Time to sort out a pension

liam_h

Hi all,

Me and the missus have finally bought a house and we complete Friday. Now once we're settled I want to get a pension sorted. However I don't know where to start.

I'll be starting it by may at the latest, by which time I'll have turned 25. All I know is that I should put 12.5% of my wage away each month - but where do I start?

Thanks

Lokolo

Have you looked into your companies pension scheme? Do they offer one? Do they contribute?

dunstonh

All I know is that I should put 12.5% of my wage away each month

How have you worked that out?

Is that level payments or indexed figures? What indexation level? What retirement age are you looking at? Is that single or joint income? What risk profile are you using and therefore which rate of return are you using to go with that (in case your assumptions are not in line with risk profile)?

You are certainly in the ball part figure as for as expectation goes. So thats good. However, do not assume that half your age is the correct basis to go on. That is purely to get people to realise that paying £20pm is unrealistic.

but where do I start?

does your employer offer a scheme that they pay into? That goes for both of you as retirement planning should be viewed jointly.

liam_h

I got the figure from this website. As as a guide is it not suggested to pay a % which is half your age when starting at least?

The company have a stakeholder scheme which I've requested details for. However I'm in two minds to use it as I don't plan on being here very long. It's allowed me to get into the field but there's very little in the way of progression opportunities.

dunstonh

I got the figure from this website. As as a guide is it not suggested to pay a % which is half your age when starting at least?

This site is not a financial advice site. Martin's guide uses one of those simple phrases to indicate the sort of amount you should be paying. Nothing wrong with that but the whole point of phrases like "pay in half your age" or "aim to have 35k in your pension by 35" are to get you thinking realistically about what ought to be paying. Too many people think that paying in amounts like £50pm are reasonable. Its to get them thinking out what they should be paying. For some people paying in half would be too much. For others it would not be enough.

The company have a stakeholder scheme which I've requested details for. However I'm in two minds to use it as I don't plan on being here very long. It's allowed me to get into the field but there's very little in the way of progression opportunities.

If the company pay into it then its free money and you would be daft to turn it down. If you do leave in 6-12 months then you have 6-12 months of free money in your pension. If the company dont pay in to it then disregard that option. Also, don't play to be there long are famous last words. There are plenty of people who say that and still find themselves there 10-20-30 years later.

Lokolo

liam_h wrote: »

I got the figure from this website. As as a guide is it not suggested to pay a % which is half your age when starting at least?

The company have a stakeholder scheme which I've requested details for. However I'm in two minds to use it as I don't plan on being here very long. It's allowed me to get into the field but there's very little in the way of progression opportunities.

Even if you plan on leaving the company, you can transfer it once you move to another pension.

hbakhshi

Firstly congratulations, its no small achievement at your age to have your foot on the housing ladder. Also by starting a pension now you have a much greater chance of enjoying your retirement, rather than having to work through it. Einstein said that the most powerful force in the Universe is Compound Interest and even small amounts saved now will be worth a lot more than larger amounts saved in 20 or 30 years, so you are doing the right thing. I started at 23 with £25 a month, increasing that as I could afford it, and now twenty years later, that pension has £40k in it and I haven't put a penny in for 10 years.

If your company contribute towards the stakeholder pension, then it really is a no brainer, take that and the free money. You can always move it later when you move on.

If not then you have to make your own decisions.

The main plus of a pension is that you get the tax back on your contributions, so there is an element of free money. So to save 12.5% of your salary you would only have to contribute 10% of your take home, the government would give you the rest. The bad thing is that any money you save would be locked away until you were at least 55 under current rules and then you pay tax on the income you get from it after a 25% tax free lump sum.

At your age you also need to put some money aside for a rainy day, for a family, for unexpected bills and the like. For myself, in the last year I've had to pay for a new boiler, a trip to Canada for a wedding and various after school clubs and trips for the kids. Even something as simple as four new tyres for the car can cost an unexpectedly large amount of money so have something put by where you can get to it easily.

If you put money into an ISA, you pay tax on the money first but any growth in the ISA and the proceeds from it are tax free.

I would therefore suggest you look at splitting your money, half into a pension and half as regular savings in an ISA, Say 5% or 6% in each.

As for where you put your money, that's a decision for you, though make sure you understand what you are investing in. If anything has high upfront charges or an annual management charge over 2% walk away. Also look for companies and funds that have a history of being well managed over many years. The problem with the High Street Banks is that they offer you pensions investing in funds with the most glorious technical names, where you have no idea where your money is actually going, with a limited track record and high charges. For this reason I would suggest paying an IFA £250 or so to set up both a pension and an ISA that will meet your needs.

The best way to find a good IFA is by recommendation. I my own experience there are a lot of mediocre ones around, in 20 years I have come across two that I would recommend without hesitation. The worst one is the guy who runs my current company scheme, he wanted £750 to transfer an old pension into my current scheme, something I managed myself with one phone call and one form. Now fair enough if he does the work he should be paid, but £150 would have been nearer the mark for the work involved. Anyway, I digress, the point is ask around and find someone you can trust.