Is my small stakeholder worth it

crazyspaniels

I pay £50 a month into a stakeholder as some extra insurance for my OH's work pension etc, just in case money, set up when I was 26, 2 years ago. However warnings in the press etc are making me worry that I have made a mistake and my small sum will not be worth anything and I am maybe better off simply putting it into savings etc month. any advice appreciated, retirement seems a long way off but I would hate to screw up like we did with our endowment - don't get me started LOL
Thanks

dunstonh

If you do nothing, you will have less income in retirment. You are allowed to earn £6830 a year currently after age 65 without paying any tax. Paying into a pension earns you 22% tax relief (assuming zero rate through to basic rate tax payer). In retirement, you will not pay tax on that first £6830 (or whatever it increases to in future years).

I think you have misinterpreted what was being said in the press so don't worry about it. What you are doing is very good as you are making sure that you will utilise your tax free income allowance in retirement, rather than waste it.

crazyspaniels

Thank-you, I am a bit of a worry wort and only have a small income, OH has the biggy and will have the decent pension (we hope but you never know) but I wanted to do a little something to help when I retire.
made me feel more confident about my decision, thanks again.

rchddap1

One problem with a savings account is that it is easy to dip into for all those things that we think we need or want. But by putting it in a pension it is much harder to do. If you put £50 per month into a savings account you may intend to save that for a pension, but in all honesty could you resist buying that new car, or TV etc...

DiggingOut

I think the stuff in the press has to do with pension credit and eligibility for it being affected by a small pension. Those who have no assets or income other than a small pension are not significantly better off than those who have nothing, because of the way pension credit has been structured.

If OH has significant income/pension provision, I don't think this relates to you at all.

isasmurf

Crazyspaniels, if your savings are purely intended for retirement, then I'd strongly suggest you don't move out of a pension into savings, particularly if you are a non taxpayer. The press reports are aimed at people who have no other form of retirement savings. You have your OH's pension to be your households replacement income when he/she retires.

Pensions remain the most tax efficient way of saving for retirement. With some pensions (including Stakeholders) you must use 75% of the fund to buy an annuity which will give you a steady income in retirement. I saw some figures the other week, which did suggest you do need a very large fund to purchase an annuity giving you just a few thousand pounds a year. With a small fund you don't have to do this as it is administratively expensive so you allowed to take it all as a lump sum and do with it as you wish. The definition of a small fund is changing from 2006 to £15,000 and increases every year.

However, you are only young, and no doubt the rules on pension schemes will change about 6 times before you and your OH retire.

deemy2004

crazyspaniels wrote:

I pay £50 a month into a stakeholder as some extra insurance for my OH's work pension etc, just in case money, set up when I was 26, 2 years ago. However warnings in the press etc are making me worry that I have made a mistake and my small sum will not be worth anything and I am maybe better off simply putting it into savings etc month. any advice appreciated, retirement seems a long way off but I would hate to screw up like we did with our endowment - don't get me started LOL
Thanks

Your best off putting it into tax free savings accounts such as cash ISa's, £50 into a pension pot is not going to do much if anything, and given current rules, all that would happen is the mean tested element would be reduced by a small private pension so no point.

Later on in life, you could if you wanted to make a lump sum contribution to a pensions pot

dunstonh

Your best off putting it into tax free savings accounts such as cash ISa's, £50 into a pension pot is not going to do much if anything, and given current rules, all that would happen is the mean tested element would be reduced by a small private pension so no point.

And what means tested element would that be? It won't be pension credit as that wouldnt apply as that is based on household income and that is higher than the pension credit limit.

It's this sort of misinformation that confuses people deemy.

deemy2004

Oki doki... I erred..............this time

dunstonh

lol - this time