'Is your company offering money for a pension? TAKE IT TAKE IT TAKE IT!' discussion

Former_MSE_Lawrence

This is the discussion to link on the back of Martin's blog. Please read the blog first, as this discussion follows it.

Read Martin's 'Is your company offering money for a pension? TAKE IT TAKE IT TAKE IT!' Blog.

Click reply to discuss below.

MattGaskin

I fully understand and appreciate your sentiment. But sometimes even though the pension is a great deal, the loss of that £100 a month is too great.

For the last five years my family have been struggling to keep up with rising costs and we decided that the pension contributions - although just as good a deal as the one you describe - were just unaffordable NOW. Quite simply we couldn't afford to lose money we need *TODAY* to finance a retirement in 30 years' time.

I'd be interested to see whether the deal is so good if that £100 had to be borrowed at, say, 6.5% to make ends meet.

MSE_Martin

You're quite right - I would never advise anyone to borrow to fund their pension. The aim of my blog was to encourage those who can afford it and don't. The balance between finances now and finances later is a difficult one; and where possible looking long term is the right answer. I always talk about a cold baked bean future if you've no pension provision - but if you've a cold baked bean present thats difficult.

Martin

PS am going to tweak my blog slightly on the back of this....

vivatifosi

Martin,

Thanks for writing this. While I fully understand Matt's position, as a trustee of a (final salary) pension scheme I know that there are millions of people out there that join schemes too late. We have plenty of members who have tiny pensions because, in spite of working for the company for long periods they only started to pay in late in life when they realised pensions were an issue.

There is a chronic lack of understanding of pensions and pensions planning in the UK. Too many people are sleepwalking towards retirement and, as you put it, a cold baked bean future.

At the end of 2007 the Office for National Statistics found that "In 2006, there were an estimated 9.6 million active members of occupational pension schemes, of whom 4.4m were in the private sector, compared with 6.5m in 1991 and 8.1m at the peak in 1967." (source: Nat Stats news release 11.10.07: "Growing difference in pension contributions".

The 2008 Prudential Retirement Savings Report found that 55% of the workforce is not contributing to either their own or a company retirement plan. It also found that people were often contributing less now due to price hikes in essentials (though this point has been disputed by its competitors).

Given that the population of the country is ageing, and the number of people saving for retirement is falling isn't there something wrong with this picture?

Paul_Herring

Martin wrote:

Therefore for every £100 he contributes he gets £333 into his pension (if he’d been a basic rate taxpayer it would’ve been £250). Put another way, to invest £4,500 a year he would only need to contribute £1,500, or £125 a month. A staggering rate.

Are you sure that £333 goes into the pension? Isn't some of it refunded at the end of the tax year instead? (doesn't apply to basic raters of couse.)

JimmyTheWig

Paul_Herring wrote: »

Are you sure that £333 goes into the pension? Isn't some of it refunded at the end of the tax year instead? (doesn't apply to basic raters of couse.)

I think he'd have to initially pay more than £100, but would then get some back. So his total outlay would be £100 and the total in his pension would be £333.

Gemmzie

Martin - should he be filling his ISA before the pension?

MSE_Martin

Paul_Herring wrote: »

Are you sure that £333 goes into the pension? Isn't some of it refunded at the end of the tax year instead? (doesn't apply to basic raters of couse.)

Now here it gets complicated - whilst you've described it correctly - for soemone in a personal pension scheme. If you're in a company pension scheme where the pension is deducted at source through PAYE then it works as I wrote it. (you can be in a company scheme organised by employers which works as a private pension scheme though). So I stuck with the easiest way to explain the power of the contributions.

MSE_Martin

Gemmzie wrote: »

Martin - should he be filling his ISA before the pension?

If the employer will give matching contributions to his ISA then I would say that was definiately an option, yet I've never heard of that happening, so in this case I'd stick with the pension.

RowaN

Martin, I always look forward to your advice, but I think its misleading for you to compare pensions to ISAs. As I understand it, with an ISA (with my ISA anyway) you can withdraw the cash at any time (e.g. when you find yourself having a rainy day). But with a pension, the money is locked away for 30+ years... many people won't live that long, so it seems like a gamble to me. And a pension is only one choice for an income in later life.. you could invest in properties instead, which is something that could benefit your present situation, not just your future situation.

I really don't think your "Take it take it take it" advice applies to everyone.

BoingBoing_2

My employer is rolling out the company pension to include part time workers from September. As I earn less than £5000 a year I don't really see the point in putting £3 or £4 a month into a pension, even if the Company top this up by the same amount or more, as I need the money now!

Don't get me wrong, I do understand the importance of providing some form of income for the future, but I am prejudiced by the experiences of those around me who have either lost chunks of their pension due to bad fund management, company greed or in 2 instances peoples state pension being cut back to almost nothing due to them saving hard all their working lives for private pensions. Why save in a pension if you've worked all your life, paid your NI contrubutions, and deserve a decent (haha) state pension?

Just my 2p worth, but thanks Martin for bringing up the subject and people please feel free to correct me if I'm wrong or mistaken!