PhD and pension advice

caliban1

I am starting a 4-year, 15K per year tax free PhD programme/scholarship. I will be 32 when I finish. I have never contributed to a pension, should I start now & how/where? To be honest I have never considered this, and it's the first time I'll have some stable income. Any advice appreciated.

kidmugsy

Don't - you won't get enough tax advantage or an employer contribution to balance the disadvantage of the money being tied up for so long. Put your spare cash into ISAs or ns&i Index-Linked Savings Certificates, or even just good savings accounts. Transfer it into pensions when the tax deal is good, or when you have an employer who will contribute too.

It's a good idea to save for old age, but pensions are not the only route.

mac2008

Contributions to a personal/stakeholder pension will still attract tax relief - so still worth considering. I started a personal pension with Scottish Widows whilst studying for a PhD - The fact I couldn't get to the money was great - It wouldn't have stayed in an ISA for long when I was writing up! If you have the self discipline though, Stocks and Shares ISA's are probably worth looking at - Something like Hargreaves Lansdown or iii.co.uk - you'll need to do your own research though.

Personally, I'd avoid cash savings in this case (apart from building up a small safety net of a few £k).

If you're still unsure what to do, check out unbiased.co.uk and see an IFA. Make sure you understand everything they suggest - if you're not comfortable with them for whatever reason, find another one. NEVER go to your bank, who will generally sell you a poor product form a limited range.

Just_Some_Guy

I did one of those! Spent four years cursing computers and equations it was fabulous

The usual figure for pension saving is half your age as a percentage of your gross income, which is roughly 15% of what you're getting (£2,250 p.a.). Pension contributions are tax free (i.e. a contrib of £100 only costs you £80-ish as HMRC gives you the tax back on the £80). Obviously if you don't pay tax you can't get the tax back which makes pension contributions expensive for you.

However you will probably get the chance to take tutorials at some outrageous hourly rate or give private lessons after hours, and you will have to pay tax on this income. So you can optimise your retirement saving by making just enough pension contributions to reclaim the tax on your other income and bunging the rest into a stocks and shares ISA so you can access it in an emergency. You are young so can get away with stuffing the money into risky assets and waiting for the volatility to go away over the course of a few decades.

Most people who do PhDs are fresh out of uni and spend it all on beer. I know I did. Best years of my life!

Aegis

Just_Some_Guy wrote: »

I did one of those! Spent four years cursing computers and equations it was fabulous

The usual figure for pension saving is half your age as a percentage of your gross income, which is roughly 15% of what you're getting (£2,250 p.a.). Pension contributions are tax free (i.e. a contrib of £100 only costs you £80-ish as HMRC gives you the tax back on the £80). Obviously if you don't pay tax you can't get the tax back which makes pension contributions expensive for you.

Actually you can. A non taxpayer can claim basic rate relief up to £2,880 net contribution (i.e. £3,600 gross) even without paying any tax. It's not the most common knowledge, but this can be used for non-earning spouses as well as minor children, if desired.

firsttimebuyers_2

Just_Some_Guy wrote: »

Obviously if you don't pay tax you can't get the tax back which makes pension contributions expensive for you.

Careful with this - even 'non earners' can get tax relief on an annual pension contribution of £3,600.

caliban1

Thanks for some great replies guys - will think of starting an ISA and if I get any paid work (tax) along the way I'll make pension contributions as suggested above...! Cheers

firsttimebuyers_2

Don't forget you don't need to pay tax in order to get tax relief on an annual pension contribution of up to £3,600!

Good luck!

mac2008

caliban1 wrote: »

Thanks for some great replies guys - will think of starting an ISA and if I get any paid work (tax) along the way I'll make pension contributions as suggested above...! Cheers

As everyone is reminding you, any contributions you make to a pension from your stipend still quality for tax relief up to £3,600 per year.

Even if you get casual paid work like tutorials or teaching, it likely won't take you over the threshold (£7400 odd), so you won't pay tax on it anyway (or will claim it back at the end of the financial year).

Might be worth thinking about your finances in a more holistic way tbh - what about a house deposit for a few years time etc?

caliban1

Thanks,
Not sure i understand - how does one claim tax relief?

You are right about extra work - unlikely to go over 7k, silly me!
Tbh I never thought I'd be able to buy a flat, so wasn't thinking of a deposit rather a pension. but maybe you are right in suggesting that. think I'll be able to save around £250 per month, plus whatever extra jobs, and I already have 5k in an ISA.

firsttimebuyers_2

Assuming a personal pension plan / stakeholder pension plan, you would pay your contribution, then the pension provider would claim back basic rate tax from HMRC (currently 20%). Therefore if you paid £2,880, the pension provider would claim £720 from HMRC ('the tax man') making the total contribution £3,600. For non tax payers, this £720 is free money!!!