Starting pension when only 20 --Update #49

Anselm

Tammer wrote: »

Hi,

Your contributions.

Cheers, so to sum up:

- yes, join the scheme;
- put it in high risk if I can stomach the risk;
- contributions of 10% of my wage is ideal (but I might up it slightly as my wage isn't a lot)

Thanks a lot everyone for your help :beer:

Lokolo

Tammer wrote: »

Hi OP,

You've asked twice so far and no answers yet.

You can normally pay up to £3,600 a year into a pension and get tax relief, even if you pay no tax.

This applies to personal pensions, including group personal pensions.

T.

Just to make sure, its not £3600 as your contributions. Its £3600 including the tax relief. So its £2880 of your contributions.

http://www.hmrc.gov.uk/incometax/relief-pension.htm#2

kidmugsy

"contributions of 10% of my wage is ideal": hold on! Check how large a contribution you can make that your employer will match. If it's 10% by all means contribute 10% yourself. But if it's only (say) 8%, limit yourself to 8% and pop the rest into an ISA. What makes a pension a good investment is when someone else contributes much of the money.

Tancred

Anselm wrote: »

Firstly, I struggled with the title, so it may not get across what I wanted it too.

But, basically, I've worked for a department store part time for 3 years, and we have the option to contribute to a private pension and I want to know if I should do it.

Off the top of my head (because I don't have the exact details at hand) my employer will match my contribution and double it, and I can choose whether I want it to go into low/medium/high risk places.

As I'm 20, is it worth paying into the pension scheme, and if so, which category of risk should I put it in? It would only be a small amount of around £50 a month.

Any help/ideas/advice would be greatly appreciated.

First, please bear in mind that a lot of people who post on these forums are financial advisers and it is in their interest to push you towards taking up a pension scheme immediately. I therefore suggest you take what they say with a large helping of salt.

Now, as for your options, if your employer offers a defined benefit pension scheme (i.e. final salary or average salary based, or anyway one where the pension you'll get is defined according to your contributions) then you should enter the scheme straight away, as long as you intend to stay with your employer for at least two years. If the scheme on offer is a money purchase one, or if you don't intend to stay at least a couple of years with your current employer then you need to think carefully. What are your priorities? Saving for a deposit on a flat/house purchase? If so, then concentrate on that first. you still have plenty of time to start a pension later. If you have aspirations for early retirement, then start a pension by all means, but be very careful about what you invest in and always assume a poor rate of growth - pessimism is a healthy thing.

Personally, at your age I would only start a pension if it's defined benefit. You have more flexible options like investing in an ISA and that might be a better option for you at this early stage in your life.

taking_stock

bigfreddiel wrote: »

no brainer innit - your company is GIVING you money - grab it

also hmg will give you even more a wopping 20% in other words if you put £100 pounds intoyour pension hmg will give you a furthr £20, so all of a sudden you've put in £100 and your pension total is £220 - fantatastic

keep that up for 40 years, compound the intererst and you will have a very happy retirement

btw as you're only 20 the rule of thumb says you should aim for half your age as a percentage of your salary to contribute to your pension, i.e. 10%

go for it

fj

just a minor point of detail. you get the 20% tax relief that is already deemed to have been paid. so if you pay in £80, you get £20 in tax relief, if you put in £100 you get £25 tax relief. you pay in £125 and get £31.25 tax relief etc etc.

i agree, however, it's free money and you should take it.

Anselm

kidmugsy wrote: »

"contributions of 10% of my wage is ideal": hold on! Check how large a contribution you can make that your employer will match. If it's 10% by all means contribute 10% yourself. But if it's only (say) 8%, limit yourself to 8% and pop the rest into an ISA. What makes a pension a good investment is when someone else contributes much of the money.

Ok I'll check, however, I was just going off what other posters had advised

Tancred wrote: »

First, please bear in mind that a lot of people who post on these forums are financial advisers and it is in their interest to push you towards taking up a pension scheme immediately. I therefore suggest you take what they say with a large helping of salt.

