Pension Plan, ISA or other?

JibTeenuc

Please help if you are able.

My (new) employer provides a pension plan as part of my pay package.

I have to sign and agree to it (which, of course, I will as it currently costs me nothing at all). But I am also given the option of contributing more into the plan and the document says that my employer will match my contribution £ for £ which seems like a good deal.

But a few of my friends have said I should just accept the basic Company plan as I would be better paying into an ISA or similar.

Yet I can't help but feel that if my employer will match my payments into their pension fund that surely means my investment will be effectively doubled.

I'm so confused and I have to hand my signed agreement back to HR on Monday.

What should I do?

HELP!!!!!!!

JoeCrystal

It is free money! Take it with both hands! It is good deal in my opinion. Do you know how much the company willing to match? Generally, if you can afford to, you should match it fully to gain most money from the company.

Ideally, you should be paying into Pension & ISAs. Both have their advantages and disadvantage but advantage of employer's contribution and tax relief is big plus for pension. Since it is before tax, for example, paying £100 into pension only cost you £80 but become £200 in pension with your employer's contribution. How do you think that compare to putting £80 into Cash ISA? In term of retirement provision, it does not!

Cheers

Joe

JibTeenuc

JoeCrystal wrote: »

It is free money! Take it with both hands! It is good deal in my opinion. Do you know how much the company willing to match? Generally, if you can afford to, you should match it fully to gain most money from the company.

Ideally, you should be paying into Pension & ISAs. Both have their advantages and disadvantage but advantage of employer's contribution and tax relief is big plus for pension. Since it is before tax, for example, paying £100 into pension only cost you £80 but become £200 in pension with your employer's contribution. How do you think that compare to putting £80 into Cash ISA? In term of retirement provision, it does not!

Cheers

Joe

Thank you for replying but I am still confused although I think we both agree that double the money going in (half mine and half my company's has goto to be better than just my lonely little contribution). The reason I'm confused is cuz you said "paying £100 into pension only cost you £80 but become £200 in pension with your employer's contribution."

I don't know what you mean. "Paying £100 only costs me £80" ??

Sorry for my ignorance.:)

JoeCrystal

JibTeenuc wrote: »

Thank you for replying but I am still confused although I think we both agree that double the money going in (half mine and half my company's has goto to be better than just my lonely little contribution). The reason I'm confused is cuz you said "paying £100 into pension only cost you £80 but become £200 in pension with your employer's contribution."

I don't know what you mean. "Paying £100 only costs me £80" ??

Sorry for my ignorance.:)

Well, in order to encourage people to save into pension scheme (as far I am aware of), your pension contribution get income tax relief of 20%. So for example, I pay £80 from my bank account into my personal pension scheme, it become £100 in my pension fund. Generally, the company take £100 gross so you do not pay income tax on that £100. If you do not pay into pension scheme, then that £100 get taxed and you will only get £80 take home pay.

I hope that make sense?

Cheers

Joe

JibTeenuc

JoeCrystal wrote: »

Well, in order to encourage people to save into pension scheme (as far I am aware of), your pension contribution get income tax relief of 20%. So for example, I pay £80 from my bank account into my personal pension scheme, it become £100 in my pension fund. Generally, the company take £100 gross so you do not pay income tax on that £100. If you do not pay into pension scheme, then that £100 get taxed and you will only get £80 take home pay.

I hope that make sense?

Cheers

Joe

I forgot about the tax. You are right. Thank you.

I think I will accept the Pension Plan and contribute as much as I can so that my boss does the same. It can't do me any harm...... can it?

dunstonh

It can't do me any harm...... can it?

Pensions are only as good as the amount you pay into them. Most people complaining about pensions do so because they didnt pay enough in and blame the pension.

Always try to get as much "free money" from the employer as possible. Many work places have employees who slag off their pension or spread misinformation. In our area there is a bit regional employer whose employees always seem to say the same thing about the pension. They say it is useless nd dont join. Yet it matches up to 15% contributions. Workplace myths are some of the most damaging.

atush

Pension Plan, ISA or other?

this isn't the way to think. But instead to say Pensions, ISA AND Other!

All 3 have a place in a good financial plan. Pensions for tax releif, employer's contribs and safety from injudicious spending or from creditors and means testing.

Isas for tax free growth and income and access before age 55.

Other, for easy access cash, and to use up CGT exemptions for emergency access and use before age 55.

So, grab that pension with both hands, and put in enough to get the max employer's contribs. Then build up 6 months spending in easy access (use cash ISas to start until ou fill them up) and then move on to other ISAs and investments.

xylophone

http://www.hmrc.gov.uk/incometax/relief-pension.htm
for information.