Is it worth me getting a pension?

Pound

I was looking at my work's pension scheme and it looks like whatever I put in my employer will put in as well into a pension. But I don't earn any interest on that money. I think that's how it works.

So if I put £100 in a month, my employer puts £100 as well so a return of £200 to be withdrawn in about 40 years time. But if I put that into a savings account at 3% interest I will get a return of £220.09.

Wouldn't I just be better doing this instead of starting a pension?

Aegis

Pound wrote: »

I was looking at my work's pension scheme and it looks like whatever I put in my employer will put in as well into a pension. But I don't earn any interest on that money. I think that's how it works.

So if I put £100 in a month, my employer puts £100 as well so a return of £200 to be withdrawn in about 40 years time. But if I put that into a savings account at 3% interest I will get a return of £220.09.

Wouldn't I just be better doing this instead of starting a pension?

Unless your employer has a very weird pension scheme, you will place the contributions into an investment on a monthly basis and will therefore see growth on top of the 100% matching. As such, you should see a lot more than £200 in 40 years.

Generally the advice on pensions seems to be to gouge your employer for all the contributions they will give you.

purch

So if I put £100 in a month

Don't forget the Tax Relief.

The £100 costs you a lot less, depending on your marginal tax rate.

McKneff

I would snap their hands off, £100 a month free money, what are you waiting
for, its like the company is giving you £1200 a year for nothing

Pound

Yes, but I think I should look into whether I can get more free money by doing other things with my money... In any case I think I need to look further into the scheme to see if it is a better rate that I though.

Aegis

Pound wrote: »

Yes, but I think I should look into whether I can get more free money by doing other things with my money... In any case I think I need to look further into the scheme to see if it is a better rate that I though.

Even if it isn't you could presumably transfer your accumulated sum elsewhere once a year and still make a lot more out of your employer by doing that than you could with any savings account.

McKneff

Pound wrote: »

I was looking at my work's pension scheme and it looks like whatever I put in my employer will put in as well into a pension. But I don't earn any interest on that money. I think that's how it works.

So if I put £100 in a month, my employer puts £100 as well so a return of £200 to be withdrawn in about 40 years time. But if I put that into a savings account at 3% interest I will get a return of £220.09.

Wouldn't I just be better doing this instead of starting a pension?

But your employer in that case wouldnt give you £100 to put into a savings account. They wuld only give it to you if it was towards a pension

Pound

I mean if I put my own money into a savings account (ie. don't involve my employer at all), after 40 years the money will have more than doubled.

McKneff

I can see your point but sh"t happens throughout life and if a crisis comes along or you need a deposit for a house etc. The temptation would be there to use it. Hence no cushion or less of a cushion in old age. With your pension you cant touch it till pension age which is original plan ie to have a reasonable pension. Maybe Dunstonh will be along soon, he knows his stuff

EdInvestor

Pound wrote: »

I was looking at my work's pension scheme and it looks like whatever I put in my employer will put in as well into a pension. But I don't earn any interest on that money. I think that's how it works.

Not quite. The money is invested in a mixture of assets, shares, bonds property and cash.The likely average return generated over the long term is around 7% a year net of charges. All gains are tax free.

So if I put £100 in a month, my employer puts £100 as well so a return of £200 to be withdrawn in about 40 years time.

That 200 would be invested.So in 40 years time at an average of 7% growth the fund would be worth 497,103.

But if I put that into a savings account at 3% interest I will get a return of £220.09.

This pot with just your 100 a month contributions after 40 years @3% growth would be worth 91,945.

Wouldn't I just be better doing this instead of starting a pension?

No.

Aegis

Pound wrote: »

I mean if I put my own money into a savings account (ie. don't involve my employer at all), after 40 years the money will have more than doubled.

Doubling in that time would be pointless. You need long term growth to provide for your retirement, and with cash accounts you are unlikely to maintain any real growth over the years when you account for inflation. With a defined contribution type pension arrangement, you NEED to invest for long term growth to provide a half-decent income during retirement. Cash savings just won't cut it.