Pension Help

chriswuk_2

Hi guys,

Just need a bit of advice if possible regarding a pension.

At the minute, I have opted out of all pension schemes & have no savings. I'm nearly 25 & have my own house (mortgaged) & car.

Now I have recently moved jobs & the company pension scheme looks ok, but I need guidance. They will match my contributions into the pension (up to 10% pre tax) - is it worth it ?

I've worked out that if I put in just over £200 per month, they will match it, giving me £400 a month into it.

They also have a company pension calc, which worked out that if I retired at 60, it would be worth 16k PA. Now, what I want to know is it worth it ???

I mean, 16k PA is nothing now, so in 35 years, it's going to be worth nothing ??

Help !!!!!

ReportInvestor

Hi Chris and welcome to the site

This is free money .

It's definitely worth it. Even more if you are a higher rate taxpayer, but still no question if you are a basic rate taxpayer.

That calculation takes into account inflation, and also an inflation linked annuity that would continue to pay a 50% income to your partner on your premature death.

£400pm for 35 years @ 7% growth ends up with a £710,000 pension fund that would probably pay out a 5%+ annuity (£35K pa).

Gary_zero

The 16K PA will be in todays money it will increase every year

chriswuk_2

It's 10% each mate ?

chriswuk_2

Cheers for that ReportInvestor - looks like it will be worth putting into then !!

I didn't have much of a clue about these things !!

It works out like this:

My contribution: £189
Tax relief: £53
Companies contribution: £242

Monthly contribution £483

What would that work out if I retired at 65 (40 years) ?

Thanks again

Chris

ReportInvestor

Assuming 7% growth and £400pm combined contributions, you will have paid in £65,500 before tax as a BRT but you will be able to withdraw £177,500 as a 25% tax free lump sum (of £710,000) at age 60 (if current legislation continues).

And none of these calculations includes the obvious fact that your contribution levels, and those of your employer, will rise over the next 35 years as wages rise.

BUT start now. Time is on your side and you want to latch onto compound investment growth in the early years.

That is the secret of personal pension investment.

[You've just seen the effect. My original calculation was for 40 years = £1m+ fund.

I recalculated to 35 years when I reread your post and the pot came down to £710,000.

So don't wait another 5 years before starting .]

ReportInvestor

chriswuk wrote:

Monthly contribution £483

What would that work out if I retired at 65 (40 years) ?

At 7% pa growth, just shy of £1.25 million.

chriswuk_2

Excellent - I'll join that then in the new year - thanks a bunch !

ReportInvestor

And spread the word at your company .

Many of us on this board know the basics of investing - but the majority of the country don't.

Some companies are better off at publicising the benefits than others. A few companies rely on the bad news about pensions in the headlines that often puts employees off pension funds (and saves the employer a packet).

I'm glad you asked your question.

chriswuk_2

Employer does give out pension details with the contract etc & also a CD ROM with the pension calc I mentioned before - but when the 16k come up, I thought it was rather poor.

Thanks again - I'll buy you a pint with my 1st pension ;-)

ReportInvestor

The projection given fits the government's template - so it's probably not the company's fault.

I thought at the time that this was a mistake (it quotes the lowest level pension available).

The government's thinking was that this would stimulate people into action. My thinking was that it might make many throw up their hands in despair and not bother with pensions.