To Pension or not to Pension?

Skinto_7

Hi Folks,

Bear with me but looking for your advice/views what i should do with my money.

I currently have a company pension which i pay into and my employer matches any contributions upto 3%.

Due to the recent debates regarding pensions and whether they are worth it and what alternatives to look at has got me thinking.

I currently own 2 properties, recently bought house + my previous bacheloer pad which i am currently doing up to put on the market.

Do you think i would be best to reduce my pension contributions to 3% (as matched by employer) and keep my flat to rent out (using the other 6% of my pension contribution to fund this rather than a pension)

In an ideal world i would be able to rent the flat out (covering the existing mortgage at worst) whilst using a portion of my 6% for repairs/maintenance etc and hopefully saving a decent % of this in an ISA with the result in 20 years having a flat that has been paid for by renters that i could flog and whatever cash i saved from 6% in an ISA plus the ongoing 3% in my pension being matched by my employer.

Does this seem like a decent plan, better idea than contributing 9% to a pension my employer only contributes 3% to??

Thanks

atush

It depends, why cant you keep the flat and rent it and Still pay into the pension?

I'd do that, but I can't see that 6% contributions will a good pension make.

Skinto_7

In short i could do that, but in the event that i had a few months with the flat not let and/or had to undertake any major repairs i would maybe struggle without the comfort of the pension money available to me.

My pension is 12% in total not 6% (9% by me 3% employer) i agree this still isnt going to make for an amazing pension however i am 28 years old, and would look to increase either my pension contributions or alternative investment amount in coming years.

My major concern with a pension is that no matter how valuable it is at retirement age, i will be 70 by the time i get access to it and even then i will only be allowed to access 25% of it as a lump sum and maybe only get another 5-10 years of modest monthly payments!!

Would it not be better to invest in property and isa's that i can in theory get access to and enjoy when suits my circumstances at the time? Perhaps if i was to live to 100 the pension would prove value for money but other than that i am struggling to see the benfit?

kidmugsy

If you are a higher rate tax payer the pension might have the edge. If not, perhaps some other investment - but it's not obvious why it has to be letting a flat.

jamesd

Why would you need any of the pension money to fund the flat? For BTL to be sensible there should be a profit from the rent after paying the interest only mortgage costs and all other expenses. If you can't get that then selling is probably a better idea than letting.

The age at which you get access to normal personal pensions today is 55. Today it's expected that half of men who retire at sixty-five will live to their late eighties. It'll probably be late nineties by the time you get to seventy.

It may well be a good idea to switch all of the pension money except what it takes to get the employer match into a stocks and shares ISA instead. Then it's available if you do have a need for it. if you don't the S&S ISA allows the same sort of major investments as a pension so you won't be worse off.

Just in case you didn't know it already, having a rental property is one of the things that makes it necessary for you to be part of the self-assessment tax system and file a tax return every year.

atush

My pension is 12% in total not 6% (9% by me 3% employer) i agree this still isnt going to make for an amazing pension

Yes but 6% is what you were contemplating going down to (and not a good idea IMHO). you should put in half your age so are already behind (unless you started at say age 18).

My major concern with a pension is that no matter how valuable it is at retirement age, i will be 70 by the time i get access to it and even then i will only be allowed to access 25% of it as a lump sum

again, a constant misunderstanding here between state pension, and private pensions. You would be able to access the private one at 55. State pension may well be 70 or a few extra by the time you retire. But that is only the gravy, you will be living on what you put by mainly. Unless you plan to be poor in retirement.

Would it not be better to invest in property and isa's that i can in theory get access to and enjoy when suits my circumstances

THe maon thing is you can get access. Which means there is little to NO chance that money will be there on retirement. You will spend it. On fripperies (fast cars, fast women, holidays) or on essentials (children, family, house, bankruptcy, redundancy). Pensions are pretty much safe from the fripperies and the essentials (at least until retirement age). Have isas and other assets instead and they are fair game if you fall on hard times (to the Benefits people, and your creditors).

Dont steal from tomorrow to fund today.

If you buy a property (or let yours), you need to have extra income or savings to fund those costs and void periods. So, make sure if you keep it, your rent will be 120% of mtg and other costs. And save the rest for the maintenance/voids etc. So make sure you have a cash cushion, and that you have income in excess of costs at the start.

If that doesn't work, what about the idea to reduce your pension from 9% your contribs to say 6-7%? And make a standing order or DD to your ISA or savings each payday for the extra. which can then be used to fund emergencies/voids?

You can't do any of this fancy pants stuff until you have an emergency fund, which I suggest whoudl be a min of 3 monts and 6 months preferable of spending in Cash ofr emergencies.

Sounds to me you will be sailing close to the wind and inline for a possible financial sinking.

Loughton_Monkey

I cannot see why you are forced to wait until 70 to take the pension. This may well be your State Pension age, but other pensions can be taken at any time after 55.

I am guessing that you have fully grasped the need to invest far more than 12% in order to provide a decent retirement income, but the vehicle(s) you use are a matter of personal choice. Pensions, ISA's, and Property all potentially have a place. You really need to make your own decision on the 'mix', fully taking into account the potential growth rate, the risks, and potential tax implications.

As an 'experienced retiree', I would strongly counsel you not to place too much emphasis on the constraints of pensions [i.e. the fact that you must take most of it 'on the drip']. Yes, we all need a bit of cash behind us, but in the absense of any 'hard advice' on when we will die, we spend our lives looking after our capital and drawing an income from it to fund our lifestyle. A pension does exactly that. Plus it underwrites longevity.

I consider my own 'mix' to be perfectly suitable. When I add up all my assets [age 62 after 6 years of retirement] I find in very round figures that my 'assets' are 40% in pensions [not all of which are crystallised], another 40% in Property [my own house, half of which I will probably release into cash by downsizing]. The other 20% is in a mix of 'savings' and 'investments'.

I owe my 'comfort' with my situation 90% to do with having saved/invested sufficient money over my working/earning life. And only 10% to the 'choices' I made regarding investment vehicles.

In other words, less to do with "To Pension or not to Pension", but more to do with "To invest X% or Y%".

PS is 'pension' a verb? Or have you been tainted by our transatlantic friends? I find that in USA, there is not a single noun that has not been verbed!:cool:

Skinto_7

Thanks for all the responses guys, much appreciated and has certainly provided some focus for me.

I think a proper review of my current pension investments and what i can and cannot do within this is in order, then i will review what other options are available and crystalise exactly how much i can invest and not squander on fripperies :-)

Again thanks for taking the time to respond guys.