Can a non-working person contribute to their pension aswell?

maz_student

Silly question but I will ask it anyway since its been on my mind for such a long time

Can a non-working person (i.e. a student) contribute towards their pension aswell? Im relatively young (24) but still want to prepare for my future.
For example, can I pay £20 a month? (I have some money saved up).

Lokolo

Al Mac - whats happened with your post count? Did someone delete it? lol

Also I get confused by this:

"If you don't pay tax you can still pay into a personal pension scheme and benefit from basic rate tax relief (20 per cent) on the first £2,880 a year you put in. In practice this means that if you pay £2,880 the government will top up your contribution to make it £3,600."

So my student loan, I £2880 into a pension, and they will top it up to £3600, giving me an extra £600? So basically, free money?

Lokolo

Yes obviously. I will just continue to invest as I should get a better return after 5 years.

Thanks

jamesd

No problem to do it and you will get the tax relief added. Under the current rules it'll be age 55 before you can start to take any money out of the pension but it'll probably be older by the time you get there.

Debt_Free_Chick

Just keep an eye on the basic rate of income tax in the future.

The amount you can contribute is £3,600 LESS income tax at the basic rate. In the current tax year you can pay £2,880 - but the amount will be different if/when the tax rate changes.

(Actually, you can pay in what you like, but you will only get tax relief on a contribution of £3,600).

Lokolo

Thing is, I could put the money in pension pot now. But I wouldn't be able to touch it for 36 years (being 19) so LOL @ that.

By time I get back that £3600 I could most probably only buy a mars bar :cool:

jamesd

Then a stocks and shares ISA may be for you, but unlike the pension it's not protected from being drained significantly before you get means tested benefits.

dunstonh

By time I get back that £3600 I could most probably only buy a mars bar :cool:

You are forgetting that the returns will typically exceed inflation so you would get back more in real terms than £3600.

Your state retirement age is 68, so lets give you 49 years to retirement and say you get 2.5% p.a. average above inflation in your returns. That equates to a fund value of £12,072 in todays terms.

Lokolo

Yeh I have started S&S ISA, only got £300 (now worth £280 though!) of which I am adding £100 a month (all I can afford).

Next year I am working for a year in industrial placement, hopefully I will be able to deposit some money in S&S more then.

Then a year after I graduate, hoepfully in a decent job, I will go and see an IFA to get some expert advice rather than my brain

-edit for duns-

Ah so they auto inflate the money? (jnterest rate)

Didn't know they did that, although I suppose they really have to otherwise no-one would have any money to spend on retirement.

I haven't actually started looking at pensions, but knowing everything from savings and investments, I don't know whether to start learning about mortgages or pensions yet.

-edit again-

What inflation do they use? CPI or RPI?

JayZed

Lokolo, I think you're missing the point about what a pension actually is. Basically, it's an investment wrapper (like an ISA), with significant tax advantages (but of a different sort from those of an ISA). You choose what funds to invest the money in, just as you do with a S&S ISA. So we are not talking about inflation, but about investment returns.

Don't confuse this with the state pension, which is a defined (very small) income paid to you on retirement, as long as you've made sufficient NI contributions over your working life.

ISAs and pensions are two different things, and one is not a substitute for the other. I'm all in favour of people starting to invest in their pension in their early twenties (wish I had!). But at your age, and while you're still a student, you probably don't want to tie funds up in an investment that you won't be able to access for (at least) 36 years. Stick to your ISA for now, but do start thinking about your pension once you've graduated and have a regular income.

Lokolo

Oh!!!!

I thought there were 2 types, like ISAs, one is small interest (being interest rate) and one being investment, I didn't know you chose the investment though!

I shall continue with my S&S ISA for next few years and read more on pensions whilst doing so

Thanks