Pension or house deposit?

MadeToFit_2

I'm 35, I rent, and I have no pension.
I know I'm a bad person so don't start

I can save up to £700 per month (I don't eat much and abhor turning the heating on

So, which to concentrate on? Both is stupid because that just lengthens the time it takes to complete either.

I think house deposit because the way things are going I can expect to work until I'm dead anyway, but if you're not paying rent then it's easy to live on a state pension, and you can release equity from the house if needed.

The reason for choosing a pension would be if I expect to be paying rent at retirement -- which I find a horrible thought.

How does my reasoning hold up?

Ta,
MTF.

InsertWittyName

Contribute the minimum to your work pension needed (if you have a work pension) to get the maximum benefit from the employer.

Everything else in the house deposit.

dunstonh

I'm 35, I rent, and I have no pension.
I know I'm a bad person so don't start

In monetary terms, you are about £35,000 in provision short of an ideal average income in retirement (i.e. a quick and dirty guide is to aim for £35k in a pension by age 35).

So, which to concentrate on? Both is stupid because that just lengthens the time it takes to complete either.

Both is not stupid because if you focus on one, the other will suffer and could have consequences later down the road.

I think house deposit because the way things are going I can expect to work until I'm dead anyway

Considering your age and lack of current savings/investments that is almost certainly going to be the case.

but if you're not paying rent then it's easy to live on a state pension, and you can release equity from the house if needed.

So, you end up buying a house and paying around two and half times what it cost you to buy (in interest and repayment) and then get to retirement only to then have to borrow on it again to pay you an income in retirement.

Does your employer offer a pension which they pay into?

MadeToFit_2

Thanks for the replies.

My employer does have a pension scheme, but it's a closely guarded secret. My boss encourages me to get a SIPP, the implication being that I should buy shares in the company. (They like giving us worthless options too.)

£35k at 35 eh? I don't understand how anybody who's been university educated can ever attain that without exceptional luck. If I'm lucky then my big share option will actually be worth that and can be exercised early next year. If so then I'll be back asking what to do with it

On the subject of pensions: am I correct that 'a pension' is just a special tax efficient container for shares and funds? Isn't it also the case that with most pension products the provider's default recommendation of fund is pretty rubbish? So how do you choose? (Indeed, how do you pick a share to invest in...?)

Is there a way I can dribble cash into a pension -- say £200 per month? What sort of set up would I need for this? Can it be flexible about how much I put in?

The house calculation is interesting.
£150k at 5% over 15 years is £212k repayable.
Rent at £900 per month for 15 years is £162k.
That still means you're £100k ahead with buying (because you have the house and the end of it).

marathonic

MadeToFit wrote: »

£35k at 35 eh? I don't understand how anybody who's been university educated can ever attain that without exceptional luck.

It's all about starting as soon as you walk into your first job. Doing this makes £35k at 35 very achievable.

I'm well in excess of that on a salary of £28k (less in previous years) and I'm 30. I also bought my house last December. It's all about balance.

If you don't start a pension now, it'll be about saving a house deposit for 3-4 years, then furnishing the house for 2-3 years, then kids come along, then 'god knows what else'. Before you know it, you're 55 years old coming on for advice on what to do about your 'non-existent' pension.

Also, remember that a pensions contributions are out of pre-tax earnings.

JoeCrystal

MadeToFit wrote: »

My employer does have a pension scheme, but it's a closely guarded secret. My boss encourages me to get a SIPP, the implication being that I should buy shares in the company. (They like giving us worthless options too.)

Then find out more about it and join it! Especially if they contribute to it. If it is defined benefit one, then it is very foolish not to join it.

MadeToFit wrote: »

£35k at 35 eh? I don't understand how anybody who's been university educated can ever attain that without exceptional luck.

Education got nothing to do with, only realistic attitudes. I have been paying into a pension since Sept 2010 at age of 24. I started with a lump sum of £4,500 and kept on putting roughly 15% to 25% of my earnings. Already I paid £17,853 with the fund value of £20,451 on Fri 5 Jul 13 at the age of 27. Ultimately, it cost me £14,282 because I get tax relief for the pension fund. Think how much better the fund value would be if my employer match the contribution. I got little over seven years to hit £35,000 so by using the amount that I paid in so far, I would only need to pay £197 per month net (however, the real value of £35,000 is higher due to inflation) [Currently, I am paying £312 gross per month or 25% of my base income] so I will get there eventually.

Have a play with the pension calculator...

For someone starting at 18 or 21, then it is cheaper to reach that target.

Cheers,
Joe

dunstonh

£35k at 35 eh? I don't understand how anybody who's been university educated can ever attain that without exceptional luck.

Pretty easily. If they started at 25 and got a conservative return of 5% p.a. average then it would cost £225.82 gross. That is just £180pm after basic rate relief. Or £135 net if higher rate taxpayer.

If they left at 23, then its £174.44pm gross. Which is £139pm net of basic rate. See what difference a couple of years delay can make?

At 18, it can fall to £109 gross (£87 net).

All very achievable and reasonable figures.

On the subject of pensions: am I correct that 'a pension' is just a special tax efficient container for shares and funds? Isn't it also the case that with most pension products the provider's default recommendation of fund is pretty rubbish? So how do you choose? (Indeed, how do you pick a share to invest in...?)

Pension is just a tax wrapper. yes.

The default fund is not necessarily rubbish. It can be basic and no frills but it does a job. If you dont know what you are doing you could do far worse than invest in the default fund.

MadeToFit_2

What sort of starting salary are you assuming? I barely cleared £1k per month, and we've got new starters here on £14k which (due to the changes in income tax thresholds) comes out at a little above £1k too.

The tales of fabulous wealth and how I'm too late to get in on the act aren't helpful. I can't put myself in your position -- that ship sailed 10 years ago -- so how about you put yourself in mine? That was the question anyway: how do I make the best of this apparently diabolical situation?

dunstonh

What sort of starting salary are you assuming? I barely cleared £1k per month, and we've got new starters here on £14k which (due to the changes in income tax thresholds) comes out at a little above £1k too.

That still fits in with the figures. Especially if employer contribution is included.

The tales of fabulous wealth and how I'm too late to get in on the act aren't helpful.

They are if they make you realise the sort of level you would be looking at.

I can't put myself in your position -- that ship sailed 10 years ago -- so how about you put yourself in mine?

At the moment, you are planning to be on the breadline/poverty level in retirement. That is your position based on what you have told us. Is that what you want?

planteria

it's not so diabolical MTF.

InsertWittyName wrote: »

Contribute the minimum to your work pension needed (if you have a work pension) to get the maximum benefit from the employer.

Everything else in the house deposit.

i like that approach, but some employers are very generous:D

what does MTFs employer offer? this is the key really....if you obtain the information, study it, and reply here with a summary i am sure contributors will give you their thoughts.

planteria

dunstonh wrote: »

At 18, it can fall to £109 gross (£87 net).

that really does illustrate the benefit of starting early dunstonh. our GCSE Economics teacher drilled this in to us......but i still didn't take her advice :doh:not starting to receive a salary until i was 23 and the company i worked for pushing us into Equitable Life wasn't very helpful:(