How can I pursuade him to get a pension?

csa

My husband will be 35 this year. Although he saves into a high interest account monthly, he does not have a pension. He is the type of person who deeply distrusts pensions and doesn't believe why he should put so much away to get what he assumes will be very little when he decides to retire.

I recently got a pension through work and although I must admit to being naive about it, I figure I'm at least doing something, especially as my employer contributes to it. My husbands company doesn't offer such a scheme so he's even more reluctant to do anything.

Should I be trying to persuade him to start looking at pension schemes and if so where should he start? Are we really going to struggle financially if he doesn't start to do something about it, and if that is the case, how can I persuade him to look into this? I'm 14 weeks pregnant so perhaps this might help push him into action.

Thanks

margaretclare

Hi

Well, at least he's saving. There are people on these boards who would argue that a pension is not the only, and maybe not the best, way of saving for retirement.

Your pension scheme at work is worthwhile because (I assume) your employer contributes to it. So if you weren't in it you'd be effectively chucking away free money.

What your husband could consider is a stakeholder scheme - that way for every 78p he puts in, the taxman adds 22p (if he's a standard rate taxpayer). So for a contribution of say £78 a month, the taxman makes it up to £100 which is then invested in whatever scheme you choose. Have a look at this: http://www.thepensionservice.gov.uk/atoz/atozdetailed/stakeholder.asp

It's impossible to say what the situation will be like when your husband comes to retire. We're being told that there's little or no option beyond working longer/saving more/a combination of the two. One thing is sure. No one will ever want to live on just the basic state pension for the rest of their lives, not if they have the choice of doing something about it while there's still time.

Best wishes

Aunty Margaret

dunstonh

If you ignore all savings and assume your husband will get the basic state pension (at some age between 65 and 68), he will get £4266 a year (thats the current basic state pension).

So, can he live on £4266 a year?

Your husband mistrusting pensions is not uncommon but the reasons almost certainly have more to do with media mis-information and scare tactics than reality. A pension is just a savings/investment product. You can indeed compare it with an ISA. Generally, the same investments you can put inside an ISA are also available with pension. There are investment funds to cater for the low risk individual right up to the high risk individual. The choice of the investment areas lies with the individual.

savingforoz

I, too, used to mistrust pensions, but that was back in say 2001/2002, when things weren't great on the stockmarket front. I used to look at my yearly pension fund statement and moan because the fund hadn't really moved in value from one year to the next. Yesterday I signed up to go online to look at my pension fund...and it's far higher than I thought. Just a few years in a rising market have made a big difference.The mistake that I was making before was to think short term. And as Aunty Margaret points out, with pensions you get tax relief added to every contribution to boost the fund.

He can also consider other routes, such as share based ISAs if he's unhappy about pensions. But putting his money in a high interest account probably just won't do the business as far as retirement planning goes.

EdInvestor

If he's working full time he will presumably be paying full NI contributions and thus will be eligible for the TWO state pensions ( Basic and S2P).

You can both check your pension forecast
here

If he is a basic rate taxpayer and has no company contribution into a pension, he would IMHO be better to top up his savings in the other half of the ISA allowance - the stocks and shares ISA ( an additional 4k can be put in this).

If he is nervous about shares, he might be interested to hear that from this year you can invest in Commercial property funds in your ISA - these have historically given a steady return of 10%+ a year, very respectable, and somewhat higher lately.Low risk.

The way you have it arranged now is albeit accidentally, actually very optimal as far as tax is concerned when you retire.

The difference between ISAs and pensions is that you pay into an ISA out of taxed money, but all the capital and income at the other end is tax free. With a pension, you get tax back on the contributions, but you pay tax on the pension income when you retire.

What with the 2 state pensions as well, most people end up with too much in taxable pensions and not enough in untaxed ISAs when they retire. It's also usually unbalanced, with too much taxable pension income on the husband's side and the wife's tax allowances not being fully used.

