is it worth putting just £30 per week into a pension??

manchestersaver

Hi i just was wondering if people think it is worth saving £30 per week into a pension my employer does not contribute anything above the minimum it has to...something like £5 per week.
I am 31 and was thinking id be better off just putting in into my isa instead at least i can get at it if i need it..
any advice?

Jennifer_Jane

Hi - you need an expert to answer this, and probably to know more about you, eg salary and all sorts of things. I would say without knowing you, however, can you get a better investment than 16.7% (the £5 contribution from your employer), and it's paid pre tax/NI salary, so if you're on 20% tax and 11% NI, then it's a pretty good return without even thinking of where you've got the money invested, or how things are performing. I know you will pay tax on the income when you retire, but who knows what personal allowances will be in play then and the company 16.7% and the NI already make it a pretty good thing to do.

What kind of ISAs were you thinking of? Cash or shares?

The other advantage (may be/may be not) is that you cannot access this until later, and I think, if you were to become bankrupt then the pension fund is protected (may be wrong about this in UK, I was a financial adviser in South Africa).

For myself, I like a combination of ISAs and Pension, but as I get closer to retirement, I'm madly putting money in the pension.

Hopefully someone with some knowledge and intelligence will come to answer your query!

Regards
Jen
x

HarryD

Jennifer_Jane wrote: »

For myself, I like a combination of ISAs and Pension, but as I get closer to retirement, I'm madly putting money in the pension.

Regards
Jen
x

I agree with Jen, putting regular savings into a mix of pension and ISA is a good idea. Which is best for the £30 depends upon a multitude of unknowns - your tax position, what the pension and the ISA are invested in, what the tax rules will be when you retire...

My instinct says if you are saving for retirement put it in your pension - as Jen says you can't get at it if it's in the pension plan. If your ISA is a cash ISA then I would say more definitely put the £30 into the pension - over the long term share based investments should do a lot better than cash. At least, that has been true for the last several decades...

dunstonh

combination is usually best. However, it can depend on the individual. Knowing you may have a pot in an ISA which is accessible could be too much temptation for some. it can also depend on your personal circumstances how much you split it.

manchestersaver

thanks for the replies so far..
well im on about 40k but just cant afford to put anymore away with mortgage payments and loans going out
ive been putting 30 a week into the pension but was thinking it was such a small amount id hardly notice the difference in what id get when i do retire

dunstonh

but was thinking it was such a small amount id hardly notice the difference in what id get when i do retire

Its not a bad contribution for someone of your age. Not great and considering you are on £40k a year and cant afford more then it suggests you have over stretched yourself elsewhere. After all £30pw is 3.9% of your gross income. At basic rate its just 3.1%.

You need to consider what life would be like on the basic state pension. £40k a year you earn now. Basic state pension is £4700 a year. What are you going to give up in your lifestyle to cover that difference?

swiss69

To put it into perspective, to get an indexed linked pension of around £15,000 a year at age 65, you would need a pension fund of around £300,000 in todays money.

Pensions are in my opinion the best way to save for retirement. The tax relief and fact that you cant access it are advantages. ISA's can be very tempting to access for most people. Especially if you have overspent in the past. What happens one year when you cant afford the holiday you want but you know you have your "pension pot" of a couple of grand sat there winking at you. Can you be sure you would not touch it and do without the holiday? if the answer is no then I would concentrate on the pension.

Your contribution level will provide very little in retirement. If you drift into higher rate tax (You are borderline on your income) you can claim the additional 20% via your tax return.

jamesd

manchestersaver, from the loans talk it appears that you might benefit from visiting the debt-free wannabe section here and seeing if they can find ways to save you some money. If you don't want to do that and prefer to keep the discussion here, perhaps you could say what the loans are and what their interest rates are (including any credit card debt) so we can see if we see any opportunities for just that part of the picture?

If you're content to use interest only mortgage and use pension investing to repay it after you're 55 you might consider a pension mortgage, which is a very tax-efficient way for higher rate tax payers to accumulate a pension while clearing part or sometimes all of a mortgage.

danny69

It depends also on what type of job you have. Some employees will match your contributions upto a certain percentage of your p60 earnings. Perhaps it would be best to save in cash, then if you get a job in the future where you have a more favourable contribution from your employee, pay into a pension then.

manchestersaver

danny69 wrote: »

It depends also on what type of job you have. Some employees will match your contributions upto a certain percentage of your p60 earnings. Perhaps it would be best to save in cash, then if you get a job in the future where you have a more favourable contribution from your employee, pay into a pension then.

i work in construction and no firm i work for will ever pay more in to a pension than they legally have to

manchestersaver

jamesd wrote: »

manchestersaver, from the loans talk it appears that you might benefit from visiting the debt-free wannabe section here and seeing if they can find ways to save you some money. If you don't want to do that and prefer to keep the discussion here, perhaps you could say what the loans are and what their interest rates are (including any credit card debt) so we can see if we see any opportunities for just that part of the picture?

If you're content to use interest only mortgage and use pension investing to repay it after you're 55 you might consider a pension mortgage, which is a very tax-efficient way for higher rate tax payers to accumulate a pension while clearing part or sometimes all of a mortgage.

on average i bring home £600 a week from that i pay £330 into my bills account,this pays for my mortgage utility bills council tax and food shopping.
My mortgage is on a 5 year fixed(just over 3 years left)and is £840 a month.
i owe approx £1500 on credit cards all 0% i am paying off about £50 a week
and £1300 car loan i dont know the apr on this but i pay £225 a month on that(6 months left).So thats £55 a week.
i have also just started putting £70 a week into a cash ISA.
so thats 330+50+55+70=505 that leaves me with £95 that gets spent on going out,clothes,etc