Pension Newbie - quick questions

tommer82

..this is a follow on from another thread I recently posted:

http://forums.moneysavingexpert.com/showthread.php?t=4914418

I've put off a pension as I've been saving for a house + renovation. Now that is complete and I have some 'spare' money each month I thought it might be an idea to join the company pension.

I suppose I've just caught bits of the news so I am cautious of pensions, I don't want to be working for a pension way into my sixties, I want to retire pretty early, I'm 31 now and the idea of a frugile life in a hot country when I retire appeals so..

1) I was worried if I got a pension for just 20-25 years would I be penalized?

2)My other worry would be what would happen in the future should I want to go self employed.

The company pension details:
With regards contributing to the pension scheme, both employee and 'this company' contribute 5% of basic salary into the scheme on a monthly basis. Bear in mind employees also benefit from tax relief on their contribution. This means your actual contribution is slightly less, the difference of which is paid by the Government on your behalf.



Basic advice would be very welcome.

Lokolo

You are quite late to start if you want to retire early. So the only way to make it up would be to put in high contributions. Depending how early you want to retire, you would need to be putting around 25% in pension.

You have a 5% company contribution which is good.

You don't have to just use a pension for retirement. You can choose to use your ISA allowance as well.

Most people tend to put in matched contributions (so if you put in x% your company puts in x%) and whatever you are above higher rate tax. After this ISAs become more appealing.

dunstonh

I suppose I've just caught bits of the news so I am cautious of pensions, I don't want to be working for a pension way into my sixties, I want to retire pretty early, I'm 31 now and the idea of a frugile life in a hot country when I retire appeals so..

You are not going to retire early with such a late start and such a small contribution. If you pay that amount then you are looking at 68 (probably 70 by the time you get there).

its a shame you have thrown away free money by not joining the scheme earlier.

Triumph13

As above, it was a big mistake not to have joined the scheme earlier, but don't let the doom and gloom disuade you from joining it IMMEDIATELY.
You can start to work out how much more you can afford to contribute and the the best way to do it at your leisure (but don't take long about it!) but whatever you do don't let another payday go by without being in the pension.

Seabee42

There is quite a lot of negative messages above and you probably should adjust your thinking a little.

Bottom line is if you can afford the extra 5% to join the scheme you get a free 5% from your employer. If you saved 10% into a pension your whole working life its probably not going to get you a massive pension in retirement but the alternatives of not saving (assuming we do not continued down the means testing stupidity route) will be never being able to retire at all.

tommer82

Working till 70 is definately a no-go, would rather be poor

I guess then I need to find out if there would be a benefit paying it for 20-25 years.

I think I fall in the camp of people that would rather do something with their money now than rely on a pension, I see lots of pros and cons of people that prefer property etc so perhaps that might be a better option.

jellykelly_2

tommer82 wrote: »

Working till 70 is definately a no-go, would rather be poor

I guess then I need to find out if there would be a benefit paying it for 20-25 years.

I think I fall in the camp of people that would rather do something with their money now than rely on a pension, I see lots of pros and cons of people that prefer property etc so perhaps that might be a better option.

I'm thinking the same (see my thread '34 and no pension!') my worry is what if we live till we're in our 90's lol!!

xylophone

I thought it might be an idea to join the company pension.

I think you might be right! In effect, you have been turning down what could be looked at as additional remuneration by not joining the scheme!

State Pension - single tier is on its way https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/181237/single-tier-pension-fact-sheet.pdfhttps://www.gov.uk/government/uploads/system/uploads/attachment_data/file/181237/single-tier-pension-fact-sheet.pdf

tommer82

I looked at this calculator:

http://www.moneysavingexpert.com/savings/discount-pensions#widget

Results
Costs & contributions

What contribution costs you/month:£116.67
What's added to pension (contribution + tax relief): £145.84
Employer contribution: £116.67
Your savings

Monthly: A reduction of £117 from your pay packet adds £263 to your pension
Annually: A reduction of £1,404 from your pay packet adds £3,156 to your pension


...so
3156 * 20 years = 63120
3156 * 25 years = 78900
3156 * 30 years = 94680

... Can i take those figures and get some idea of what I will be paid pcm? e.g. 25 years = £200 pcm

Cheers.

Lokolo

A pension doesn't just pay you for say, 25 years. There are 2 things you can do. With your pension pot you can purchase an annuity which is a product. With your money you buy income, this will carry on until you die. If you die earlier you lose out, but if you live longer you always have certain income levels.

Or you can do drawdown, this means you can draw certain amount of money each month and your pension pot stays at it is. But your income can flucuate, whereas with an annuity it is a certain level and always will be.

https://www.hl.co.uk/pensions/interactive-calculators/pension-calculator

This is a basic, but eye opener into what your contributions can buy you.

Based on DoB of 01/01/1982, retirement age of 67. 10% contribution (5% you and 5% employer), you would end up with a pension pot of £163k which would buy you a pension annuity of just less than £9k a year.

tommer82

Quick question.

the 5% that I pay to be part of the scheme, could I theoritically bump my contribution up from 5% to 10% or more in order to 'catch' up? I suppose If I paid 10% for 5 years I would be in same situation of someone that started 5 years ago and paid the standard 5% (give or take)?

Cheers again