Is it worth having a pension?

Desperate_Housewife_2-2

Is it worth having a pension or would the moeny be put to better use paying off the mortgage?


I have posted a similar question on the mortgage board as I hope to catch mortgage and pension focussed groups.
Sorry for reapeating the question but I wanted to catch both groups

EdInvestor

How much will you get from the two state pensions? Check here:

https://www.thepensionservice.gov.uk

Do you have other savings/investments which would pay a retirement income?

Which tax rate are you on?

dunstonh

If you are self employed, you are looking at a state pension of £4381 a year. If you are employed and have some second state pension (SERPS) entitlement then you could be heading closer to £7000 a year.

Your question is a bit like should I pay the gas bill or should I pay the electricity bill. In reality you pay both and that is what you should be doing with your retirement planning and mortgage.

Investments typically outperform interest rates over the long term so when investing for your retirement, it doesnt matter if you have a mortgage.

Desperate_Housewife_2-2

EdInvestor wrote:

How much will you get from the two state pensions? Check here:

https://www.thepensionservice.gov.uk

Do you have other savings/investments which would pay a retirement income?

Which tax rate are you on?

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thanks for the reply Ed,

It looks like we will both qualify for the basic and serps (as well as about 80k lump sum invested in OH's pension)

I have a small pension (pay £100 pm) but paid into NHS superannuation scheme for the last 20 years (no longer emplyed by them hence the private pension)

No savings as all the money we earn goes on the mortgage in an attempt to pay it all off (owe 43k)

We both pay tax at 22%

Desperate_Housewife_2-2

dunstonh wrote:

If you are self employed, you are looking at a state pension of £4381 a year. If you are employed and have some second state pension (SERPS) entitlement then you could be heading closer to £7000 a year.

Your question is a bit like should I pay the gas bill or should I pay the electricity bill. In reality you pay both and that is what you should be doing with your retirement planning and mortgage.

Investments typically outperform interest rates over the long term so when investing for your retirement, it doesnt matter if you have a mortgage.

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thanks for the reply dunstonh,

The reason I ask is that it seems to me that everyone I talk to doesn't have/doesn't trust or believe in pensions and todays Daily Telegraph had an article about poor pension provision for people despite them investing for years, which made me think that our money might be better spent on paying off the mortgage and then concentrating on saving for retirement.

I get your point about future investment but I hope that the amount we are paying in will be worth something in the years to come.

OH pays £310 pm and I pay £100.

wotsthat

Is it worth having a pension or would the money be put to better use paying off the mortgage?

I would have thought that it's sensible to save for retirement and pay off the mortgage. Retirement investments have the potential to beat mortgage returns but mortgage (over) payments give a guaranteed saving. It's probably a mistake to focus on one to the detriment of the other, unless there's some compelling reason, so why not hedge your bets and do both?

Desperate_Housewife_2-2

good idea wotsthat, I think I have become very focussed (call me obsessed if you must!) on being mortgage free, just wanted some opinions from other msers...

wotsthat

I'm not a miser but I do find that a candle has the advantage of providing both light and heat.

ManAtHome

People still believe in pensions - how many times have you heard the quote "my property is my pension"?

Important (in my view) is not to put all your eggs in one basket - now it's the property basket, 10 years ago it was the shares basket, in 10 years time - who knows? You obviously have some chance of being lucky with the all-in-one approach, but you could find yourself having to retire when the market says you can rather than when you want to...

dunstonh

The reason I ask is that it seems to me that everyone I talk to doesn't have/doesn't trust or believe in pensions and todays Daily Telegraph had an article about poor pension provision for people despite them investing for years, which made me think that our money might be better spent on paying off the mortgage and then concentrating on saving for retirement.

The media has done more to damage pensions than the pension industry. Personal pensions can invest in exactly the same areas as ISAs, bonds, unit trusts etc. Yet you dont hear people complain about them. Indeed, i have heard people say that they have stopped investing in their pension because it didnt make money and invested into an ISA instead. No logic in that at all because, for example, a FTSE tracker fund in a pension is identical to a FTSE tracker fund in an ISA.

The usual reason behind their displeasure in pension is that they were invested in the stockmarket upto 2002 and it went down with the crash. The money they then stuck in the ISA has gone up because since then there hasnt been another crash. So, all they see is growth.

A decently invested pension (or any other investment) of medium risk should be up around 60-100% in the last 5 years. (more than property as it happens).

clairehi

Desperate_Housewife wrote:

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I have a small pension (pay £100 pm) but paid into NHS superannuation scheme for the last 20 years (no longer emplyed by them hence the private pension)

DOnt forget to ask the NHS for a forecast of what you will get at pension age, this is a vg pension scheme and a valuable benefit to have had.