Not a Pensions Fan

rissott

Im not a Pensions Fan - well I am a pension fan but not a pensions contribution fan- ideally Id prefer to pay of my mortgage first but

My company pays a % if I pay a % therefore I want to pay that amount in per month, but I also just sneak into the higher rate tax band and I want to maximise my contributions such that I only pay in the amount that is in the higher rate.

Im sure Jimmy Carr would know how to do this, but is there a calculator or fomulae that takes into account my tax code, my deductions for childcare vouchers etc , the amount Im currently paying in pensions contribution and calculate the amount Im over the higher tax bracket to pay into my pension fund.

jimi_man

rissott wrote: »

Im not a Pensions Fan - well I am a pension fan but not a pensions contribution fan- ideally Id prefer to pay of my mortgage first

Isn't it better to do both? I would have thought that with interests rates as low as they are at the moment, having a mortgage is not a significantly bad debt. By the time you have paid a mortgage off early you have wasted a number of years of pension build up.

Happy to stand corrected if that's not the case, just never understood the desire to shift a mortgage rapidly at the expense of everything else.

dunstonh

By the time you have paid a mortgage off early you have wasted a number of years of pension build up.

.... and if you leave yourself short of income and capital in retirement you may end up having to borrow against the property again for equity release and that will be very expensive in comparison.

Happy to stand corrected if that's not the case, just never understood the desire to shift a mortgage rapidly at the expense of everything else.

100% into any one option is rarely a good idea. Personally, I am overpaying the mortgage, increasing my regular investments contribution and have increased what I pay into the pension.

This lowering of interest rates for mortgages has been great (for many people).

zygurat789

dunstonh wrote: »

....

This lowering of interest rates for mortgages has been great (for many people).

Those would be people who have high incomes and large mortgages, the ones with "the broadest shoulders" who can best survive the current economic situation.
Those with small incomes who depend on their interest for their income, ie pensioners, are the ones who are bearing the brunt.

jem16

rissott wrote: »

is there a calculator or fomulae that takes into account my tax code, my deductions for childcare vouchers etc , the amount Im currently paying in pensions contribution and calculate the amount Im over the higher tax bracket to pay into my pension fund.

Add up your gross salary, gross savings interest, gross dividend payments and any taxable benefits through work.

Then deduct £8105 (personal allowance) and childcare vouchers. Anything above £34,370 is the gross amount you need to pay into a pension to avoid higher rate tax. Remember that you will pay the net amount minus the 20% tax relief.

dunstonh

Those with small incomes who depend on their interest for their income, ie pensioners, are the ones who are bearing the brunt.

Interest has never been a reliable way to provide an income. You are subject to real terms capital erosion and generally when interest rates go up, inflation has gone up.

gadgetmind

dunstonh wrote: »

Interest has never been a reliable way to provide an income. You are subject to real terms capital erosion and generally when interest rates go up, inflation has gone up.

I keep trying to gently explain that to my inlaws but never get anywhere.

Fortunately, their index linked public sector pensions mean this constant withering of their nest egg isn't crippling them.

rissott

jem16 wrote: »

Add up your gross salary, gross savings interest, gross dividend payments and any taxable benefits through work.

Then deduct £8105 (personal allowance) and childcare vouchers. Anything above £34,370 is the gross amount you need to pay into a pension to avoid higher rate tax. Remember that you will pay the net amount minus the 20% tax relief.

Thanks Jem

Other people thanks for the input - I understand mortgage debt is as good debt as one can have and this will slow down my pension growth but at the moment pensions are not growing and no mortgage would be a weight off my shoulders in interesting times such as these

JoeCrystal

rissott wrote: »

At the moment pensions are not growing.

Well, it is still growing through your contribution and at least you still get your employer's contribution. It is still free money from them and would cost you less since it is paid gross. As for pensions, well, they are investments after all and like all investments, they rise and fall. If you are still far off from your retirement age then the current time should be viewed as an opportunity to buy units at cheaper price. In my pension scheme at the moment, the return is just 3% compared to return of 7% about four months ago but showing a loss of -12% eight month ago. It may appears it is not growing but that may be because pension funds' price are low?

Cheers

Joe

jamesd

Rissott, are you anywhere near to age 55 by the time the mortgage ends? Paying higher rate income into a pension then taking the pension tax free lump sum is a wonderfully efficient way to increase a pension and also get effective tax relief on the mortgage capital payment.

zygurat789 wrote: »

Those with small incomes who depend on their interest for their income, ie pensioners, are the ones who are bearing the brunt.

And those pensioners who used investments to produce income, with lots of government bond holdings and safer corporate bonds, will have seen nice capital value increases and quite stable income levels as well. That's because the same thing that causes the interest rate drops causes the capital value of the investments that produce it to increase.

The ones who suffer with low interest rates are mainly those who act as if they are in poverty, using only savings accounts, or those who only have enough money to uses savings accounts because they really are in poverty. Poverty here meaning near to inability to pay for food and utillities, not relative poverty.

Those who can use a sensible mixture of investments can do fine. Diversification and balance matters in retirement as well as before. This is part of why you'll normally see posts here recommending substantial use of investments for income in retirement. It's necessary for long term income protection, uncomfortable though it can be. Uncomfortable is why you'll also see me normally suggesting a couple or three or more years worth of income from investments as cash in savings accounts as part of a mixture.

dunstonh

but at the moment pensions are not growing

In what period are you referring to?
When investments are down or volatile, that is a good period to buy. If you wait for them to go back up again and buy at that point then you miss the boat.