Should I make pension contributions to my private pension?

alex_p

My company has a stakeholder pension scheme where the company makes a good contribution into a private pension fund. Employees can then optionally contribute additional amounts.

Currently I contribute £80 (+£20 tax back) per month.

I have been questioning whether I should continue this or not? I feel like this maybe wasting money as there are a lot of stories in the news about people making contributions all their life and then not reaping the benefits. I don't want to pay into this pension fund and later find it has been devalued due to some market events.

I am considering stopping the personal contribution and just let the company contributions continue as that is at no cost to me.

I am 29.

Any advise is greatly appreciated.

Alex

Nine_Lives

I'm fresh into all of this at the age of 28 myself, but from what i've understood - payments are necessary.

I've also done calculations & my payments of £100pm will be peanuts. Not peanuts for the life i'd like, but peanuts in general, so i imagine your £80pm would give you a similar peanut lifestyle as an end result (i.e. would be better to up contributions than to stop altogether).

This is just my own point of view from what i've understood so far. I could be way way off the mark, so i'll let the experts come and advise you on that one. Just my 2p, which with the knowledge base i have, probably isn't worth anywhere near 2p

dunstonh

I have been questioning whether I should continue this or not?

Another way of asking the same question is whether you want an income above state pension in retirement or not.

I feel like this maybe wasting money as there are a lot of stories in the news about people making contributions all their life and then not reaping the benefits.

Please can you post a link to such stories as there havent been any in the press that I am aware of. There are certainly various articles where someone paid £20pm for 30 years and reckon the pension let them down as its not paying £2000 a month income. However, that isnt the fault of the pension. That is the fault of the person making inappropriate assumptions.

I don't want to pay into this pension fund and later find it has been devalued due to some market events.

You are 29 years old. By the time you take your pension there would have been another 6 recessions and 8 financial crisis or thereabouts. With 40 years to go, all of those except the ones in the last decade will benefit you when you are making regular contributions. As you get closer, you move the investments to safer areas. Whilst you are decades away you take advantage of the volatility when it occurs.

JoeCrystal

You should keep on paying into pension fund. If it was me. I would contribute as much as possible to gain all the employer's contribution. You say that they will contribute anyway? Well, would they contribute even more if you pay in more? It is not wasting money as it is going toward your retirement.

As for people making contribution all their lives, well, the problem was that at one time, they was paying good contribution like £30 few decades and then did not increase the amount later. Now, £100 per month is now minimum amount required to pay into many personal pension scheme. As for reaping the benefits, well, ideally, you should make your pension fund less and less risky as you approach the retirement. Pension funds rises and falls like tides. No one can stop the tides after all.

Lastly, you should also figure out just how much contribution should be needed for your preferred income when you retire. £100 per month plus employer's contribution may not be enough for what you want. In my case, starting from age of 25, paying almost £300 per month will only yield £5,080 per year at age of 60 or £7,120 per year at 65 (according to Scottish Widows).

Cheers

Joe

xylophone

"Another way of asking the same question is whether you want an income above state pension in retirement or not."
But surely the op is saying that his company pension is effectively non-contributory with the option to contribute if he wishes? So he would have a private as well as a state pension in retirement even if he ceased contributing?

dunstonh

xylophone wrote: »

"Another way of asking the same question is whether you want an income above state pension in retirement or not."
But surely the op is saying that his company pension is effectively non-contributory with the option to contribute if he wishes? So he would have a private as well as a state pension in retirement even if he ceased contributing?

Any reduction in what he pays, will reduce the amount in income in retirement.

atush

I feel like this maybe wasting money as there are a lot of stories in the news about people making contributions all their life and then not reaping the benefits. I don't want to pay into this pension fund and later find it has been devalued due to some market events.

i too would like a link to one of these reports. Or are these reports from mates down the pub?

Keep contributing if you don't want to be poor in old age (or just older age as many are still in good health at retirement these days).

alex_p

Thanks for the responses.

Several of you asked for links, here is one of the more recent ones:

Why buying an annuity can be a stressful process

The article explains how the pension pots fluctuate and many end up with less than they expect.

The last quote is quite worrying:

""The whole pension set-up is very disappointing - I wouldn't recommend anyone to go into personal pensions," he adds."

The company contribution in my case is quite significant and not linked to personal contributions. So the way I see it let the company contribute (since that is at no cost anyway) but not to make any personal contributions to top it up and was just seeking some advice on this.

alex_p

JoeCrystal wrote: »

Lastly, you should also figure out just how much contribution should be needed for your preferred income when you retire. £100 per month plus employer's contribution may not be enough for what you want. In my case, starting from age of 25, paying almost £300 per month will only yield £5,080 per year at age of 60 or £7,120 per year at 65 (according to Scottish Widows).
e

Wow you contribute £300 per month? That's a lot!

gadgetmind

alex_p wrote: »

Several of you asked for links, here is one of the more recent ones:

Why buying an annuity can be a stressful process

The article explains how the pension pots fluctuate and many end up with less than they expect.

Wow, where do they find these people! A 69 yo accountant with only £150k in his pension, who hasn't taken control of where it's invested, thinks it costs £3k-£4k to set up a SIPP, and thinks it costs to switch investments.

OK, we're not born knowing this stuff, but an accountant should be able to either read a few books/articles or even (gasp!) ask someone else!

Someone else who panics and buys an annuity with the markets low and annuity rates even lower. With his £180k pot, drawdown for a few years would probably have made more sense.

Making bad decisions can give bad outcomes. The worst decision of all is not to get that pot growing as quickly as possible.

atush

Several of you asked for links, here is one of the more recent ones:

Why buying an annuity can be a stressful process

Just as I feared, a poorly researched and biased article. From a source that should know better.

All these people suffereing losses 'just before buying an annuity' are in the minority. Those who dont' know enough about pensions generally let the provder choose the investments, who usually uses lifestyling and makes sure that in the 5 years or more up to retirement to slowly move funds from equities into less volatile investments. Which would not be affected by a market fall just before retirement. And market falls affect everyone in equities, not just pensioners. So if you invested outside a pension you would see the same falls/

Any 69 yr old acct who doesn't know this was a pretty poor acct.

Those of us who aren't accountants and who run our own portfolios make sure we are balanced and move into and out of equities when the time is right to do so.

With the tax relief on your contributions, where else are you going to make a profit of over 20% on day 1? I would contribute some to your pension, but be saving elsewhere into cash and investments as well.