pension or savings account

madlyn

i'm thinking of stopping paying into a pesion scheme i started a few years ago, and putting the money i pay into the pension into a savings account instead.
possibly a long term ISA with a decent interest rate.
i pay £20 a month which is made upto £25 by the goverment.
not much i know but as i live on my own and money is tight a little is better than nothing.
is this a wise thing to do?

yelf

eh? how will paying £20 into an ISA ease your money flow from paying £20 into a pension? A pension is the most tax efficent vehicle for retirement saving. if you are saving for retirement you hav eto look at a pensin as this locks the money away to retirement- thereby stopping any potential spending of the pot.

So answer is no.

dunstonh

Whats your objective? retirement planning or short term cash

opinions4u

yelf wrote: »

eh? how will paying £20 into an ISA ease your money flow from paying £20 into a pension? A pension is the most tax efficent vehicle for retirement saving. if you are saving for retirement you hav eto look at a pensin as this locks the money away to retirement- thereby stopping any potential spending of the pot.

So answer is no.

I'm not convinced that saving £25 a month will provide a pension worth having. The OP needs to work out how they are going to increase this amount with regularity in the future in order to build a fund that will provide in old age. If it is unlikely to happen I would personally suggest switching to liquid savings such as a cash ISA.

As Dunstonh asks, what is the objective?

madlyn

yelf-
if you had read my post properly, you would have understood that i would pay into a ISA instead of a pension, also, aren't pesion funds taxed when you at some point? also i'm very strict when it comes to my money so there wont be any spending of the pot.

dunstonh-
my objective is retirement planning.

opinions4u-
£ 25 a month is all i can afford at the moment, if i could afford more i would payin more.

jon3001

madlyn wrote: »

yelf-
if you had read my post properly, you would have understood that i would pay into a ISA instead of a pension, also, aren't pesion funds taxed when you at some point? also i'm very strict when it comes to my money so there wont be any spending of the pot.

dunstonh-
my objective is retirement planning.

opinions4u-
£ 25 a month is all i can afford at the moment, if i could afford more i would payin more.

Cash savings are no good for long-term accumulation; the returns may only just beat inflation. Assuming you're many years from retirement you should be looking to invest.

As others have surmised, it's unlikely you're saving enough for retirement. You'll need to look at cutting your costs (you're on the right web site) or increasing your income (without overly increasing your spending).

If you can't save enough for retirement then unfortunately your current lifestyle is unsustainable and you're living beyond your means.

Farway

jon3001 wrote: »

If you can't save enough for retirement then unfortunately your current lifestyle is unsustainable and you're living beyond your means.

Bit harsh, we have no idea of how much OP earns, and if 25 is all that can be afforded it is true, who said they earnt 30K plus? perhaps they earn 10K and £25 is a struggle

As others have pointed out this will not build up much of a pension pot, but there are millions in same boat who just cannot afford to pay into a pension from limited income

There is an argument that they should not try, because on retirement any small pension they may have could cut any likely benefits as it could just tip them over an income threshold, and of course no one knows what that will be in the future

FWIW I never paid into a pension for all the above reasons, my state pension + Serp is about on par with my post tax income whilst working, so I agree, if you cannot affordpension then put in cash ISA

If there is a long time until retirement you could perahps look into shares ISA, but this is long term planning

mr_fishbulb

madlyn wrote: »

i pay £20 a month which is made upto £25 by the goverment.

You will lose this 20% "relief" if you pay into an ISA instead of a pension.

opinions4u

mr_fishbulb wrote: »

You will lose this 20% "relief" if you pay into an ISA instead of a pension.

True. But then you won't be taxed when you draw it from an ISA.

You may pay tax on a pension if your total income exceeds the tax threshold at the time the pension is paid.

dunstonh

FWIW I never paid into a pension for all the above reasons, my state pension + Serp is about on par with my post tax income whilst working, so I agree, if you cannot affordpension then put in cash ISA

Many experieneced advisers in Norfolk would tell you of a time when it was joked that people looked forward to retiring in Norfolk as it meant they got a pay rise.

We have some of the lowest retirement provision in the country because the average wage is so low. So, many didnt see the need to pay much.

True. But then you won't be taxed when you draw it from an ISA.

You may pay tax on a pension if your total income exceeds the tax threshold.

Also true. Its a case of finding the balance between the two to suit needs and tax. Also, with spouses included as there is nearly £20k tax free earnings available between a couple. The pension does well to eat those up with the ISA doing the rest. (dont need to tell you that though or any other regulars from the pensions forum where that info is very regularly discussed and has a sticky thread on the subject).

thor

jon3001 wrote: »

Cash savings are no good for long-term accumulation; the returns may only just beat inflation. Assuming you're many years from retirement you should be looking to invest.

Past history is no guide to the future. Stocks and shares could have risen over the last hundred years but who is to say that they won't fall over the next century? There is no fundamental reason for it to go one way or the other. It's all a gamble.