Should I leave my pension scheme and the money I save place elsewhere?

atearth

Should I leave my pension scheme and the money I save place elsewhere?

I'm 24 years old.

I'm with a company in a Final Salary Pension scheme.

I place 4% of my salary per year into it. My company places 8% of my salary per year into it.

Should I stop being a member and with that 4% place it in a building society account, ISA, other tax free saving, enjoy the money now or save in other ways?

I'm worried about paying too much tax and losing the money. As I believe placing it in a building society account and never touching it will reduce tax.

Aegis

Unless it's a really bad final salary scheme, then absolutely not.

At the moment you're getting a guarantee of a payment based on your final salary. Your employer is contributing twice as much as you are towards your retirement as you are. You're also likely to be getting those benefits taken directly out of your gross earnings, saving both income tax and national insurance contributions.

In a building society you will pay tax at 20% of the income if you are a basic rate taxpayer and at 40% if you become a higher rate taxpayer. You will also probably end up saving a lot less for your retirement because you will be in cash instead of growth investments. A final salary pension is likely to utterly thrash the benefits you would get from investing just 4% of your salary into a cash account.

If you want to post a few more details on the pension, maybe we could try and understand why you would want to leave such an arrangement.

dunstonh

I place 4% of my salary per year into it. My company places 8% of my salary per year into it.

Your company doesnt place anything in it as such. The pension agrees to pay you a defined amount on retirement. The company can pay in zero some years and 20% or ad hoc payments others. It doesnt directly affect what you get.

Should I stop being a member and with that 4% place it in a building society account, ISA, other tax free saving, enjoy the money now or save in other ways?

It wont be 4%. It will be closer to 3% after your tax and NI goes up.

I'm worried about paying too much tax and losing the money. As I believe placing it in a building society account and never touching it will reduce tax.

Coming out of the pension and going into savings will increase your tax and NI. Not reduce it. Plus, it will almost certainly be the worst financial decision you could ever make.

atearth

I'm worried that I and my family won't get back all the money that I place in the pension.

I'm on £12,00 at the moment.

Current Fund Value is £340.48

Projected pension when I retire is £6500.

Final Salary is 25% of the pot.

Aegis

atearth wrote: »

I'm worried that I and my family won't get back all the money that I place in the pension.

I'm on £12,00 at the moment.

Current Fund Value is £340.48

Projected pension when I retire is £6500.

Final Salary is 25% of the pot.

That sounds more like a defined contribution pension scheme, not a final salary one. Are you sure that you're using the correct terminology?

dunstonh

Please answer Aegis question above as you seem to be talking about different pensions. It now sounds like defined contribution not final salary.

I'm worried that I and my family won't get back all the money that I place in the pension.

You are only placing 4% in. The Govt is adding 1% and your company is 8%.

So, if you pay in £100. The Govt add £25 and your employer adds £200. That makes a total of £325 in the pot for your £100 contribution.

If you use savings, you pay £100 and you get £100 in the pot.

Lets move it on 10 years and say you get 3% interest on a savings account. You would a savings account value of £13,979. Now look at the pension and say you get 5% p.a. then your pot would be £50372

If you then died, your spouse would be paid a lump sum of £13979 from your savings or if you use the pension should would be paid a lump sum of £50372.

The pension really is a no brainer.