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  • FIRST POST
    LilacPixie
    What age should you start a pension??
    • #1
    • 1st Dec 08, 1:26 AM
    What age should you start a pension?? 1st Dec 08 at 1:26 AM
    Sorry if this is an extremely stupid or thick question but ideally when should you start a pension?? I have a company pension myself and I started it at 19 (26 now). I am happy with that at the moment. My husband however is 23 and does not have any sort of pension provision as of yet.

    We currently have a small amount of unsecured debt which should be cleared soon and then we are planning on overpaying our mortgage to be mortgage free within 5 years. I am now starting to think that we should start to make some sort of pension provision for husband first.

    Should we clear all debts first??

    How do we find someone to give us specific advice on what plan would be best for us.
    MF aim 10th December 2020
    MFW 2012 no86 OP 0/2000
Page 1
  • Lokolo
    • #2
    • 1st Dec 08, 2:26 AM
    • #2
    • 1st Dec 08, 2:26 AM
    If you want to stop the pension after mortgage and debts paid off then yeh go for it, but you will have to make up for that by putting more into pension.

    The guideline is, half your age and thats the % of income that should be going into the pot.

    Obviously if you clear mortgage and debt etc. then you should be in a good financial position so you can easily put more money away for retirement.
  • dunstonh
    • #3
    • 1st Dec 08, 10:35 AM
    • #3
    • 1st Dec 08, 10:35 AM
    ideally when should you start a pension??
    age 18. The earlier the better really as you have a much longer period to fund for your retirement. Say you want a pot of 250,000 in retirement, then saving for it over 40 years is going to be easier on the monthly budget than saving for it over 20 years.

    How do we find someone to give us specific advice on what plan would be best for us.
    www.unbiased.co.uk is the uk database for IFAs. You can filter by postcode (but dont filter anything else). Also, untick the box that shows only IFAs that have paid unbiased (box 2 I think it is). The majority of IFAs do not pay to show on unbiased so there is no reason to limit your search to paying ones only.
    I am a Financial Adviser. 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 a Financial Adviser local to you.
  • EdInvestor
    • #4
    • 1st Dec 08, 11:34 AM
    • #4
    • 1st Dec 08, 11:34 AM
    You may like to check his forecast for the 2 state pensions first

    www.thepensionservice.gov.uk

    There is a good argument that anyone on basic rate tax with no contributions from an employer into a company pension is better to save in a stocks and shares ISA rather than a pension. The S&S ISA allowance of 7.2k is an annual one on a "use it or lose it" basis whereas pension allowance (1.8m!) is on a lifetime basis and you can put big lump sums in later in life.So you lose nothing if you wait with the pension, but the opposite is true with an ISA.

    As long as you make the savings it's not really relevant which tax wrapper you put them in.Younger people may be happier with the ISA's flexibility.If appropriate, the money in the ISA can be put into a pension later to pick up additional tax relief if he moves into the higher rate bracket.

    Don't confuse the S&S ISA with a cash ISA - the former is the same as a pension, investment wise.The latter is not suitable for retirement saving.
  • dunstonh
    • #5
    • 1st Dec 08, 12:04 PM
    • #5
    • 1st Dec 08, 12:04 PM
    There is a good argument that anyone on basic rate tax with no contributions from an employer into a company pension is better to save in a stocks and shares ISA rather than a pension. The S&S ISA allowance of 7.2k is an annual one on a "use it or lose it" basis whereas pension allowance (1.8m!) is on a lifetime basis and you can put big lump sums in later in life.So you lose nothing if you wait with the pension, but the opposite is true with an ISA.
    As we have discussed, that is the case for those that are good at financial planning and can utilise the right wrappers at the right time. However, many dont and the one thing that doesnt change is that out of ISA or pension, the pension will provide the highest income in retirement for the level of contribution made.
    I am a Financial Adviser. 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 a Financial Adviser local to you.
  • EdInvestor
    • #6
    • 1st Dec 08, 12:30 PM
    • #6
    • 1st Dec 08, 12:30 PM
    out of ISA or pension, the pension will provide the highest income in retirement for the level of contribution made.
    Originally posted by dunstonh

    But at the expense of the loss of control of the capital forever, and severe restrictions on the amount of income you can take.The small increase is not adequate to compensate for the downsides and may anyway be diminished by the tax position of the investor.

    Saving for a total pension income (including state pension) of 10k pa., all of which will be tax free, may be worth it, but beyond that there is no net advantage IMHO for those on basic rate with no company conts.