Now, as for your options, if your employer offers a defined benefit pension scheme (i.e. final salary or average salary based, or anyway one where the pension you'll get is defined according to your contributions) then you should enter the scheme straight away, as long as you intend to stay with your employer for at least two years. If the scheme on offer is a money purchase one, or if you don't intend to stay at least a couple of years with your current employer then you need to think carefully. What are your priorities? Saving for a deposit on a flat/house purchase? If so, then concentrate on that first. you still have plenty of time to start a pension later. If you have aspirations for early retirement, then start a pension by all means, but be very careful about what you invest in and always assume a poor rate of growth - pessimism is a healthy thing.

Personally, at your age I would only start a pension if it's defined benefit. You have more flexible options like investing in an ISA and that might be a better option for you at this early stage in your life.

Ok I'll check whether it is a defined benefit pension. When I get all the info on it, I'll post more about it here, to see if there are any pros/cons to it

Thanks for the help.

GhIFA

Tancred wrote: »

First, please bear in mind that a lot of people who post on these forums are financial advisers and it is in their interest to push you towards taking up a pension scheme immediately. I therefore suggest you take what they say with a large helping of salt.

Now, as for your options, if your employer offers a defined benefit pension scheme (i.e. final salary or average salary based, or anyway one where the pension you'll get is defined according to your contributions) then you should enter the scheme straight away, as long as you intend to stay with your employer for at least two years. If the scheme on offer is a money purchase one, or if you don't intend to stay at least a couple of years with your current employer then you need to think carefully. What are your priorities? Saving for a deposit on a flat/house purchase? If so, then concentrate on that first. you still have plenty of time to start a pension later. If you have aspirations for early retirement, then start a pension by all means, but be very careful about what you invest in and always assume a poor rate of growth - pessimism is a healthy thing.

Personally, at your age I would only start a pension if it's defined benefit. You have more flexible options like investing in an ISA and that might be a better option for you at this early stage in your life.

OP will get contributions from the employer - free money. OP is not a taxpayer, yet will still get tax relief on his contributions - more free money. OP won't get this free money investing in an ISA.

If he should be pessimistic about the returns on a pension, then logic would dictate that an ISA will be no better - the investment options are the same.

I don't know the OP, so not quite sure how I would have an "interest" in "pushing" him towards a pension. Simply setting out the benefits of doing so.

OP - Generally speaking, the earlier you can start contributing to a pension, the better, and if you're getting free money towards this as well then it is (as you've already said) a "no-brainer. You will see the benefit of this when you eventually come to retire. Pay what you need, or can afford, to pay to maximise the matching employer contribution. If you have the capacity to save more after this, then ISA's are the next best option in terms of tax efficiency. The fact that you are thinking about this already is good, and will hopefully mean that in the years to come you will have instilled in yourself a saving discipline which will be useful to you when you come to to think about deposit on a property or whatever your long term goals might be.

somethingcorporate

bigfreddiel wrote: »

also hmg will give you even more a wopping 20% in other words if you put £100 pounds intoyour pension hmg will give you a furthr £20, so all of a sudden you've put in £100 and your pension total is £220 - fantatastic

This is wrong. If you put £100 in HMRC will make it up to £125.

If you want £100 of your own contribution going in you need to add £80.

atush

Tancred wrote: »

First, please bear in mind that a lot of people who post on these forums are financial advisers and it is in their interest to push you towards taking up a pension scheme immediately. I therefore suggest you take what they say with a large helping of salt.

Rubbish.:p

Even more of us are normal people who WISHED they had started their pensions at 20 rather than at over 30.

And you have sown on another thread, that you aren't taking into acct, investment growth, componding, dividends etc over those 40 years.

I agree that monies over the contribution required to get the max free money should be invested in ISAs. And that short term goals are important. But asking the OP to give up free money is just silly.

Linton

Tancred wrote: »

First, please bear in mind that a lot of people who post on these forums are financial advisers and it is in their interest to push you towards taking up a pension scheme immediately.
..

That is just silly - why would an advisor operating in their vested interest give the free advice that not going for an employers person would be very foolish. Wouldnt it more more in their interest to recommend not taking the employer pension but to contact an advisor?

To add my vote - you should take the pension and get as much free money as possible.

PS I am not a financial advisor.