Pension or savings?

LocoLoco

I'm very confused and hoping someone might be able to help me out?


I am a full time carer for my disabled son and as such live on benefits and have done for the last ten years.


My National Insurance is up to date so I will qualify for a state pension but I'd like to start putting a little extra away to top that up.


I can't commit to more than £20 a month; some months there might be extra but that's the maximum I know I can afford. I don't currently have to pay tax on my savings (which are never more than a few hundred pounds) and the amount I'm going to be putting into a pension is so small, I'm wondering whether I'd be better off just putting that into a savings account instead of paying into a pension scheme.


I don't know what the future holds workwise; I'll be looking after my son for at least another ten years (by which time I'll be fifty) and it might even be longer than that. I've been reading through various threads and advice guides and have confused myself enormously! So if anyone can point me in the right direction I'd be very grateful

atush

First of all, even if you don't pay tax you can get tax relief on a pension. And pensions savings don't count for meas testing, so should not affect your benefits like a large amt of savings does.

So you can put in 20/month and the gov will add tax relief on top- you wont get that with savings. And if your pension is small (ie under 18K or whatever the limit is when you retire) then you can take the entire sum (25% tax free and the rest taxed at your normal rate). So it could be worth it to you.

But I would make sure I had an emergency pot in cash first (or alongside with the 'extras') as you might need money in a hurry and you don't want to get finance to replace your washing machine for instance. And to pay for a day out when you can get respite care etc.

Even in returement, you will have a personal allowance. will will be greater than the SP you will receive. So chances are you won't pay much if any tax on some extra income then. but income owuld affecgt means tested benefits then.

[Deleted User]

Just a note: savings are never taxed, what is taxable is interest (if there is any) on savings. If you had £100,000 in a 0% interest savings account you would never pay a penny, if you had £100,000 in a 2% interest savings account you would pay tax on the £2,000 per year gain from interest. That doesn't have much relevance to your situation but it's worth making the distinction between savings (not taxable) and savings interest (taxable).

With regards to pension vs. savings, it depends entirely on your personal circumstance. If you have nothing in your bank account then you're probably vulnerable to financial emergencies, if that causes you to depend on a credit card sometimes it may be much wiser to focus on an emergency fund over a pension. If you can talk more about your financial situation people can better advise on what may be right for you, although in a vacuum a pension is the better long term decision for the reasons outlined by atush.

claire111

If you were to have any earned income from say a part time job, which result in you claiming means tested benefit along with benefits for caring for your son, you could if you wanted to, deduct the amount of your pension contribution before declaring your income.

So for example if you earned £60pw you could pay £40pw into your pension, the government tops up your contribution with a further £10 and your declared income for means tested benefits would be £10pw (£60 less your gross contributions into a pension scheme)

HTH

LocoLoco

atush wrote: »

First of all, even if you don't pay tax you can get tax relief on a pension. And pensions savings don't count for meas testing, so should not affect your benefits like a large amt of savings does.

So you can put in 20/month and the gov will add tax relief on top- you wont get that with savings. And if your pension is small (ie under 18K or whatever the limit is when you retire) then you can take the entire sum (25% tax free and the rest taxed at your normal rate). So it could be worth it to you.

But I would make sure I had an emergency pot in cash first (or alongside with the 'extras') as you might need money in a hurry and you don't want to get finance to replace your washing machine for instance. And to pay for a day out when you can get respite care etc.

Even in returement, you will have a personal allowance. will will be greater than the SP you will receive. So chances are you won't pay much if any tax on some extra income then. but income owuld affecgt means tested benefits then.

Atush, thank you so much for this reply, this is really helpful and I hadn't realised at all that I would still get tax relief on a pension so I must keep reading all the info until I understand it properly! Thank you very much, this is very reassuring and yes, I agree completely with the emergency pot, I do always keep a bit put by, it's not a fortune but it's enough to get us out of a tight spot if need be. Fortunately we are in rented accommodation that came with kitchen goods so that is one large purchase that I don't have to worry about if anything stops working.


Thanks again for your reply, it is really helpful and I will start looking around for a suitable scheme now.

LocoLoco

citricsquid wrote: »

Just a note: savings are never taxed, what is taxable is interest (if there is any) on savings. If you had £100,000 in a 0% interest savings account you would never pay a penny, if you had £100,000 in a 2% interest savings account you would pay tax on the £2,000 per year gain from interest. That doesn't have much relevance to your situation but it's worth making the distinction between savings (not taxable) and savings interest (taxable).

With regards to pension vs. savings, it depends entirely on your personal circumstance. If you have nothing in your bank account then you're probably vulnerable to financial emergencies, if that causes you to depend on a credit card sometimes it may be much wiser to focus on an emergency fund over a pension. If you can talk more about your financial situation people can better advise on what may be right for you, although in a vacuum a pension is the better long term decision for the reasons outlined by atush.

Thank you, Citricsquid, yes I see what you mean about paying tax on the interest and not on the amount that's actually in the account.


I do have a small amount in an emergency account (less than a thousand) and I put away the child benefit each month (just over £80) to pay for the car tax, insurance and repairs and servicing. It's a very old car and only worth a couple of hundred pounds but it's quite reliable, we've a very nice garage nearby who charge very reasonable rates and I also have a nice neighbour who will do small jobs for me (headlamp bulbs, for example). As I've just said to Atush, we're in rented accommodation so fortunately for us the landlord pays for repairs if they need doing so our main 'emergency' would be having to replace the car, which I think we're covered for.


Will now start looking for a small scheme, many thanks for your help with this.

LocoLoco

claire111 wrote: »

If you were to have any earned income from say a part time job, which result in you claiming means tested benefit along with benefits for caring for your son, you could if you wanted to, deduct the amount of your pension contribution before declaring your income.

So for example if you earned £60pw you could pay £40pw into your pension, the government tops up your contribution with a further £10 and your declared income for means tested benefits would be £10pw (£60 less your gross contributions into a pension scheme)

HTH

Thank you, Claire, that is very helpful, I am hoping to start a bit of part-time work, only a couple of hours a week but knowing I could start paying into a pension is a bit of a weight off my mind so thank you for the advice and input

LocoLoco

Thank you, everyone, for those replies and so quickly as well! Has been a really big help to me, many thanks

ViolaLass

Does your emergency fund have enough in it to be able to move at short notice (and pay the new deposit) should your landlord give you notice or should you need to go? I'd say that's the other major thing you should be allowing for.

LocoLoco

ViolaLass wrote: »

Does your emergency fund have enough in it to be able to move at short notice (and pay the new deposit) should your landlord give you notice or should you need to go? I'd say that's the other major thing you should be allowing for.

Thank you for that, Viola Lass, it is always something to keep in mind, we are currently saving to move and I was planning to put the deposit I get back from our current home into an account and then just leave it for next time (if there is a next time!) and then add a small amount as and when I can (it's always small amounts with me but it's amazing how they add up quite quickly!).


What I did realise though, is that I don't have any money put by for a funeral for either myself or my son. Not a nice thing to have to think about but I don't want him to have to pay for me (I've a small life insurance policy that he would get when I die but I'd prefer he didn't have to pay for a funeral out of it) but there's no money put aside for him - hopefully it won't be needed for another sixty odd years but it's something else I need to plan for.


So it looks like I need:


Day to day emergencies;
Unexpected house move;
Funeral;
Pension.


I'm realising there's still a lot I need to get my head round so I'm off to do some more reading, many thanks for all of the advice and support, very helpful

atush

And with the budget changes that came yesterday, even more reason to start that pension asap.

The PA rise to 10.5 K will help keep you into a no or low tax zone.