25 years old - no pension, no house

weedav

Hello!

First time on the pensions board! I'm 25 yrs old, and as you can see from my signature, I'm nearly free of my CC debt. I worry that I have ledt paying into a pension too late - am I being ridiculous?!

With my credit card debt gone, it's time to start saving I reckon. I have no company pension plan, so my mother is trying to get me paying into a high street bank pension scheme.

Right now I have no savings whatsoever, so I'm wondering if a pension is the right thing to start with - if at all! I have no money for a house deposit, and no emergency cash fund. To further confuse things, my salary can be sporadic, with overtime, bonus, and freelance work - so I'd like the ability to put in different amounts of cash every month if I so wished.

Would an ISA be better? Or saving for a house to use as an investment? On my base salary, with none of the extras mentioned above, I will have £150 I can spare.

Hope someone can advise!
Dav

dunstonh

so my mother is trying to get me paying into a high street bank pension scheme.

Bank products are usually rubbish. Even the ones tied to major insurance companies can still be poor as they are often cut down versions of the full retail product. Plus tied advisors are not allowed to recommend investment funds and investing is the most important bit.

Would an ISA be better? Or saving for a house to use as an investment? On my base salary, with none of the extras mentioned above, I will have £150 I can spare.

We cannot give specific advice here as we don't know enough about you. However, an ISA would seem a sensible idea. It would allow you to build up a lump for you to use whatever way it is needed in the future.

Do not think of your (potential) residential property as an investment. You will always need somewhere to live and you only realise any gains if you sell up and move downmarket or to a cheaper area. That option may or may not be available to you at that time. So, you shouldnt rely on it.

If you only have £150 pm available, you are going to find it hard to get a house by itself, let alone plan for your retirement or even live in the house. Will your available income increase when your debts are cleared? If so, I would think about getting rid of those ASAP before doing anything else.

EdInvestor

I agree: first clear the debt, then start saving in an ISA for emergency fund and house deposit. The pension rules are changing next year and after that there will be no problem leaving pension contributions to much later in life, as you won't lose any tax relief, which you do now.

Johnocyprus

Clearing that debt is admirable ,well done. With so little details of income and outgoings difficult to advice but ignore any schemes dreamt up by the Banks , they exist simply to increase their profits. Put your excess cash into a cash ISA and leave it alone!

Paul_Herring

EdInvestor wrote:

The pension rules are changing [in 2006] and after that there will be no problem leaving pension contributions to much later in life, as you won't lose any tax relief, which you do now.

I don't understand this comment - what tax releif is lost (earlier in life/pre-A Day) - what is the gain in (later in life/after A-Day)?

It was my understanding (INAFA) that ISA's were limited to £7000 a year, and are funded out of post-tax wages. After A-Day, pension contributions are (for most of us anyway) unlimited and are paid out of pre-tax wages. Assuming (well - have to make some assumptions ) no change in tax band when entering retirement, and assuming (from your comment above) the money will be put into a pension sooner or later, what is the benefit of waiting until later in life (especially if you are in the position where you can can put aside more than the £7000 allowed by the chancellor; and especially when the real value of that £7k is eroded year by year if it doesn't increase!)

weedav

Hello! Here is a brief breakdown. I'm prepared for people to say I spend too much and don't save enough!! I'm 25 & single. My take home salary below is an average, I earn differently depending on overtime (which I always do) and bonus (which is usually an extra £300 a month)

Incoming:
£1905 Salary (after tax)

Outgoing:
Rent - £475
Car Loan - £248 (ends Dec 07)
Car Insurance - £68
Homechoice TV & Phone & Broadband - £46
C TAX - £67.50
Mobile - £30
Gym - £32
(as I pay for Homechoice, my flatmate pays for the other bills)
Food, social life, treats etc - £500

This leaves me £431 "left". Should I plough this money into paying off my car early? The interest paid is pretty much the same even if I pay it off early, or should I use this money for saving for a deposit, as this will ultimately get me out of rented accomodation? As for the pension, is putting away a figure as low as £50 better than nothing at all??

dunstonh

and assuming (from your comment above) the money will be put into a pension sooner or later, what is the benefit of waiting until later in life

What happens if a better product comes along? Waiting allows you to decide which one to put it in.

Also, paying in lump sum contributions periodically can give better benefits than monthly payments. Examples of this could be working/childrens tax credits where someone wouldnt gain any extra on a monthly amount but on a larger amount paid in, say every 5 years, they would do. Additionally, some providers run special offers periodically where they increase the allocation on single premiums but do not on regulars. Clerical medical is a factual example of one that recently did that.

SueRob_2

Hi
At 25 you still have time to plan. I'm 54 & thanks to a recent divorce I have no pension & no savings. I have a small house with £65k mortgage on it, my ambition is to pay off an extra £100 per month off the mortgage this year. This is a real challenge as I earn £11k a year, wish me luck!
Sue

EdInvestor

Hello Paul

At the moment both ISAs and pensions operate on an annual "use it or lose it" basis for contributions.If you don't take up your annual allowance, that's it gone forever.

But after A day, instead of having an annual pension tax allowance there will be a lifetime allowance and the annual contribution limit will rise to your full salary or 215k, whichever is the lower.

Thus you will be able to defer pension contributions until later without losing tax relief.

ISAs however will still be on the annual "use it or lose it" basis.Thus for anyone who is funding theoir own pension (ie has no company contribution) it makes sense to max out the 7k ISA allowance first.

The new rules should enable people to save more by using all the tax allowances available over their lifetime, rather than only get a partial benefit from them because they didn't earn enough when young to be able to afford to max out both pension and ISA at the same time.

EdInvestor

SueRob wrote:

Hi
At 25 you still have time to plan. I'm 54 & thanks to a recent divorce I have no pension & no savings. I have a small house with £65k mortgage on it, my ambition is to pay off an extra £100 per month off the mortgage this year. This is a real challenge as I earn £11k a year, wish me luck!
Sue

Hi Sue

Have you checked your state pension entitlement?

http://www.thepensionservice.gov.uk/atoz/atozdetailed/rpforecast.asp

You are entitled to a share of your' ex husband's pensions on divorce, was this taken into account?

SueRob_2

Hi
Yes, my solicitor checked it. I will get a state pension, but couldn't get half of ex's cos I coudn't prove he'd got one!
Sue