Temp for 6 months - should I pay into pension?

longbaygirl

In a job for 6 months only. Should I pay into the pension scheme - mine and employers contributions combined will add up to about 5k. I'm worried that such a small pot won't be worth anything (I'm 50) and if I move it all the charges will just eat into it.

atush

How much of that 5K will you put in? Have you taken into acct tax relief?

If say 2K is put in by employer, and it is rounded up to 2.5K, and you put in 2K and it is rounded up to 2.5K, you'll get 5K which costs you only 2K????? How can that be not worth it?

yes, if you transfer there will be a cost, but not 3K. More like hundreds not thousands. Less if you can transfer it to some pension you already have perhaps? Can you leave it there? Charges would be annual but low.

What other pensions, savings and investments do you have?

Yorkie1

If the OP leaves after the given 6 months, will the pension contributions just be refunded to them?

atush

Depends on the scheme, some may say take the contribs OR transfer, others will let you keep it there.

Always better to keep the employers money where you can.

longbaygirl

Good points - yes - it is free money.

The 5k will be a 40/60 split - with my employer putting in the 60%. So yes - the 5k will only cost me 2k.

I'm a basic rate taxpayer too - don't know if that makes a difference?

I've got another two pension pots from two different employers - one with a tad under 100k in it (which I'm told will only buy me a 5k a year pension - at current prices???).

The other is an old final salary one which (according to the last statement) will pay me just under 10k a year (index linked???).

Sensible advice - many thanks - I'll pay into it for the 6 months.

kidmugsy

longbaygirl wrote: »

I've got another two pension pots from two different employers - one with a tad under 100k in it (which I'm told will only buy me a 5k a year pension - at current prices???).

The other is an old final salary one which (according to the last statement) will pay me just under 10k a year (index linked???).

Your final salary pension will be index-linked, but there might be a cap on it (e.g. I-L up to a max of 2.5% p.a., or whatever). In your shoes, I'd ask.

The £100k one presents a case for (i) taking the 25% tax-free lump sum, and then (ii) using Income Drawdown (aka Income Withdrawal) instead of buying an annuity - you could put off annuity purchase until you are much older when you'd expect it to pay more.

longbaygirl

Food for thought. Many thanks.

Jack_Griffin

longbaygirl wrote: »

Good points - yes - it is free money.

The 5k will be a 40/60 split - with my employer putting in the 60%. So yes - the 5k will only cost me 2k.

Take it, what's to lose!

jamesd

longbaygirl wrote: »

In a job for 6 months only. Should I pay into the pension scheme - mine and employers contributions combined will add up to about 5k. I'm worried that such a small pot won't be worth anything (I'm 50) and if I move it all the charges will just eat into it.

5k isn't small enough for the size to be a concern. You wouldn't have any problem efficiently transferring that somewhere else. There are people who ask here when the total paid in is just £10, a different story.

longbaygirl wrote: »

I've got another two pension pots from two different employers - one with a tad under 100k in it (which I'm told will only buy me a 5k a year pension - at current prices???).

That will be assuming that you purchase an RPI-increasing annuity. Around 90% of people buy level annuities that start out paying around 70-100% more than an RPI annuity.

longbaygirl wrote: »

The other is an old final salary one which (according to the last statement) will pay me just under 10k a year (index linked???).

It has to have an inflation link but it'll probably be CPI rather than RPI.

Your pension situation is interesting because you appear to already have £10,000 of defined benefit pension and around £7,500 from the state pension. Once those two are in payment you could buy a level annuity that pays £2,500 a year and you'd qualify for flexible drawdown instead of capped drawdown. Flexible drawdown lets you take out as much as you like from the pension pot, whenever you like. The initial 25% tax free lump sum is tax free. the rest is added to your normal taxable income in the year you take it and taxed at the appropriate rate. What this can do is make it very rewarding for you to pay into personal pensions because you can get the tax gain but not suffer the lifetime lock-in that normally comes with pensions. That means it's even easier to do cute and efficient things like clearing a mortgage with a pension pot, effectively getting tax relief on your equity payments.

longbaygirl

Many thanks for all the good advice. Just hope I now live long enough to enjoy some of these pensions!