efficient opportunity.

    Alex
    Last edited by Alexland; 13-02-2018 at 1:57 PM.
    • gif1
    • By gif1 13th Feb 18, 6:47 PM
    • 12 Posts
    • 3 Thanks
    gif1
    Thanks everyone for your replies.
    @kidmugsy, core is what my employer pay, regardless of any contribution from myself. That's 8% of my salary. On top, they will match percent point by percent point my contribution up to an extra 4%.
    @Alexland, are you suggesting I'd better off upping my contributions above 4% (no longer matched) just to benefit from tax relief?
    Thanks
    • Alexland
    • By Alexland 13th Feb 18, 7:08 PM
    • 1,690 Posts
    • 1,159 Thanks
    Alexland
    @Alexland, are you suggesting I'd better off upping my contributions above 4% (no longer matched) just to benefit from tax relief?
    Originally posted by gif1
    Yes if you can afford to put the money away for the long term and are happy with the pension investment strategy - assuming you are basic rate then you could be getting 20% tax relief and 12% national insurance saving from the salary sacrifice.

    Under current rules you could draw 25% of your pension pot(s) tax free, some of your 75% taxable workplace pension within your annual tax free income allowance and probably have to pay 20% tax on the remainder.

    So for most people this would be a clear advantage over a S&S ISA. Also, without meaning to offend, £42k at your age is low and if you continue to contribute at this rate given we are probably entering a period of low investment returns you might be very disappointed at the outcome at retirement.

    Alex
    Last edited by Alexland; 13-02-2018 at 7:13 PM.
    • kidmugsy
    • By kidmugsy 13th Feb 18, 7:18 PM
    • 10,200 Posts
    • 6,927 Thanks
    kidmugsy
    @kidmugsy, core is what my employer pay, regardless of any contribution from myself. That's 8% of my salary. On top, they will match percent point by percent point my contribution up to an extra 4%.
    Originally posted by gif1
    That's a very decent deal. The fact that your contributions beyond the 4% can be made by salary sacrifice makes the pension more attractive than an ISA, as long as you can cope with the tie-up to age 55 or beyond. You'd want a separate cash "emergency fund" earning interest.
    Free the dunston one next time too.
    • gif1
    • By gif1 13th Feb 18, 7:53 PM
    • 12 Posts
    • 3 Thanks
    gif1
    Thanks Alex, I agree, 42K is peanuts....we have had other plans so far (deposit for the house). That's done now, so I am now looking at pension/investment.
    Not sure whether that makes any difference in your consideration but at the moment I am lucky enough to be a high tax payer. Look likes I wont' be when I retire, but i guess (hope) I will be ok with a lower income.
    • Alexland
    • By Alexland 13th Feb 18, 8:00 PM
    • 1,690 Posts
    • 1,159 Thanks
    Alexland
    Thanks Alex, I agree, 42K is peanuts....we have had other plans so far (deposit for the house). That's done now, so I am now looking at pension/investment.
    Not sure whether that makes any difference in your consideration but at the moment I am lucky enough to be a high tax payer. Look likes I wont' be when I retire, but i guess (hope) I will be ok with a lower income.
    Originally posted by gif1
    In which case it's even more compelling as you will be saving 42% tax and national insurance. Also if you have kids remember that paying pension contributions reduces your income for the child benefit clawback so can be extra effective - it certainly is for me!

    Alex
    • kidmugsy
    • By kidmugsy 13th Feb 18, 11:40 PM
    • 10,200 Posts
    • 6,927 Thanks
    kidmugsy
    Not sure whether that makes any difference in your consideration but at the moment I am lucky enough to be a high tax payer.
    Originally posted by gif1
    Lord no, why would your being a higher rate taxpayer make the slightest difference to a discussion involving tax?
    Free the dunston one next time too.
    • dunstonh
    • By dunstonh 13th Feb 18, 11:57 PM
    • 91,147 Posts
    • 58,155 Thanks
    dunstonh
    £100 into the ISA costs you £100. £100 into the pension costs you £60 with the Govt giving you £40. With salary sacrifice, it is a bit more due to the NI saving as well.

    Moving that onto bigger figures over a decade, ignoring growth, the £100k placed in the ISA has cost you £100k. £100k in the pension has cost you £60k.

    if you have children and get child benefit and earn over £50k then child benefit is tapered out. Pension contributions bring your earnings down and can increase the child benefit again.

    You are behind on the retirement planning. You want to be in 6 digits by your age. You have a fund size that a 38 year old would be looking at.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • Alexland
    • By Alexland 14th Feb 18, 10:49 AM
    • 1,690 Posts
    • 1,159 Thanks
    Alexland
    I suspect even a 38 year old might be disappointed with the outcome at retirement.
    • TheShape
    • By TheShape 14th Feb 18, 12:36 PM
    • 1,242 Posts
    • 1,045 Thanks
    TheShape
    I suspect even a 38 year old might be disappointed with the outcome at retirement.
    Originally posted by Alexland
    I expect there will be a huge number of of current 38 year olds who will be very disappointed when they reach retirement age.
Welcome to our new Forum!

Our aim is to save you money quickly and easily. We hope you like it!

Forum Team Contact us

Live Stats

4,614Posts Today

4,690Users online

Martin's Twitter