Contributions - Advice Needed

BlondieLondon

I'm counting water and CT in the 800 as they are constants, so the rent itself is less. I had considered moving but I live with a close friend, we work really well as flatmates and our current location suits both of us. Also being in a secure building, in quite a safe neighbourhood on a well lit street close to transport links are all important factors to me. Maybe moving out of London in a couple of years will be the most sensible option :-)

redbuzzard

I've just read through the whole thread which I hadn't been following.

The underlying point seems to be less 'how much do you need to put into a pension' (the practical answer always seems to be "more than you thought"!), than where to strike the balance with other forms of saving, be it ISAs for long term saving or for a house deposit.

It would be good to think that everyone could put pension to the top of the list and leave everything else to wait until that is covered. Real life isn't like that. And while people looking for an excuse often exaggerate perceived risks around pensions, there are uncertainties and restrictions (not all bad).

There's a lot to be said for some trade-off. Call it diversification if you like. A house deposit is likely to be a good, tax free, investment long term, even if that isn't the primary reason for buying a house.

The important thing is to do something. My saving over the years has been pretty random, but the underlying theme, except for a few years when things were tight (deferring having a family until financially secure means never for most people) has been to consistently spend meaningfully less than our income, and periodically chuck spare money and bonuses into mortgage overpayments, PEPs, TESSAs, AVCs, FSAVCs and ISAs (getting rid of the mortgage early means you can ramp up savings later).

It wasn't perfect, and some hefty chunks of money got shifted from savings to pension to benefit from higher rate tax relief in 2009-12 when it became apparent that some old personal pensions were duds. But all in all, it has worked out, subject to Osborne's inflationary depredations.

In the end, whether you have put your surplus cash into buying a house earlier, saved in ISAs, or saved in a pension probably won't make that much difference, if you have the awareness to keep an eye on things overall, which you clearly have.

I understand the wisdom of the half-your-age principle of course, but it isn't a straitjacket and there is life before retirement to think about too.

Apologies if that is a rambling statement of the blooming obvious.

Just make sure you don't pass up free (employer) money meanwhile. And reflect that you'll probably have more higher rate tax relief to burn up in a few years, assuming it's still available.

Good luck.

atush

I think in your case, you want to build your deposit and buy a place pronto. I get that. But D was rtight, 1% isn't enough.

If you can put in 9% (saving 11% to your deposit) then that would put you close to where you should start. Even 5% would be better than the 1%. How much longer will it take you to build your deposit if you do this? Ie how much of a deposit do you need, how much have you already saved?

As long as you whack up contribs after you have your deposit (and they will automatically go up when your pay increases), I think it is fair to concentrate on getting your deposit together, but do start saving in the pension ASAP.

SG27

I had the deposit vs pension decision a few years ago. I was living with my patents do was saving a lot of my income. I came to the conclusion that every extra pound I saved for the deposit would save me about another 75p in mortgage interest. So I decided (rightly or wrongly) to save everything for th deposit and nothing for the pension. Well it took around 8 years of saving but we moved in a few weeks ago. We saved a 50% deposit so our mortgage payments are relatively small compared to our friends.

I've just filled out the application for my first pension and at 30 will be saving 16% of my income. I'm hoping to increase this once I get settled into paying bills and everything.

atush

sounds good to me.

But what often hapens after buying is the ;Oh I need to buy this for the house and I need to redecorate that thing. then there is the Oh I cn have a baby now. And the pension doesn't get adressed for other reasons.

for those with your discipline, the Deposit first, pension next is great. Too many fall at the second hurdle, I think.

SG27

atush wrote: »

sounds good to me.

But what often hapens after buying is the ;Oh I need to buy this for the house and I need to redecorate that thing. then there is the Oh I cn have a baby now. And the pension doesn't get adressed for other reasons.

for those with your discipline, the Deposit first, pension next is great. Too many fall at the second hurdle, I think.

That's very true. There are so many unexpected things to buy with a house. Luckily we budged for just about everything.

My form is filled in cheque written out. Just waiting for my new driving licence with my new address to send as ID.

stinktankcynic

Even with a pension pot of £200k, your likely to get an annuity rising at 2.5% a year of maybe £6000? Part of this could be taxed? That's not great is it. To get drawdown am I right in thinking you need a pension of £20k a year? A pot of £250k> plus state pension a minimum.
Pensions are a good idea, but restrictive in what you do with them. they are an old fashioned product, not fit for purpose. Remove the tax relief, take away the employer contribution etc, and and isa would be better. Why don't they get rid of pensions and allow employees to have an employer contribution into savings OK OK instead?

atush

You don't need to buy an annuity, and I dont' plan to (this side of 75 anyway) So get that limitation out of your head.

Pensions are no longer so restrictive, and you do need income that will use up your personal allowance.

The bit about removing the tax relief, and the employers contribs is kinda silly. Those are 2 of the major points of pensions.

Take away the tax free status of ISAs and they are just accounts.

jem16

stinktankcynic wrote: »

To get drawdown am I right in thinking you need a pension of £20k a year? A pot of £250k> plus state pension a minimum.

No you're not right.

Flexible drawdown has the £20k requirement but normal Capped drawdown has no requirement.

stinktankcynic

jem16 wrote: »

No you're not right.

Flexible drawdown has the £20k requirement but normal Capped drawdown has no requirement.[/QUOTE

Thanks

So with a £100000 pot instead of taking an annuity at say 5.8%, you draw an agreed amount from the pension each year, perhaps £5500 after charges, based on government rates. So instead of getting an income for life and losing the pot, you perhaps take a slightly lesser amount each year, after some complex reviews and some additional charges you may have some fund left, if you have say £70000k left at death, what happens? Is it then paid to your estate less 55% tax, or can you pass the pot on? Can you for example, take a lump sum at 60, drawdown for 5 years, then buy an annuity at 65 with the remaining cash? So drawdown is a bit of a gamble, if values fall, you could run out of cash, if markets rise, you may be able to increase your drawdown amount every few years and also have something to pass on?