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Clueless about pension possibilities :(

ryan92
Posts: 603 Forumite


I'm a few weeks into my new job and as it's only part time atm, I only earn just over £400 per month! I'm also only 21 and The pension offered by the company is 5% of the monthly wage which equates to £20! It also details that the actual cost to me is £20 so there is no tax or NI relief which it shows for those who earn more.
In my current position, what is the best thing to do? Opt out, or try and go down the private route? Absolutely clueless tbh
Thanks for any help! :beer:
In my current position, what is the best thing to do? Opt out, or try and go down the private route? Absolutely clueless tbh

Thanks for any help! :beer:
Currently in a Trust Deed 30 payments until DEBT FREE - February 2027
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Comments
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A person who pays no income tax because their whole income is below the personal allowance still gets basic rate tax relief on up to £3600 gross of pension contributions a year.
However, is this a "smart pension", more properly called "salary sacrifice" pension? In those, the pension money is deducted from gross pay before tax. For those paying tax that conveniently and automatically gets them their income tax relief and also NI relief as a bonus. But there's a catch for low earners: no income tax is due anyway and the way this is done doesn't let them get the normal 20% income tax relief, because the whole contribution is treated as an employer contribution.
Is the company adding any money? If yes, probably best to join because that's money you only get if you do. Otherwise you're just volunteering to lose the part of your pay that the company would have added.
If the company is not adding any money and my guess that this is a salary sacrifice scheme is right, then it's best not to join because you're losing the tax relief that you'd get if you paid into a pension you set up yourself.
What are your needs for things like saving for a property deposit? Doing that inside a S&S ISA might be best at your age, particularly if there is no employer contribution.
Note that this answer only applies because the income here is below the income tax personal allowance.0 -
Given your professed debts of 4 months salary it may be more sensible to have a plan to clear them.0
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As James point out I think the key point here is whether the employer is adding any money.
If they are, and they could well be doing, then I think you should definitely take it as in reality you're getting free money for sacrificing just £20 per month.
I know you're only 21 and so saving for a pension sounds like a crazy thing to do, but it isn't. If you can get into the habit of saving for your retirement now you will be very glad you did by the time you get into your 30s, 40s and 50s. A small input now is equal to a VERY large input input in 30 years time.
Even just £20 per month for the next 40 years will add up to just short of £24,000 if you got a return of just 4%, which is more than you'd get in the bank, but pretty average if it is invested in the stock market.
If you were to increase the £20 by inflation each year (let's assume 2.5% per annum) you'd have a nest egg of slightly over £35,000. If your employee is doing matched payments, which could be the case, then your £20 per month (increasing with inflation) would equal £70,000 in forty years time. Not bad huh! It would certainly be a good start to a healthy retirement fund.0 -
Join the pension if the employer is adding money.
If they aren't clear your debt then build up an emergency fund (so you can keep out of debt). Once this is done, relook at the pension issue.0 -
Hi Ryan, did you manage to sort anything out yet? Hope the employer turns out to be making a contribution.0
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