Pension Query

jaspal

Hi,

I hope someone can assist...

I am 26, since I was 23 I have been working for a large organisation that matches my pension contribution. I am currently investing the minimum (5%) which amounts to about £100 per month. So combined with my companies contirbution this becomes £200 pm.

My wife is self employed and has no pension, she is also 26. She wants to start a pension, and we were wondering what is the best thing to do.

OPTION 1

I increase my pension payments to 10%, this way my payments go up to £200 pm and with the companies contribution this becomes £400 pm.

OPTION 2

My wife does her own pension. As she has her own business, she invests £100 out of her own pocket, with no other benefits.

OPTION 3

Any other ideas ?


I will be grateful for assistance

Finishrich

Definatley take advantage of your employers contribution match , what's the maximum % they will match?

The maximum you can contribute into a stakeholder, at your ages is 17.5% of your earnings or £3600 PA, not sure if company ones are the same. Go for 10% each then increase it by 1% every 6 months and you'll soon get to the max.

Also check what funds your contributions are being invested in, do you have a choice in the fund selection?

I know it probably sound like a lot each month but the earlier you start the larger your fund will be at the end when you retire. My other half nearly died earlier this year when I told him he'd need to double his monthly pension contributions. But 6 months in any everythings going just fine and if you want a decent retirement income then your really have to save now to do it.

jaspal

Hi, Thanks for your reply.

My employer matches a maximum of 10%.

I do have a choice of fund selections - I have gone for what they recommend - hermitage long term something.

So far it has grown by about 5% per annum

By my calculations, if i get a 3% payrise every year, and my investment grow by 5% every year, with my emplyers contributions, when I hit 60 in 2038, my pot will have about half a million pounds.

Now, I know it sounds alot, but how much it todays money is it worth?

Basically what my company does is that it invests all the money in the stockmarket, when i hit 60, it removes it and then they invest that money into a pension plan for me.

Is it worth doing this. How much will half a million pounds really be worth in 35 years time.

Am i better of paying my mortgage instead, thus paying it 10years earlier and then saving for my retirement with that ????

Help ????

lisyloo

Your employers scheme is very generous.

Personally I woud go for increasing your pension rather than other things for the following reasons.

1) Your employer will give you "free money".
2) You get tax relief on you contributions. This is 22% if you pay basic rate tax, but 40% if you pay higher rate tax.

Disadvantages to pensions are

1) There are charges. They can be difficult to understand and hidden.
2) Some funds perform badly - difficult to control.
3) Totally inflexible - only pays out in death, retirement or proven terminal illness.
4) Not ideal to have it only in one name if you ever split up.
5) If you wife pays more tax than you then it might be better in her name.
6) Lack of control over the investment (occasionally schemes get wound up and bad things happen e.g. equitable life). A lot of people have turned to other investments e.g. property because of being disillusionment.

Personally I think the money from your emplyer overweighs most of the concerns.

Finishrich

You really must increase your pension to 10% and take advantage of your employers contribution.  It is very generous and you really can't affored not to take it up, Do it tomorrow. After all it is free money like Lisyloo said.

Also with your mortgage try and overpay even a small amount each month. Set up a standing order and that'll help reduce the term of your mortage, assuming the deal you're on at the moment allows overpayments.