Pension - why?

dunstonh

I'm 23 and am paying into an NHS pension around £150 a month, which the NHS supposedly contribute an extra 12% before government contributions. Is it not worth me paying into this? Would I be better off with an ISA?

What amount an employer pays (whether Govt backed or not) is not directly linked to the benefits you get. (with defined benefit schemes)

An ISA couldnt come close to what you get for the NHS pension. You would have to be mad to leave it.

jamesd

MiLady, public sector pensions are some of the best pension deals available. Only those with a dire financial crisis, good reason to believe that they will die before the pension pays out or who are independently wealthy should consider not using them.

MiLady

Thankyou. I have an ISA aswell in the hope that one day I might be able to afford to move out, although this won't be as soon as I'd like. (tomorrow if I had my way)

exil

I was just pointing out that no investment, even in a public sector pension scheme, is 100.00% secure, for the reasons I stated. But compared with ISAs it represents a good bet, especially since the employer is contributing a substantial amount (though this is notional as it's not being invested).

property.advert

One point which does have to be considered is whether contributions made to pensions affect the individual's ability to purchase their own property. When you look at the maths over time, it comes out very favourably on the side of providing a roof over your head ahead of pension provision. You can even think of your house as your pension if you wish.

This is obviously talking about any contributions over and above those necessary to get matching funds from your employer and government backed schemes etc.

lisyloo

maximise - you now need to contribute

1) Will your salary likely take you into the 40% tax bracket at some point
2) Are you disciplined?
3) What amount are we talking about (could exceed ISA allowance?).

Going back to 2) I am very well disciplined, but I've been paying into a pension fund for over 20 years.
I have a lot going in each month (about £600) but I DON'T NOTICE and the reason why I don't notice is because it comes out before my salary and people adjust to whatever they have coming in.
This doesn't specifically apply to pensions, but I would encourage you to make a regular contribution to some sort of retirement plan because after a while you might not notice.
I have colleagues who didn't start a pension 20 years ago.
They've had a couple of hundred quid a month more than me to live on but now I have a six figure sum in my pension - go figure.
It really is very easy to put it off and just "fritter" away a couple of hundred - really it is.
So I owuld urge you to do something, because you'll easily adjust to your new income.

I don't think you shoul write off the 25% tax free lump sum either.
You need to ahve a 6 figure sum in your pension so this is not insignificant.
This appears to have been written off as insignificant.

ISA are without doubt more flexible, but that can work both ways and there is an allowance.
Admittedly that's fairly generous now, but some people still run out.

dunstonh

When you look at the maths over time, it comes out very favourably on the side of providing a roof over your head ahead of pension provision.

Does it? Not with a final salary govt backed scheme it wont. With a money purchase scheme with no employer contributions then it probably does but relying on the property alone is very risky. There is no guarantee that the property value will rise enough. There is a point in future when the population of the UK is expected to start falling. Over supply of housing at that time will crucify house prices. Under supply at the moment is keeping them far too high.

Choosing to do either buying a house or planning for retirement is going to fail either way. Its a bit like picking whether you should choose to pay the gas bill or the electric bill. You don't, you do both.

You can even think of your house as your pension if you wish.

You could but you will be forced to sell it or take a significant debt against it when you retire to make up for the fact you didnt plan for retirement.

You would have spent half your working life paying nearly 3 times more than you paid for the house in a mortgage only to get to retirement to then have to borrow again. That also assumes equity release still exists as an option then. The number of providers offering equity release has been in decline and you can count the number doing it now on your hands.

jamesd

If you stick with properties that aren't more expensive in ongoing mortgage payments and other costs than you would need to rent the accommodation you need there's no ongoing extra cost. You do need to be sure you include all costs, including council tax and heating and higher levels. Once you've done that you may get some benefit out of having a house that can grow in value free of capital gains tax.

Dunstonh makes a good point about possible future decreasing demand for property, though immigration may control that effect and immigrants are also going to be needed to keep down the tax burden for paying pensions and other benefits to the larger retired generation. In the shorter term bungalows may see increased popularity as the number of retired people increases as a result of the baby boom generation retiring over the next twenty years.