Paying over employer's matched contributions

arteh

I'm currently a member of my employer's DC pension scheme, which is a reasonable one, matching my contributions up to a maximum of 8% of my salary. It's currently invested in the 'growth' fund, which although it took a bit of a hit about half way through last year, has been slowly growing the last few months.

I've been thinking recently that I could probably afford to pay a little bit more into my fund, say something like 10% of salary with the employer contribution remaining at the 8% level, but my question is - would that be a good idea? I have a cash ISA but am unlikely to use my full allowance this year or next, and so would the money be better saved in a (much) more accessible form such as this?

My rationale for considering putting the extra into a pension is that it 'locks' it away so that I can't touch it for a while as well as the obvious tax benefits, and the potential for compound growth. For info I am 27 years old with around £7k saved in my pension so far, and a salary of around £35k. I am not a homeowner, and am unlikely to be for a few years yet.

Cheers

xylophone

On a salary of £35000 I would have expected you to have saved at least the cash ISA allowance for the year......hope it's not all going on cigarettes and whisky and wild, wild wimmin....;)

I'm all for saving into a pension but at some stage you are likely to want to buy a house - so ISA (cash and stocks and shares) and pension would seem the ideal route?

atush

I too am concerend abt your aparent lack of savings. You should have 6 months of outgoings/salary saved in cash, and then move onto other investments.

So if you lack this now, hit saving hard for that unti you do, then increase your pension. Or save into S&S ISas alongside.

arteh

I have around £6k of savings (approx £4k in cash isa and £2k in company share scheme, after tax and ni deductions, so not a million miles away from the 6 month target. I take the point that at my income level I should probably be using my full ISA allowance though, so I might concentrate on doing that before worrying about anything else...

property.advert

Aside from any required matching contributions, stop paying into a pension and push hard to save up a deposit for a property.

Why ? because you can't leverage your pension fund to provide accommodation and if you keep stuffing it all into the pension, you'll never get to the stage where you can buy something. When you are older and when your salary is higher, you can pay more into a pension.

Linton

arteh wrote: »

I have around £6k of savings (approx £4k in cash isa and £2k in company share scheme, after tax and ni deductions, so not a million miles away from the 6 month target. I take the point that at my income level I should probably be using my full ISA allowance though, so I might concentrate on doing that before worrying about anything else...

Company share scheme doesnt count - consider the worst case scenario of your company collapsing and you losing your job. 6 months savings means savings - ie cash or something guaranteed to be quickly converted to a known amount of cash.

Your company share scheme is really part of your long term investments.

property.advert

atush wrote: »

I too am concerend abt your aparent lack of savings. You should have 6 months of outgoings/salary saved in cash, and then move onto other investments.

So if you lack this now, hit saving hard for that unti you do, then increase your pension. Or save into S&S ISas alongside.

6 months as a cash buffer is nothing and if anything should be looked upon as an absolute bare minimum rather than the goal.

If you think about a worst case scenario, where you lose your job and cannot find another one, then six months is not enough to extricate yourself from all your financial commitments.

arteh

Thanks for the input guys, this is all very useful stuff. If I'm honest, I've probably relaxed on the savings front recently, I've saved over 3 months' salary (what I considered to be a decent buffer) and upped my spending a bit.

I hadn't really thought about it that way, but the above poster is right in that the share scheme is potentially fairly closely linked to my job security (which I consider to be relatively secure for the time being, but who knows...).

It seems like a good financial strategy would be to plough all spare cash into a cash isa (and any overflow into s&s) for the time being, in order to aim for that elusive house deposit.

However, let's imagine I have managed to buy a house in let's say 4 years time - at that point would it be wiser to overpay the mortgage, or to 'overpay' the pension fund? Bearing in mind that at that point I could potentially be getting 40% tax relief on pension contribs if all is going well job-wise. It probably seems as if I've getting a bit hung up on this pensions idea, but I'm just interested to see when it would start to be a good way forward!

atush

property.advert wrote: »

6 months as a cash buffer is nothing and if anything should be looked upon as an absolute bare minimum rather than the goal.

If you think about a worst case scenario, where you lose your job and cannot find another one, then six months is not enough to extricate yourself from all your financial commitments.

I was giving it as a minimum.:p