Pension help please

chickaroonee

Hi - first time posting here!

I am 25 and have 2 years pension contributions in a public sector pension. I'm just about to leave for the private sector, my new job only offers a stakeholder pension (no employer contributions I don't think).

I'm not sure what to do now about my pension contributions. Are stakeholder pension schemes generally better than private schemes? How about ISAs? Or should I consider repaying my mortgage early?

I'm not looking for specific product advice really, just some general comments on these products as it's all a bit new to me. I've been very spoilt for the last couple of years with an excellent pension plan, and now am a bit lost as to what to do. Any help gratefully received.

dunstonh

Are stakeholder pension schemes generally better than private schemes?

A stakeholder is a private scheme. In this case, it appears the employer just pays into it.

How about ISAs?

Same areas to invest but benefits can be taken in a different way. Pros and cons with ISAs and pensions.

Or should I consider repaying my mortgage early?

You get to retirment with your mortgage paid off but with no retirement income and a basic state pension of £4266 p.a. You find you cant live on that so you then have to equity release and you lose full ownership of your property (in basic terms). Ok, that is one scenario which may or may not play out but it is a possible worst case scenario.

In reality, we have to budget for all types of things and ploughing your funds into just one area is not always the best. If the employer pays in funds to the pension as well based on your contributions, you should get as much as you can of this "free" money.

chickaroonee

Thanks, I didn't realise that stakeholder/private pensions were the same thing!

My new employer will not be paying any contributions, (not had it confirmed in writing yet, but verbally been told this is the case). If they were I wouldn't think twice about any other scheme.

The reason I thought about paying off the mortgage early is that we will save a great deal of interest and time..then be able to invest more in my pension. But I understand what you are saying.

So is it a case of deciding whether to go for a private pension or an ISA?

EdInvestor

I mean really, what king of answer is that?

You get to retirment with your mortgage paid off but with no retirement income and a basic state pension of £4266 p.a.

There are two state pensions, the BSP and the S2P.At the moment a person with good earnings and a full NI record retiring now would have his BSP amount doubled by the S2P.

A person who pays off their mortgage early has more time later to save for retirment and usually a higher salary to save from. Not a bad idea to do this IMHO until you again find yourself with an employer who will contribute to the pension.

You find you cant live on that so you then have to equity release and you lose full ownership of your property (in basic terms). [/qyote]

That is complete nonsense.Equity release plans enable you to borrow against the value of the equity in your property. The loan rolls up and is repayable after you die or depart to a nursing home ans the house is sold. There is a guarantee of no negative equity and you can sell the house at any time, and move.

Definitely not up to your usual standard DH.

chickaroonee

Ed - many thanks for your reply.

That was what I was thinking about re our mortgage. It's relatively small (about 2x our joint income) and I thought if I focused on paying it off early, I could then concentrate my efforts on saving for retirement.

And as it's fairly likely I will have another public sector pension in the next few years, with good employer contributions I can really see the advantage of doing this. If I thought I would be in the private sector for the next 25 years, I wouldn't be so sure, but as it stands I think this may be a good way forward.

Thanks again!

chickaroonee

One last question - my current pension plan automatically opts me out of SERPS. When I start my new job, will this still be the case, or will I start paying into that again? Does that mean I will be paying towards a state pension for retirement?

Sorry if I am getting muddled but this is a tad confusing!

dunstonh

Its not SERPS any more but State second pension (S2P). It has no influence on the basic state pension. It is additional.

Unless you contract back in, the contracting out will remain.

chickaroonee

thanks - all makes sense now.

EdInvestor

dunstonh wrote:

Its not SERPS any more but State second pension (S2P).
Unless you contract back in, the contracting out will remain.

But where will the contracted out rebate money go to?

chickaroonee

I don't understand Ed sorry! I'm easily confused! Do you mean the money I've already contracted out?

EdInvestor

If you're contracted out of SERPS/S2P the Government pays rebate money into a pension of your choice.Before, that money will have been going into your public sector pension.

Now you're leaving, but if you remain contracted out at the new job, the rebates have to go somewhere.Maybe you should open the stakeholder pension at the new job so as to receive the rebates? You can pay in additional money if you want to, of course.

If you contract back in, there won't be any rebates, instead you will resume entitlement to the SERPS/S2P.