This tax imbalance is a source of some aggravation to pensioners, I can tell you!

As it happens, your situation looks very well balanced - almost perfect, as long as he keeps with the ISAs.A pension is only a tax wrapper remember, as is an ISA.The main thing is to accumulate a pot of money, the bigger the better, what you call it doesn't matter

dunstonh

As it happens, your situation looks very well balanced - almost perfect

Yep. No retirement savings and no plans to start one. That perfect if you want to live in poverty.

margaretclare

Hi

I should add to what I posted yesterday. As a woman it's essential IMHO to think about your own pension provision and not rely on getting it all via your husband.

I speak from a lifetime's experience - I didn't fall into an easy trap that many (or most) women of my age did. That trap is no longer open to you, thank goodness! But it's the reason that many women over retirement age are living in poverty, and many coming up to retirement are retiring straight into poverty. They assumed that 'they would rely on their husband's pension' and didn't do anything themselves.

I agree with savingforoz - when thinking about pensions it's essential to take the long view.

Aunty Margaret

EdInvestor

I wonder if the OP and her husband are already buying a home?

dunstonh

EdInvestor wrote:

I wonder if the OP and her husband are already buying a home?

If so, they possibly wouldnt be able to afford to keep it after retirement, forcing them to sell up or do equity release. Neither being a desirable option.

cheerfulcat

csa wrote:

My husband will be 35 this year. Although he saves into a high interest account monthly, he does not have a pension. He is the type of person who deeply distrusts pensions and doesn't believe why he should put so much away to get what he assumes will be very little when he decides to retire[...]


Should I be trying to persuade him to start looking at pension schemes and if so where should he start? Are we really going to struggle financially if he doesn't start to do something about it, and if that is the case, how can I persuade him to look into this?

Thanks

Yes, barring lottery wins or long lost wealthy aunts, you will struggle financially if you do not save for the future. There is a nifty calculator here which can tell you just how much you will struggle, and what you need to do about it.

There's nothing not to trust in a personal pension invested in managed funds or shares ( not with-profits funds ). The investments are controlled by the owner of the pension. Over thirty years the value of the pension will increase, especially if he pays into it regularly. You can play around with some numbers here ( btw the usual figure used in calculating future stock market growth for these purposes is 8%. Oh, and set the tax rate to 0% if calculating growth within a pension or ISA ).

Unless your husband has an exceptionally well-paying job, he will not be able to save enough in cash to fund a comfortable retirement. Investment of some sort is required.

As others have said, saving for retirement doesn't have to be within a pension; it can be done in an ISA or even without a tax wrapper. But the investments are going to be exactly the same ones, so why not use the tax advantages?

HTH

Cheerfulcat

EdInvestor

dunstonh wrote:

If so, they possibly wouldnt be able to afford to keep it after retirement, forcing them to sell up or do equity release.

The point of asking this, was that if an individual is very risk averse, so that any kind of investment be it in pension or ISA is rejected, or if only one of a house or a pension is affordable, then a house would be the best option after cash savings IMHO.

This is because the likelihood over the 25 year period you will be paying off the mortgage is that house prices will rise. Thus at the end you will own a house worth much more than you paid for it and this gain is tax free.

After your children have grown up, and you don't need so much space, you can sell the family home and move to somewhere smaller and or cheaper, thus releasing a capital sum of money. This money can then be invested - or used to purchase an annuity - to top up your family income.

Alternatively, if you don't want to move, you can use an "equity release" scheme which enables you to borrow against the value of the property without repaying in your lifetime.You can also generate tax free income by renting out a spare room.

Given that you have to live somewhere - and you certainly can't live in a pension - a house is a better bet for a young couple because it offers the possibility of providing both secure accommodation and a long term pension in the same package, 2 for 1 you might say.This is not guaranteed of course, but then neither are most pensions these days.

If house purchase is an aim, then you must save in ISAs for the deposit, because once you put the money in a pension, you can't get it out.