overpayments or pension pot

lkmc01

Hi

I'm 26 and have just bought my first house with my partner. I've been reading advise on this site saying how important it is to pay into a pension.

(On a personal note I'm not working at the moment, I finished my MSc in January, I'm looking for work and attending interviews every couple of weeks, but nothing as yet. My partner works full time and can start paying into a company (Stagecoach) pension from next month. Its 5% of his wages and the company match it. We also have a 6 year old son.)

But, isn't it better to make mortgage overpayments and pay the mortgage off sooner, therefore being charged less interest and being mortgage free quicker and therfore make savings or to pay into a pension? Obviously it would be best to maximise both, but I imagine most people do not have this luxury.

I was thinking that saving money from mortgage overpayments is more of a guarantee than pensions.

I admit thought I know very little about pensions.

Thrugelmir

Is 5% the minimum amount your partner can contribute to the pension scheme?

lkmc01

Thrugelmir, I think so, but I was going to go for the mortgage overpayment option as his company will only match 5%, nothing more. Ie, if he pays 5% (about £17 a week) the company will do too, but he he pays 10%, Stagecoach will still only pay 5%.

Thrugelmir

Personally I would take the pension route. Over £800 a year free money is to good to turn down.

Even overpaying the mortgage by a small amount is a step in the right direction if it is affordable.

lkmc01

I think he will pay 5% pension and then occassional mortgage overpayments.

Got me wondering between mortgage overpayments and pensions though.

Is what Stagecoach offering pretty typical in terms of companies and pensions?

Thrugelmir

Employers vary in their approach to pensions. Any matching of contributions in my mind is too good to turn down. Providing its affordable.

dshart

I think he will be better off putting it in the pension. I know at a young age pensions seem quite far off, but the earlier you start contributing the better your pension pot should be when you retire as it will have had more time to grow and see off swings in the market.

Overpaying the mortgage is also good but when you look at it and compare the two the pension deal is better. Overpayment of mortgage is similar to saving that money at an interest rate same as your mortgage rate, but with the pension route you immediately double your money, get the tax incentive and the growth rate of the pension fund you invest in.

Only problem is we dont know what will happen to pensions in the future, but the same could be said for property.

lkmc01

what tax incentive?
if my partners employer will only match up to 5% then how is it doubling you money if we pay in 10%? It would be getting 150%.
Our mortgage rate is currently 4.14% (5 yr fixed) and its over 25 years. I am 26 and my partner 28.
I have not had a full time job yet since I left school what with doing A levels, BSc, MSc and voluntary work, so have paid very little NI contributions. I've probably not earned more than 4 grand over the past 10 years in the occassional part time job.

Which throws up another issue, in my opinion. What about the thousands of students who have gone to University to study, not to purely drink or mess about, have work experience and have no job. Since we are not contributing to the economy (although we wish to) our pensions are going to be suffering in the long run. Unless we pay in way over the odds when we do eventually get jobs. Which will (due to low consumerism) have a knock on effect again.

whatyadoinsucka

if you think you can survive on a state pension when you come to retire in 30-40 years time you are delusional.
you need a private pension now, yes the current time pensions seem pointless but its likely no state pension will be available, so if you want a comfortable retirement start now
if you contribute 5% into a pension pot and it is matched by the employer you are doubling your money (on the 5% x2 = 10%)
also remember pension payment come of gross salary, reducing the tax payable..

ps. imho all university degrees should have compulsory sandwich years in which to gain experience in the real world. what is the point of getting a batchelors and then a masters if you are not employable.

worry about a pension when you get a job

lkmc01

No I do not believe you can live off a state pension, but I have no job so there is nothing I can do about it. I'm 26 now, time is ticking on.

I understand that my partner would double his pension if he pays in 5%, but he wouldnt he if pays in 10%.

Also I didnt know that pension payments come of gross salary.

Thats what I'm saying, there is alot of graduates (like myself) with no job and then no contributions. The economical situation will have a knock on effect for years to come when graduates have a reduced pension compared to those before the recession.

I myself have over 13 part time work experience placements between 3 months and a year long which I have taken to develop a good range of skills. I apply for jobs, a few a week in my local area and get the occassional interview but never the job.

dshart

lkmc01, I think it would benefit you to look further into pension savings and their benefits. I can not explain it properly but you get tax relief on pension contributions so for every £78 you save its as though the government pay you £22.

My comment on doubling your money was based on your original post where you mentioned 5% of wages being matched by the employer.