13% non-contributory pension - cash or contribution?

atush

Not only should you take the pension, but you should also pay in more.

First of all, 13% at age 40 is not enough, you should be paying in around 20% overall (but this should include your tax relief). Second, your salary would I assume increase over the years, did you take that into acct? what rate of tax do you pay? If you took the money in cash, and invest it in cash, it wont beat inflation much less grow.

try the pension calculator at Hargreeves lansdown. And you won't necessarily need a spousal pension if your spouse has one of their own?

martinbsp

Thanks for all the help everyone, I need to go away and do some more homework. It's also really helped me understand more about how this works.

Finding 7% extra would be tough but do-able in a few years time I think (by which time 20% probably won't be enough).

Will give the Hargreaves Landsdown calculator a go.

Lokolo

martinbsp wrote: »

Good point. But let's assume for arguments sake that I saved £3k a year in an ISA meaning I'd have £60,000 ISA savings. I'd have access to all of that. That would provide a £2k income every year for 30 years (up to age 95), so 5 years short of the 35 years the pension provides me with*

So surely extrapolating the argument above it comes down to whether I want to secure an income between the age of 95-100?

(*My maths is terrible, the logic probably starts falling apart by this stage)

Yes but you are then not comparing like for like.

You are saying that £2k income through the ISA vs. an index linked pension. I think you will find the outcome very different if you use the calculator for non index linked.

Does the company offer any additional matched contributions?

dunstonh

No idea how that stacks up against an ISA. I was just blown away by the small amount of annual return.

It stacks up identically as far as rate of return is concerned.

Vis-a-vis assumptions, here's what I selected:

- I would make no additional payments myself
- the pension contribution would stay exactly the same over the remainder of the period
- that the pension would keep up with inflation
- ticked joint life annuity (or its equivalent)

Its no wonder it shows such a low figure then. You have put in an annual reducing figure in real terms and asked for the income to be shown in todays terms. Not future money terms and by the looks of it, you have asked for an indexed pension (which is very expensive. An opton that is not possible on an ISA).

But what I was really questioning is whether having access to ALL the money via ISAs (and assuming it hasn't been squandered on the way) would not be better (broadly speaking) than receiving what on the face of it seems to be a very low amount of money per year.

Pension will beat the ISA for income. ISA will beat the pension for capital provision. Assuming you dont squander it on the way.

Good point. But let's assume for arguments sake that I saved £3k a year in an ISA meaning I'd have £60,000 ISA savings. I'd have access to all of that. That would provide a £2k income every year for 30 years (up to age 95), so 5 years short of the 35 years the pension provides me with*

You are not comparing like for like. On the pension you have put todays terms with an indexed pension. Yet on the ISA you are looking at future money terms with a level income.

Unless you do comparisons using the same assumptions then they are meaningless.

soperman

Hi Martin

I think you need to check the notes on the calulator carefully as it does appear that you may have requested the outcome to be displayed 'after inflation' Over 22 years this will have the most signiicant impact on the figures. For example, let's say you take the ISA option and after income tax and additional NIC, you save £3480 over 22 years (£76560) and you receive nil growth. Inflation at just 2.5% p.a. would reduce the buying power of that £76,560 to £44,471!! Let's then say you can get a 5% yield on this from age 65 you would receive an income of £2224 p.a. so the final income numbers are similar using this comparison.

One other comment. If your employer is prepared to let you take the cash, the employer NIC on £6,000 is £828 so you could ask your employer to increase the pension contribution as they will be saving this amount each year if you take the pension contribution.

richbeth

martinbsp wrote: »

.

Vis-a-vis assumptions, here's what I selected:

- I would make no additional payments myself
- the pension contribution would stay exactly the same over the remainder of the period
- that the pension would keep up with inflation
- ticked joint life annuity (or its equivalent)

Hi,
did you also elect to take the 25% tax free lump sump ?

Try this calculator
https://www.moneyadviceservice.org.uk/en/tools/pension-calculator
it shows ca £5k pa pus a £53k lump sum.
R