Pensions... are they worth it?

TheSenSibleOne

Ok so heres my current scenario,

21 years old, no pension. Getting married in november, going to college in september to study catering. After 1 year get a job as a chef for 4-5 years meanwhile saving around 500 per month (6k per year) Open our own restaurant using 35k worth of savings (already have 5k squirrelled away)

So my question for the board is, should I bother paying into a pension? Would I be better off saving as much as we can towards the restaurant. Even if the restaurant fails, I will only be 27 ish. If it doesn't then the restaurant will pay for our retirement as we can afford to get managers in when we retire.

Lokolo

There will be benefits to the company by paying into your pension, such as lower NI contributions I believe, as well as benefits in your pay packet (tax relief), so yes, it could be worth it.

I also doubt you will be able to open a restaurant for just £35k.....

TheSenSibleOne

Lokolo wrote: »

There will be benefits to the company by paying into your pension, such as lower NI contributions I believe, as well as benefits in your pay packet (tax relief), so yes, it could be worth it.

I also doubt you will be able to open a restaurant for just £35k.....

Ok, that sounds interesting. I'll have a look through that. So maybe wait till restaurant set up before starting pension?

The 35k will cover set up costs, 12 months leased premises, equipment, staffing (though mostly it will just be us to start with) licenses etc etc.

dunstonh

So my question for the board is, should I bother paying into a pension?

Basic state pension is just over £5000 a year. Do you fancy that from age 70?

The money you pay at the youngest age is the money that will work the hardest for you and give you the best results. Every year of delay will cost you more when you do eventually start. At 21, you can afford to pay a smallish amount. You would need to more than double it at 31 if you left it that late.

TheSenSibleOne

dunstonh wrote: »

Basic state pension is just over £5000 a year. Do you fancy that from age 70?

The money you pay at the youngest age is the money that will work the hardest for you and give you the best results. Every year of delay will cost you more when you do eventually start. At 21, you can afford to pay a smallish amount. You would need to more than double it at 31 if you left it that late.

so even if i just put £50 a month away it would be worth it as a backup?

Thrugelmir

TheSenSibleOne wrote: »

so even if i just put £50 a month away it would be worth it as a backup?

What if your business venture doesn't take off?

Loughton_Monkey

When I try to analyse your question, I find myself thinking that this is a far more fundamental issue than whether or not to start a pension now. But first, here's the straight 'technical answer':

No. Don't start a pension now. Save your £5K a year in a Stocks & Shares ISA. As you probably know, these days, these will perform virtually exactly the same - not least because you can invest (and many do) in exactly the same funds - one in an ISA wrapper and the other in a Pension wrapper. Hence if plans change, then in 5 years time you have not burned any bridges. You can start a pension then, and also drip feed your ISA money into to get the tax relief. You will not have 'lost' a penny by this strategy if things change.

However, what your scenario is telling us, is that you wish to provide your 'retirement fund' by a single act of setting up, and running a business, hoping that by putting 'managers' in when you wish to hang up your oven gloves, the business will provide enough for you to live comfortably on.

On a scale of 1 to 10, where 1 is cautious and 10 is 'risky', you are at least in the 11 or 12 category! Look at the huge failure rates of new businesses, like restaurants. Then look at the very few that 'survive', and work out the chances that it can not only turn a profit, but pay a manager and a 'comfortable' income for the proprietor, then you have another extremely bad number.

OK, things may go well. You could make Gordon Ramsey's empire and wealth look like pocket money if you are very successful.

But the world is full of people who have believed that self employment/entrepreneurship is a substitute for pensions. Property owning is the 'usual' one! But these boards are full of such people who realise (possibly around age 50) that even though their business has survived, they 'forgot' to set up a pension, and wonder how they are going to live on the £5,000 state handout!

So full marks for your ambitions. Hope it goes well. But please save for your retirement as early (and as much) as you can. Blowing hard-earned cash on a new business venture is very risky. At best, it will take untold hours/work from your life, and probably every penny you can save, borrow, or steal until you have built it up....

dunstonh

so even if i just put £50 a month away it would be worth it as a backup?

Yes, at your age, a £50pm contribution towards your retirement provision will make a difference as long as you increase that £50pm each year by inflation. (i.e. next year moved it to £52 and so on.

If you wait until 30, then £50pm wont cut it. However, at 21, it will and if you keep it up with inflation, you wont have to worry about adding too much more in real terms in future unless you do well enough to want to do it.

somethingcorporate

Have a play around with the calculator here:

http://www.hl.co.uk/pensions/interactive-calculators/pension-calculator

Delaying putting £50 into a pension a month by six years (in an example I ran through the calculator) cuts the annual income by 33%, ten years and your income falls to just a half of what it would be had you started now.

The earliest years are by far the most important for you.

johnaka

Basic state pension is just over £5000 a year. Do you fancy that from age 70?

what a load of !!!!!!!!. most folks are either dead or knackered by the time they(if)reach the age of 70.
very few folks in manual work are in good health at that age.
several of my friends inc 1 brother died before the age of 65 and 2 just after . my last brother died age 72.
most of those that live a long life are living down south very few up north by comparison.
do you honestly think the youth of today are going to have a long and prosperous life by the time they retire at 70. I don't think so after working for over 50 years.
all of us are still paying into the state pension through your national insurance but the government are telling you that.
as far as I'm concern the previous and present government are NOT putting these monies into some kind of pension funds if they had or did we wouldn't be in this mess and thanks to G.Brown when he raided the pensions for tax.
that to has !!!!!!ed the final salary pensions.
in view of all this ,is there any wonder most folks just aren't bothered about pensions.

dunstonh

hat a load of !!!!!!!!. most folks are either dead or knackered by the time they(if)reach the age of 70.

I dont know where you live but it sounds awful if that is what it is like in your area.

do you honestly think the youth of today are going to have a long and prosperous life by the time they retire at 70. I don't think so after working for over 50 years.

Remember that age 70 in 30 or 40 years is similar to age 60 now.

in view of all this ,is there any wonder most folks just aren't bothered about pensions.

Those that arent bothered are typically those that are living a consumer lifestyle for today and not thinking about tomorrow. It very much reflects the decline in personal responsibility and adult thinking. I know there are exceptions where people cant look after themselves but its too easy to blame others.

Remember the Panorama (or similar) programme a couple of years ago which showed some whingers about pensions and how they couldn't afford it. Sitting down in front of their large plasma TV with rows of DVDs and computer games complaining about how hard it was to find the money.