pension or debt clearance?

Learning2Budget

My oh set up a pension about 6 months ago. He has approx 100 pound come straight out his salary. Would it make more sense to put that money to our debt and restart the pension once we've cleared the.debt?

Learning2Budget

Or is this a really obvious and stupid question?
L2B.x

Winky,_The_House_Elf

No its not an obvious and stupid question!

I'm interested to see the responses too!

The earlier you invest in a pension, the better your returns in the long run (OK so i'm generalising here) BUT how does that stack up against the benefit of clearing your debt and being able to put in more in the future?

Someone more clever will be along soon!

bubble32

This is a tough question , but it really all depends on the size of the debt and the type of pension you have. Normally I think its best not to stop pension payments unless you are in a serious trouble.

How much debt are we talking about ? If you are only trying to pay off a loan or a crdit card then do not stop paying the pension. Its compound interest issue : if you stop payment then you loose out on the long run as you will have to put in lots more later to get the same result.

You could always try to shift the debt on to a cheaper loan or credit card - some offer 16 mnths for 0% these days or could get a personal loan .

What type of pension is it?
Mine is less then 100 for a month but the company I work for adds on top of that. So in a scenario like this if you dont pay you dont just lose the 100 but would lose the extra payments as well. This may not be too much in the first year but if you dont pay for a couple of years you would need to save a lot more to be able to catch up again.

Learning2Budget

Our debt is at £31000 ish at the min...see my Sig. Husband is 40 years old and we know that that is late setting one up but tbh we've been late sorting out everything financial. Just want this debt cleared now and are throwing everything toward it.
We have 2 very small children and we want to be able to have fun holidays n stuff like that while they are young enough to want family times. But we also want to be debt free without this burden hanging over us.
L2B.x

phoebesmum2105

Must admit I thought about this as well, to freeze pension for 1 year, pay off all debt and then restart pension, I work for the NHS, but the way pensions are going at the moment, I think the government are hoping we are all dead of exhaustion before we can claim our pensions:mad: after all I sometimes look after people who are younger than I will be at retirement age, old and knackered:A

Learning2Budget

The company puts in a % of what he puts in too. Need to fight.my way into the filing cabinet for.the paperwork.x

Learning2Budget

phoebesmum2105 wrote: »

Must admit I thought about this as well, to freeze pension for 1 year, pay off all debt and then restart pension, I work for the NHS, but the way pensions are going at the moment, I think the government are hoping we are all dead of exhaustion before we can claim our pensions:mad: after all I sometimes look after people who are younger than I will be at retirement age, old and knackered:A

Me too!! My pension is too good for me to freeze it but cos his has only just started we were thinking we wouldn't lose a lot.x

eyeopener2

For the poster in the NHS pension, do not do it, its not worth it. Your pension is unobtainable outside of the NHS so jsut sit tight. You will be glad you did.

For the OP - although it does seem at the outset that the £100 will clear a bit of debt, the money you lose from the contributions of his employer is gone forever. You will not get that back - and can you catch up your own contributions in say 5 or 6 years? it will cost you double if not treble the amount for the same pension.

I really don't think its worth it. if you were 20 maybe, as your OH is 40 I don't think it's wise.

Happy to be contradicted though! Why not post the same question on the Pension board there are a lot of experts who pop in to answer this type of query.

E2

Oneday77

Odds on if you OH pays say 5% of his gross pay into his pension his employer will match to the nearest percentage. This effectively doubles his contribution. Also have a look at his payslip, does it show as a negative on the gross pay side of it, so reduces his taxable and NIable pay. If it does that too then his £100 from his wage saves tax and NI too, so he only loses £68 out his take home pay.
That could then mean that his £68 could really be £200 going to the pension. Then some employers also pass on a half of the employers NI saving so that could be an additional £6.90 towards a pension.

So is £68 a month to debt repayment to save interest worth losing a potential £138.90 extra to the pension pot?

I've stopped my pension for a year as we have a baby on the way and while my OH is on maternity the extra cash will be much welcomed.

rising_from_the_ashes

eyeopener2 wrote: »

if you were 20 maybe, as your OH is 40 I don't think it's wise.

Oneday77 wrote: »

If it does that too then his £100 from his wage saves tax and NI too, so he only loses £68 out his take home pay.

Absolutely agree with both of these ... if you/your OH were in your 20s (sorry:o) then it may be worth considering but even starting now his pensionable salary is going to be over a max of 25 years and if delayed any longer will have an even more detrimental effect on your retirement years.

Also, (and I hate to mention but .....) there will be a death in service benefit on the NHS pension which is also really worth having - not wishing anything to happen but having lost a friend at 39 recently, it very sadly does happen.

Any pension where the employer is paying a contribution (and the NHS is better than many) is worth hanging onto if at all possible.