Contributing to company pension or savings account?

tashalove

Hi guys,

I've been automatically enrolled into my employer's DC scheme and have noticed that they have made monthly contributions to it.

I'm thinking of making my own contributions to this but not sure if I'm better off putting this monthly amount into a savings account?

I mean, what is the benefit of a pension? Am I guaranteed a rise in the fund value in the future?

Also when they say that the employer matches your contribution, does that mean they pay the extra % they say they will offer?

I'm just confused about all this 'free' money - too good to be true? Is there a catch?

Sorry, this seems to be more applicable to the pension forum but I'm really unsure how pension outweights the savings side. I'm 23.

Can anyone advise? Thanks!

Thrugelmir

Do you have savings for an emergency? Do you want to buy a house?

Priorities change through life.

Saving into a pension scheme from an early age will be beneficial. Even though the money won't be available to draw on for years.

If possible save something into the pension while you are free and single.

kidmugsy

A young friend of mine has an employer who contributes the same amount whether or not he contributes. I've suggested to him that he should contribute himself only if it lets him avoid higher rate income tax. Inhis previous job his employer would match his contribution up to 4%, so I suggested that there he should contribute the 4% and get his "free money" even though he was nowhere near paying higher rate tax. But remember that these are pension schemes not savings accounts - bar the near-death exception, the money is inaccessible until you are 55.

Thrugelmir

kidmugsy wrote: »

bar the near-death exception, the money is inaccessible until you are 55.

When will you be drawing your state pension?

Save now and retire earlier...........

opinions4u

Both.

Look to maximise any employer matching contributions.

Make sure you continue to build up a contingency fund (3-6 months net pay) to cover a crisis such as illness / redundancy.

Make sure you can fund the rest of today's lifestyle without borrowing (holiday, next car, replacing the tv / hoover / washing machine when it next fails).

Consider the medium term too (next house, kids' educations etc).

It's a tough battle at times, but the tax relief (for every 80p you put in you pay 20p less tax) you get on pension contributions and anything you can get added to it by your employer is not something to ignore.

(Most pension schemes have no guarantees to them, but if you're not in them you can't benefit).

MoneySaverLog

opinions4u wrote: »

It's a tough battle at times, but the tax relief (for every 80p you put in you pay 20p less tax) you get on pension contributions and anything you can get added to it by your employer is not something to ignore.

I think it may be slightly more than that as I don't think you pay as much NI when you're paying into a pension, you'll also get higher tax relief if you are/ever become a higher rate tax payer.

Dave101t

im 28 and have been mulling over pensions for the last few years. not in company one.
the benefit is its not taxed when taken from wages, so your income tax will be reduced.

i have savings and a mortgage free house so im not bothering with a private pension, dont forget the government is setting up a 2nd 'universal' company pension scheme which will be automatic, in the next year or so which will act as a company pension itsself.

jem16

MoneySaverLog wrote: »

I think it may be slightly more than that as I don't think you pay as much NI when you're paying into a pension,

This is only true of final salary schemes and salary sacrifice schemes.

atush

My personal advice to you would be to contribute to the pension. You get tax releif, and you will face a better and more comfortable future.

But as has been said above, you do need to save outside the pension as well. Into a cash ISAs, or elsewhere a min of 3 months expenditure, but 6 months is better. Then after you have done that, you should save in general. For a house deposit, your next car, your next holiday etc. Don't get into the habit of financing future purchaces thru credit if you can avoid it.

Thrugelmir

Dave101t wrote: »

i

i have savings and a mortgage free house so im not bothering with a private pension, dont forget the government is setting up a 2nd 'universal' company pension scheme which will be automatic, in the next year or so which will act as a company pension itsself.

At what age do you expect to receive this?

Having a secure job through to retirement for many is a distant dream.

tashalove

Thank you all for the helpful posts above. I think the most I can contribute is 5% and my employer will match this. Is this on top of the existing % they are currently paying (without my contribution)?

This will work out to be £100 pm from my salary and I think that isn't too much if I think about the long term benefits.

I understand that I won't be able to access the money until I retire which is fine by me. I just don't want to end up like both my parents who don't have a private pension and are worrying how they can survive on just the state pension.

I think my pension is currently in equities, is my money safe? Would there be a chance that in 40 years time my pension would drop alot in value and I would lose all that I had contributed? This is what I'm really worried about as at least if I had saved it into a savings account, I won't have lost any of my money.

Can anyone clarify? Is this what happened to the private pensions during the last recession?

Sorry I'm being such a pain, I feel like in society now I just have to grow up real fast and start thinking about my future. Money just doesn't grow on trees, if I don't do something now it's going to be too late