Need advice re: Husband's pension

sweetdaisy

I apologise in advance as I am ashamed to say that I don't really understand pensions, but need some advice.

My Husband is 38 years old and was made redundant in October 2011 from a job he had been in for over 8 years. In his previous job he had a stakeholder pension with FriendsLife (formerly Friends Provident I think?) and was paying around £55 a month into it and his employers also paid into it. He also transferred a small previous pension into this one.

He was fortunate to find temp work with an agency at the beginning of January, it pays National Minimum Wage and the way that the job market is going it seems that it will be a very long time until he is able to find a permanent job - if he gets a permanent job that is!

Now that he is doing agency work, he is keen to be paying into a pension as he has always done so, but not sure what to do?

He has received a letter today from FriendsLife stating that they have been informed that he was made redundant and therefore has left the pension scheme.

He has been given 3 choices:

1) continue making contributions into your pension
2) leave your pension invested with us but suspend contributions into it
3) transfer your pension to your new employer's pension scheme or another private arrangement (currently not applicable to us)

Just wondering if we can have some advice about what is best to do? I was thinking that as he is in temp work (and will hopefully continue with agency work until he is able to find a permanent job) it would be a good idea to pay around £50 a month into it - just so that he is at least paying into a pension. Can't really afford much more than this at the moment. Is this wise or should he just suspend the contributions?

Any advice will be greatly appreciated.

dunstonh

Just wondering if we can have some advice about what is best to do?

Advice on pensions and retirement planning is a regulated activity. So, you wont get advice here. Just comment and discussion.

I was thinking that as he is in temp work (and will hopefully continue with agency work until he is able to find a permanent job) it would be a good idea to pay around £50 a month into it - just so that he is at least paying into a pension. Can't really afford much more than this at the moment. Is this wise or should he just suspend the contributions?

£50pm is peanuts for a 38 year old to pay into a pension but you have temporary circumstances which you hope will change. You have to look at what a pension does. It takes money during your working life, invests it and then provides you an income during your retirement. The pension will only ever be as good as what you pay into it.

You need to look at what income you want in retirement, what you have to achieve that and how much it will cost to fill the shortfall. In that respect £50pm is better than £0 but £50 at 38 is probably only going to provide £80pm in real terms income in retirement. If you dont put the £50pm in, then what would you do with it? What in retirement would you be giving up?

sweetdaisy

dunstonh wrote: »

£50pm is peanuts for a 38 year old to pay into a pension but you have temporary circumstances which you hope will change. You have to look at what a pension does. It takes money during your working life, invests it and then provides you an income during your retirement. The pension will only ever be as good as what you pay into it.

You need to look at what income you want in retirement, what you have to achieve that and how much it will cost to fill the shortfall. In that respect £50pm is better than £0 but £50 at 38 is probably only going to provide £80pm in real terms income in retirement. If you dont put the £50pm in, then what would you do with it? What in retirement would you be giving up?

Thanks.

I know that £50 is a very small amount and we obviously haven't given enough thought to his contributions. If I don't put the £50 into his pension, it will go into the Offset savings account which is linked to our mortgage as I am looking to repay this earlier so that we can save more money for the future.

We are hoping that our circumstances change. We have 6 months of our monthly outgoings in savings - should I lose my job (as I am the main breadwinner), but know that we need to build on this.

I suppose that I am just worried that if it takes him longer than say 1-2 years to get a permanent job (with a pension to pay into), as a temp worker he will not be paying into anything, so thought that just carrying on with his contributions would help. But maybe as it is such a small amount, there is little point?

atush

If you are deciding where to put your spare cash (ie pension or mtg) first of all, have you got enough emergency cash savings left. After the redundancy I am thinking any you may have were diminished but form what figure (12 months maybe) I don;t know.

These need to be rebuilt if six months isn't enough for your piece of mind (as from your comments I can see it may not be).

then, if you can afford it, 50 a month into the pension is better than 0 per month even if it is peanuts. Peanuts are actually a good protein source in a balanced diet.

The other option is, to pay more into your pension to compensate his being out of his. this can be a good idea if his previous pension contribs are bigger than yours. As you should make sure both of you have enough to cover your personal allowance in retirement.

kidmugsy

If I understand correctly, your husband is considering paying £50 p.m. into a pension that will not be receiving an employer's contribution. Depending on the interest rate on your mortgage, it might be wiser to put the money instead into your offset account, with the intention of contributing to a pension again in future when an employer's contribution will be available.

Is there any chance that you can save enough to let you reduce the mortgage balance so that you reach an LTV that would result in a cheaper mortgage?

sweetdaisy

kidmugsy wrote: »

If I understand correctly, your husband is considering paying £50 p.m. into a pension that will not be receiving an employer's contribution.

Yes, this is correct.

kidmugsy wrote: »

Depending on the interest rate on your mortgage, it might be wiser to put the money instead into your offset account, with the intention of contributing to a pension again in future when an employer's contribution will be available.

Is there any chance that you can save enough to let you reduce the mortgage balance so that you reach an LTV that would result in a cheaper mortgage?

We have an offset mortgage with an interest rate of 4%. I am regularly overpaying around £100 a month on the mortgage and also building our offset savings so that we are reducing the term of the mortgage. The interest rate is variable and I think that I am going to stay with my offset mortgage as it is linked to my current account and savings accounts.

sweetdaisy

atush wrote: »

If you are deciding where to put your spare cash (ie pension or mtg) first of all, have you got enough emergency cash savings left. After the redundancy I am thinking any you may have were diminished but form what figure (12 months maybe) I don;t know.

I have saved 6 months worth of monthly outgoings, should I lose my job, as my pay covers all bils and direct debits. DH's pay is used for the weekly food shop, fuel for the cars and weekly 'spending' money etc. I know that this needs to be built up, ideally to 1 year of outgoings.

atush wrote: »

The other option is, to pay more into your pension to compensate his being out of his. this can be a good idea if his previous pension contribs are bigger than yours. As you should make sure both of you have enough to cover your personal allowance in retirement.

I am on a Final Salary 1/60th pension in my work and have been paying into it for 8 years. I transferred a previous pension into it when I started my employment. I am paying just over 8% a month into my pension (around £200) and not able to increase my contributions anymore as I am at the maximum level (from what I understand).

annie1975_2

We have an offset with first direct which is 2.79% .(not sure if you could get it that low at the minute).But looking at their website they are less than 4%...if you are already with first direct might be worth a call to see if there is anything better. Thats what I did and it worked out £30 a month cheaper with no fees. i think I would be tempted to put the £50 into your offset until later.

kidmugsy

sweetdaisy wrote: »

We have an offset mortgage with an interest rate of 4%. I am regularly overpaying around £100 a month on the mortgage and also building our offset savings so that we are reducing the term of the mortgage. The interest rate is variable and I think that I am going to stay with my offset mortgage as it is linked to my current account and savings accounts.

Excellent! I think that offset account may also be the best home for the £50 p.m. at the moment. It also means that if he later wants to contribute to a pension you've both already adjusted to that lack of £50 per month in your spending money.

sweetdaisy

kidmugsy wrote: »

Excellent! I think that offset account may also be the best home for the £50 p.m. at the moment. It also means that if he later wants to contribute to a pension you've both already adjusted to that lack of £50 per month in your spending money.

Thanks for the reply. We have decided to 'suspend' his contributions and pay the £50 into the offset savings account. As soon as he gets a permanent job where he will be able to pay pension, we will transfer his old pension into the new one and increase the contributions.