    Investment skills required are the same as for pension and ISA..
  • debtfreein4years
    • #7
    • 1st Dec 08, 12:34 PM
    • #7
    • 1st Dec 08, 12:34 PM
    i started mine when i was 16 and im now just 23

    ive always paid into it each month, have set a payment of 50 a month into it and review it annually, i think in the next couple of years once i am debt free, i will need to see about doubling or tripling the amount that i pay into it as i want to make sure that i have an ample pension fund for when i want to retire (60) although i cant see there being a state pension in 30/40 years time.

    i think the earlier you start the better, even if it is just paying the minimum amount into it which for some providers is 10. 10 in your pension now is the quivilant to 100 in 10 years time or somthing like that so your best putting something away in some account to make sure that there is a provision for your future.
  • dunstonh
    • #8
    • 1st Dec 08, 12:43 PM
    • #8
    • 1st Dec 08, 12:43 PM
    But at the expense of the loss of control of the capital forever, and severe restrictions on the amount of income you can take.The small increase is not adequate to compensate for the downsides and may anyway be diminished by the tax position of the investor.
    Correct. However, if they use an ISA and get lower income they may need to eat into the capital anyway. If they do by choice eat into the capital, then it will reduce the income further or increase the erosion of capital to compensate. Pensions are for income not capital growth.

    For many people the best option is to use both but to do it right requires monitoring and many people are just not prepared to do that (either themselves or use a servicing IFA).

    There are also those that lack the self control of being able to build up a pot and not access it.

    but beyond that there is no net advantage IMHO for those on basic rate with no company conts.
    Lack of capital access is certainly a negative but the advantage is a higher income in retirement. So, there is an advantage. That higher income would mean less requirement to use capital to supplement income or having a better lifestyle or possibly not put as much into the pension by means of contribution and put some into ISA to give a capital element. Which brings us back to the option of doing both, which is usually the best option.

    i will need to see about doubling or tripling the amount that i pay into it as i want to make sure that i have an ample pension fund for when i want to retire (60) although i cant see there being a state pension in 30/40 years time.
    You will have to think about paying more than 100 or 150 to be able to retire at 60. The basic state pension should still be there when you retire. However, it will be age 68 for you. So, you need to fund that gap betweeen 60 and 68. That will require 100k-150k in todays terms. The pension at risk of not being there potentially is the second state pension. Govts have reduced this 4 times so far retrospectively and its the logical one to remove as most people are not that aware of it anyway. The self employed dont get it at all.

    One of the biggest errors people make in retirement provision (irrespective of the tax wrapper used) is that they fail to increase their contributions to take account of inflation. Far too many people started pensions years ago at 50 or similar and are still paying that despite 50 no longer having the same value.
    Last edited by dunstonh; 01-12-2008 at 12:48 PM.
    I am a Financial Adviser. 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 a Financial Adviser local to you.
  • MrMicawber
    • #9
    • 1st Dec 08, 3:55 PM
    • #9
    • 1st Dec 08, 3:55 PM
    Start as early as possible. I'd start your partner off with a pension now and make any additional payments you can off your mortgage after the full whack has been put into a pension.

    In regard to the debate above between dunstonh and Ed, I fall into the pension first camp. You might be tempted to spend ISA's but with pensions you just aren't allowed to. Yes with ISA's you have capital but you could end up elderly with all your capital eroded away and no income left - it could very easily happen.

    So pension first then ISA's and mortgage payments for me. If you can do all 3 you are in a great position.

    Lokolo - I don't think your statement is quite right - "The guideline is, half your age and thats the % of income that should be going into the pot".

    I think it should be more like - The guideline is, half your age WHEN YOU START CONTRIBUTING TO YOUR PENSION and thats the % of YOUR income THROUGHOUT THE REST OF YOUR WORKING LIFE that should be going into the pot IF YOU WANT TO RETIRE AT AGE 65 ON A PENSION OF 2/3 YOUR FINAL SALARY.

    The Society of Consulting Actuaries suggest the following (on the basis of the slightly amended definition):

    Age
    Percent of Salary to Save
    25
    10 15%
    30
    12 17%
    35
    15 20%
    40
    17 24%
    45
    23 30%
    50
    32 45%
    55
    50 70%

  • ringo_24601
    Does the increase in salary percentage take into account that your salary would rise with inflation?
  • Lokolo
    Lokolo - I don't think your statement is quite right - "The guideline is, half your age and thats the % of income that should be going into the pot".

    I think it should be more like - The guideline is, half your age WHEN YOU START CONTRIBUTING TO YOUR PENSION and thats the % of YOUR income THROUGHOUT THE REST OF YOUR WORKING LIFE that should be going into the pot IF YOU WANT TO RETIRE AT AGE 65 ON A PENSION OF 2/3 YOUR FINAL SALARY.
    Originally posted by MrMicawber
    Sorry thats what I meant, was obvious to me, obviously not to you
  • MrMicawber
    Lokolo - Yup, obvious and actually to me as well but perhaps not to people who haven't read around the subject a bit. The devil's in the detail.

