No employer contribution - where do I start?

edited 30 November -1 at 1:00AM in Pensions, Annuities & Retirement Planning
10 replies 1.6K views
curlyemscurlyems Forumite
12 Posts
Hello

I am sorry if this has been gone over before - I have read through the forums but I'm still confused and would be very grateful for any advice.

I am 24 and currently have no pension. I have just started thinking about setting something up but don't know where to start? My employer offers a stakeholder pension through Standard Life but does not contribute. I don't really understand what the difference is between a stakeholder and other personal pension schemes? Also, if they are not contributing is it something that I should do through my employer or should I just go it alone?

I earn £19,500 pa but am saving for a house at the moment and will hopefully move by the end of the year. I can't therefore afford to save a lot of money for a pension, but want to do something and want it to be worthwhile. I want to be able to retire at an earlier age and so really want to sort something out as a starting point.

My fiancé is in the same situation with no company scheme. He is also 24 and earns £21,000 pa. As he doesn't know what to do & hasn't had time to research it properly, he has just set up another savings account with ING Direct (we both have them already to save for a house deposit as they offer high rates) and is making a small contribution (I think only about £20 - £30 a month) into that. However, is that a good idea or would he be better to get a proper pension arranged?

We are both clueless and would really appreciate being pointed in the right direction, obviously bearing in mind that initially we will not have much cash to put into a pension because of buying a house together. We both don't want to work until retirement age if we can help it!

Thank you. x

Replies

  • dunstonhdunstonh Forumite
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    Any employer with 5 employees (subject to paying NI)has to offer a stakeholder through the work place. They dont have to pay into it or offer special terms. Most times where the employer makes no contributions, the plan is identical to that you can buy from them direct or through an IFA.

    Employers with these "hollow" schemes dont want you to pay in through them either as its more hassle to them as they have to put it though your payslip instead of you paying the direct debit.

    At 24, you dont need to be saving a lot of money as the earlier you start, the easier it is. However, you should be aware that its never easy. First the house, then the furniture, then the children then you realise you only have a fews years left to retire and although you can save more at that point, its too late.

    At this time, for providing a retirement income, for someone your age, paying into a savings account is not suitable at all. With a pension (ignoring types for now), you get tax relief on your contributions. This will be 22% in your case. So, paying in £100pm means your direct debit would only be £78 as the Govt makes up the rest.

    A rough yardstick for what you should be paying is take your age, halve it and that is the percentage of your income you should be putting into your pension (gross). That is often a big step to take so you should aim to build on it over the coming years.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • Thanks for your advice. So I should sort out my own pension then, as there's really no point in doing anything through my employer...

    As for the amount to save, it works out more a month than I can afford at the moment. However, I see what you're saying - start early with as much as you can afford and build on it as you get older and are (hopefully!) in a more comfortable financial situation.

    I'm still really quite miffed as to what type of pension I should get as I don't understand the difference between them. Do you think I should get a stakeholder pension? What others are there? Is this the best choice for someone of my age / salary etc? If so, which one should I choose? ???

    I know you may not want to come out & actually state that I should opt for a particular product, but any advice from someone more in the know about how to make the right choice is very much appreciated.

    Thanks :)
  • dunstonhdunstonh Forumite
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    Coming out with a product and provider would be consided advice and thats not possible on here.

    Personal pensions and stakeholder pensions do the same job and are identical in the what they do. They have different charging structures though. If you intend to stick with a provider until retirement, you could do very well with some personal pension providers. If you see yourself switching providers in the future, you should consider stakeholder.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • Fair enough, thanks for your help. I'll have a shop around then & try to work out what's best for me! :)
  • Joe_BloggsJoe_Bloggs Forumite
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    Why not put your savings in a cash ISA to avoid paying tax as you save for a deposit. You can get one each.
    Your employer sounds like Scrooge Industries Ltd.
    J_B.
  • dunstonhdunstonh Forumite
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    If you are going to do it yourself, forget personal pensions and concentrate on stakeholder pensions. There are only a handful of personal pensions that have very good pricing and they are only available to buy from an IFA.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • PalPal Forumite
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    Also it is worth checking out your employer's stakeholder as often providers will give slightly better fee levels to company designated stakeholders than an individual could get by themselves.

    To be honest it is unlikely that it has happened here given that your company is not contributing, but it is still worth a quick look.
  • Ok, thanks all for your advice. I will check out exactly what my Scrooge of an employer is offering and then probably set myself up a stakeholder pension (as will my fiancé I expect). I take it that it makes little difference where you get these if they all have to be pretty much the same to comply with the Government guidelines?

    Thanks again. x
  • Debt_Free_ChickDebt_Free_Chick Forumite
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    Thanks for your advice. So I should sort out my own pension then, as there's really no point in doing anything through my employer...

    Your employer is just offering you access to a stakeholder pension plan. It is not "your employer's plan" - it would be your Stakeholder pension plan.

    Your employer is not obliged to offer you the best possible Stakeholder plan - any old one will do. That said, Standard Life's is not too shabby ;)

    But you should do your own research. Stakeholder pension plans are pretty much the same, but the charges vary so that should be part of your research. Some companies are better at investing money than others, but very many just "track" an index e.g. FTSE 100 - so no special skill is involved.

    Don't write off the Stakeholder that your employer promotes - but do some research
    Warning ..... I'm a peri-menopausal axe-wielding maniac ;)
  • FinishrichFinishrich Forumite
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    As for the amount to save, it works out more a month than I can afford at the moment. However, I see what you're saying - start early with as much as you can afford and build on it as you get older and are (hopefully!) in a more comfortable financial situation.

    Don't want to sound harsh but you're living beyond your means then. We were in the same boat at the beginning of the year, you just think you can't afford it. After reading a book on holiday "The automatic millionaire" (its not a get rich quick book) by David Bach http://www.finishrich.com we totally reviewed our pensions, savings etc. Told my other half he'd need to double his pension payments and he nearly died - as it comes out by direct debit you don't miss it the same.

    If 12% seems to much to start with, then start off with what you feel comfortable with, but make a point of increasing it by 1 or 2% every few months and you'll soon get up to the half your age level.without realising it If you want to retire early it's the only thing for it ;) And make sure you review what you're paying in annually - stakeholder max for your age is 17.5% of gross earnings or £3600 PA whichever is greater. But you only need to pay 78% as you get 22% tax relief.

    Good Luck
    http://www.finishrich.com/pdf/tam_chapter.pdf That's a link to one of the chapters in the book, which is free to view on the David Bach web site. You'll need acrobat to view it. The book is written for the american market so some of the things they talk about are just their equivalent of Stakeholder pensions and ISA's.

    Just added this chapter from another of his books, it's worth a read too. http://www.finishrich.com/pdf/scfr_ch2.pdf
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