Need some advice

CharllieSays

Hi guys. I need some advice for my partner. Since moving in together I have discovered we have/had very different history where finance is concerned.

I've had a pension and savings since college, whereas he has no pension and minimal savings of £2k. He has recently paid off his debts and got rid of all but one credit card (that we use for petrol due to the cash-back). In the last few months we have begun to save for a deposit on a house, so around 20% of our joint income goes towards that.

My main concern is his lack of pension. He is nearing 40, and as his salary is fairly low (£18k) there isn't much left to put by after rent, bills, deposit savings, etc each month. We are both using ISAs to save for the deposit. Is there much point in him starting a pension scheme at this point (his salary is unlikely to go up that much in the next few years) or should we just focus on getting the house and use my pension + his state pension when the time comes (and hope for some lucky break like inheritance or lottery win)?

I am a bit younger than him and likely to earn more in the long run, so I am not worried about myself. But I was taught to save from a young age and can't help but worry that he will not have enough to live on if he hit 50-odd and was made redundant. His line of work is very physical, so I'm guessing he would have trouble if for whatever reason he found himself out of a job later on. What are his options?

Money_Doctor

an income protection/redundancy policy might be a consideration, over the coming years on the assumption that he is employed he will be compelled to save into a pension under auto-enrollment although the end result is unlikely to produce much in the way of income......

Some mortgage companies are not comfortable with a mortgage terms beyond retirement just another consideration

jamesd

When he's only nearing 40 he still has plenty of time to greatly improve his retirement income situation because his state pension age is at least 27 years away at 67.

McKneff

If his company offers a pension scheme, I would grab it with both hands.

TH1878

No harm in starting now, with 27 years to go before retirement. However, his employer is going to have to auto-enrol him into a pension scheme over the next few years anyway.

dunstonh

When you get into your 40s and paying into a pension, the cost gets closer to real terms benefit (i.e. spending power after inflation). You limit your ability to have real terms growth that those in their 20s and 30s can really benefit from.

e.g. £500pm gross contribution will provide £500pm income in todays terms (it will be higher but have the spending power of £500 today)

My main concern is his lack of pension. He is nearing 40, and as his salary is fairly low (£18k) there isn't much left to put by after rent, bills, deposit savings, etc each month.

And this is before you even buy a house which will bring its own costs as well.

Is there much point in him starting a pension scheme at this point

At what point would you put it off to? There are always excuses to give that will allow you to find "better things" to spend the money on now.

Does his employer offer a pension?

CharllieSays

Wow - I wasn't expecting a reply so quickly! Thank you to everyone who responded.

No, unfortunately his employer doesn't offer a pension scheme (they are only a small company). Although as was pointed out, this will likely change at some point.

We are struggling to save regularly for the deposit at the moment, so not sure where the extra money to save in a pension would come from. We are lucky that our rent is currently lower than average as we rent privately, but this won't last forever and we want to make use of the time we have to save as much as possible for a house. Hence considering delaying the pension for now. If our property is sold (likely in the next few years), and we have to pay the average rent amount (plus all the security checks, deposit, etc that agencies/landlords demand) then our ability to save will all but disappear. We are both working all the overtime we can to try and get £30k together asap (we couldn't do this indefinitely as we are both burning out fast, but as a temporary measure it's doable). But the deposit is the goal right now. After that I guess I want to know what options he has for retirement.

He has no plans on ever giving up work entirely (I doubt either of us will be able to), and we both have side projects that may create additional income in the future that we would continue with if we could not get PAYE jobs for whatever reason. But we are not basing anything on this and want to make sure we have a basic income as a safety net later on in life.

bigadaj

Whilst this is a pensions board many of the responses don't seem to consider that for the vast majority of the population then income is limited and needs to be split. People need to prioritise between housing, saving, invest net, pensions etc and views will vary.

The advantages of a pension are less clear where there is no employer contribution and standard rate tax is being paid. Sounds as though you are best saving hard for a house deposit which will give you some security, and then looking at isas, though review if employer provides pension scheme.

atush

personally, I would say for him to start a pension- 27 years is a long time for compound interest/invmt returns but obv not as good as your pension started from age 21-22.

If you should wait the next 2 years or so til his work pension will start is another thing. But you could inquire (ie have him do so) when they are thinking of starting up as the clock is ticking.

Another thing is if you have children/dependents and if you will do in future as that has to be saved for was well.

CharllieSays

Thought I would come back with an update. We have managed to get £11k together for the deposit (great), but his company say they have no plans to auto-enrol him into a pension yet (not so great). We are both reconsidering career options (easier for me, as I graduate next year and have a fairly good academic/work history, not so easy for him as he has ADHD and as a result employment and academic history are pretty fragmented). We have no plans to have children at any point (I did all my 'mothering' at a young age and want my own life now and my partner feels the same), so house and pensions are our main concerns. Is an ISA really a good alternative to a pension?

atush

No. As it doesn't get Tax relief. Every 80 into a pension becomes 100. Every 80 into an ISA is, well, 80. And they WILL have to get a pension for his at some point in the next few years.

However, ISAs can be better in some instances. If you had a final salary pension you didn't want to take earlier/reduced. If you had a good pension and paid off all debt/mtg etc.

Isas are tax free, income incl pension s aren't. Everyoneshoudl have at least enough pension to use up their personal allowance (Isas being tax free don't use this up) so it would be good to have a pension, how ever small to start.

I would also delicately suggest your OH has a money problem (ie debts now paid off, low savings etc). Suggest a spending diary (for both of you so as not to cast aspersions) and then you will see where he is wasting cash.

The rules of the diary are that every 50p or more spent has to be recorded, from parking charges to a cup of tea. You can make it a pound, but he has to honest. Many use the change in their pockets -can be 5-0 quid and don't count it as it is 'change'.

Every penny helps in gaining knowledge and changing habits. so keep a proper count for a month. Could transform his perceptions as I bet he doens't have a clue where his cash is going.