    Ringo - yes it does. If you start at 25 you put say 15% of your annual salary into your pension each year until you hit 65. So as your salary goes up so does the amount of your contribution.
  • ringo_24601
    Shame my firm only matches 5% contributions.. ho hum, i'm 28 and i've been putting 7.5 - 5% of my salary away for the last 5 years, should be alright.

    My dad's gone nuts and started putting 2k a month into his, lol
  • dunstonh
    Shame my firm only matches 5% contributions.. ho hum, i'm 28 and i've been putting 7.5 - 5% of my salary away for the last 5 years, should be alright.

    My dad's gone nuts and started putting 2k a month into his, lol
    Originally posted by ringo_24601
    Thats excellent. 12.5% into a pension from the age of 23 is going to set you up nicely. Plus, as you started early, you are not going to miss the money as you are just so used to it.

    If someone came to you now and said you need to put in 7.5% you would probably find it harder to find that money. Indeed, it would be around 9% now if starting at 28 to make up for the years that you would have missed.
    I am a Financial Adviser. 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 a Financial Adviser local to you.
  • Lokolo
    Lokolo - Yup, obvious and actually to me as well but perhaps not to people who haven't read around the subject a bit. The devil's in the detail.
    Originally posted by MrMicawber
    To be fair thats the only thing I know about pensions....!
  • EdInvestor
    In regard to the debate above between dunstonh and Ed, I fall into the pension first camp. You might be tempted to spend ISA's but with pensions you just aren't allowed to.
    Originally posted by MrMicawber
    The fact that you cannot remove money from a pension is a risk not an advantage.The Government can do anything it likes to change the rules, possibly so they are a big problem for you, but you can do nothing because your money is trapped.

    There are some gains for some people from using pension wrappers but the OP's case does not appear to be one of them.

    Yes with ISA's you have capital but you could end up elderly with all your capital eroded away and no income left - it could very easily happen.
    There are many ways for capital to be eroded apart from spending it and they all apply to pensions as well as ISAs.

    Here's the MSE Pensions vs ISAs debate thread:

    http://forums.moneysavingexpert.com/showthread.html?t=375217

    I like this poster's basic approach as outlined on that thread:

    http://forums.moneysavingexpert.com/showpost.html?p=4311783&postcount=17
    Last edited by EdInvestor; 01-12-2008 at 5:47 PM.
  • MrMicawber
    EdInvestor - I'm not going to get into a WW3 string of posts with you on this. There are pro's and con's and we take a different overall view. But it is a broad view and there are many variables to take into account. (e.g. you could invest and save in ISA's, then when you hit retirement age take out an annuity with some of the capital and keep the rest in the ISA's).

    The government can also do anything it likes with ISA's as well despite the fact that they say they are here to stay. Also any UK gov't would be bonkers to take away pension advantages given that 80% of the population have inadequate provision. We could no doubt debate that one for the rest of our lives.

    Just about all investment and savings are at the immediate discretion of the gov't as we know all too well. (Just look at what suddenly happened to Investment Bonds as a by product of the CGT changes in the last budget - and I read your tussle with dunstonh on that one)

    Broadly speaking then, my opinion, is that despite all the pro's and con's, for most people, having a pension is the best thing to do regarding a retirement income.

    I've done quite a few serious calculations on eroding capital from ISA's because this whole area is one I've thought long and hard about for myself. Using realistic figures you need to have a massive capital cushion before you can be sure that capital in an ISA will not be eroded [because you need to take it as income] before you die.

    Don't get me wrong, ISA's are fantastic - I wish I had more. But pensions, again in my opinion, are the way to go first for most people.

    So - happy to have a debate, but not happy to have an acrimonious war.
  • EdInvestor
    Mr Micawber

    So - happy to have a debate, but not happy to have an acrimonious war.
    Originally posted by MrMicawber

    It seems you are seeing acrimony where none exists - unless you feel that anyone who takes a view different from yours is a proponent of WW3, of course .
  • Just landed
    The government can also do anything it likes with ISA's as well despite the fact that they say they are here to stay. Also any UK gov't would be bonkers to take away pension advantages given that 80% of the population have inadequate provision. We could no doubt debate that one for the rest of our lives.

    Bonkers is possibly a good way of descibing it, where else could Prudence Rob us of five billion a year.
  • MrMicawber
    Edinvestor - I have read many of your posts where you and duntstonh do battle and I don't want that - it seems to get rather heated, hence the acrimonious bit. I am more than happy for people to disagree with me, of course. There is not usually one entirely right answer and who am I to say I have the right one. I do disagree with you, quite strongly, on the broad pension v ISA subject just as you disagree with me. What I mean by WW3 in the context of our last couple of threads is the possibility of innumerable posts with no conclusion.
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