Should I increase contributions?

snowqueen555

Salary £15k gross 28yrs old :eek:

To achieve the highest contribution from my employer (10%) I need to pay in 4%, but I've started putting in 10% just because I can. I was wondering if I should increase this to 15% or even 20% because I can afford it, it just means I save a little less into my isa, so I am wondering exactly how to split savings between cash savings and my pension...

I'm thinking if I pay 15% (25% total contribution) this will means gross savings between cash and my pension 50/50, is this a good ratio?

Thanks

hugheskevi

I was wondering if I should increase this to 15% or even 20% because I can afford it, it just means I save a little less into my isa, so I am wondering exactly how to split savings between cash savings and my pension...

To determine that, you need to consider your financial objectives.

For example, if you are saving for a house deposit, more into a pension is not a good idea. If you want to build up more income for later in life, a pension is a very suitable vehicle.

I'm thinking if I pay 15% (25% total contribution) this wil mean I pretty much divide my savings between cash and my pension 50/50, is this a good ratio?

Again, depends on what you are trying to achieve, and when. Cash is suitable for precautionary savings, flexibility and liquidity but shocking for returns. If you don't have enough cash it is usually a very high priority to build up a suitable cushion, then once that cushion is in place start saving in other vehicles.

Depending on what you think your future earnings will be, whether you have salary sacrifice available and your financial objectives (eg house purchase, mortgage, family, child costs, car purchase, school fees, university fees) will determine what vehicle is best suited to save in.

Perelandra

14% is a decent amount to be putting in, if you're starting at 28. Pension is important, but then so are other financial things. What are your other objectives?

Is your pension scheme "salary sacrifice" by any chance?

snowqueen555

No I don't think it is salary sacrifice.

I already have a years emergency fund saved, would like to save up for the possibiltiy of a deposit. I don't have much outgoings at the moment, and no dependents. I don't earn a lot but all my ins and outs are very stable.

hugheskevi

No I don't think it is salary sacrifice.

Then unless you are receiving means-tested benefits (eg Tax Credits) the benefit of pension contributions for you is minimal. You are receiving basic rate relief (20%) but will pay basic rate on the income received, meaning the only advantage is the pension commencement lump sum, which is tax free.

You would end up with the same outcome if you put the money into a stocks and shares ISA and moved the money into a pension in the future. Hopefully you would also get more of a bonus for contributing - higher rate relief, salary sacrifice, etc. Plus you would have access to the money (which is generally a good thing, but can have some drawbacks, eg, entitlement to means-tested benefits, no protection from bankruptcy, etc).

I already have a years emergency fund saved, would like to save up for the possibiltiy of a deposit.

Which suggests a pension is not appropriate, although you should save enough to get the full employer match.

atush

You are putting in enough already for now.

If you want a deposit, i'd start a S&S isa along with a regular saver.

snowqueen555

hugheskevi wrote: »

Then unless you are receiving means-tested benefits (eg Tax Credits) the benefit of pension contributions for you is minimal. You are receiving basic rate relief (20%) but will pay basic rate on the income received, meaning the only advantage is the pension commencement lump sum, which is tax free.

You would end up with the same outcome if you put the money into a stocks and shares ISA and moved the money into a pension in the future. Hopefully you would also get more of a bonus for contributing - higher rate relief, salary sacrifice, etc. Plus you would have access to the money (which is generally a good thing, but can have some drawbacks, eg, entitlement to means-tested benefits, no protection from bankruptcy, etc).



Which suggests a pension is not appropriate, although you should save enough to get the full employer match.

Hi

I never thought of it like that, most places always to say pay as much as you can. Very unteresting, will look into a tracker fund isa

jamesd

With no deposit, investing and saving for that should come higher in priority than pension contributions, except you should pay enough to get as much employer pension matching as you can get. S&S ISA is the ideal way to do this if buying is likely to be five or more years away, or if the timing is flexible. The closer it is and the more rigid the timing, the lower the suitability of investing instead of using savings accounts.

There are competing needs for money. Property purchase is one but a pension income can only be taken from age 55. That means that if you want to provide for can't work contingencies before then you have to do investing of some sort outside a pension as well. Also, the income that can be taken from a pension after 55 is limited, so it can be useful to use S&S ISA money to top that up to raise income before reaching state pension age.