Pension contribution help please!

Northerner1234

Hi. I currently have a stakeholder pension which after a few years gap I am paying £100 per month in (before tax relief) but I am getting concerned about how much I will get when I retire. I will be 42 in November this year by the way.


The total value at the moment is about £8000 and I can afford to increase my monthly contribution a bit. However, I was thinking of contributing a large one-off amount of a few thousand pounds but will it make much difference to my total value?


Has anyone else on here been in this situation and if so, could you offer any help or advice please?


Many thanks in advance.

SomeUser

Do you have an employer pension?

green_man

What is your salary?

The pot you have is very small but anything you can save will improve your outlook in retirement.

If you are looking at putting a lump sum in you need to do it to best tax advantage. Hence my query on salary.

mgdavid

Northerner1234 wrote: »

Hi. I currently have a stakeholder pension which after a few years gap I am paying £100 per month in (before tax relief) but I am getting concerned about how much I will get when I retire. I will be 42 in November this year by the way.

The total value at the moment is about £8000 and I can afford to increase my monthly contribution a bit. However, I was thinking of contributing a large one-off amount of a few thousand pounds but will it make much difference to my total value?

Has anyone else on here been in this situation and if so, could you offer any help or advice please?
Many thanks in advance.

by my understanding of a 'few' it will increase the value by between 50% and 100%.

kangoora

Anything you put in will automatically have your tax added to it, assuming you are a basic rate tax payer.

So, if a few thousand = £3000 then when you pay that in your pension will be increased by

£3k x 1.25 = £3750 will be added to your pension.

Northerner1234

Thanks everyone so far.


No, at the moment there is no pension at work. I work in a small company so it could be a year or 2 before the automatic enrolment is applied to us.


Salary is £16000 but I live alone so there is only my income for rent and bills.


The lump sum I was thinking of investing would be £4000 or £5000 (before tax relief) as I am hoping it would do more good in my pension fund than in a low-interest Isa where it currently is.


Regarding the 20% basic rate I get taxed on, I am 99% sure I get £125 credited to my pension fund from my £100 contribution. Shouldn't this be £120 credited?

p00hsticks

Northerner1234 wrote: »

Regarding the 20% basic rate I get taxed on, I am 99% sure I get £125 credited to my pension fund from my £100 contribution. Shouldn't this be £120 credited?

My understanding is....

If you earn £125 gross (before tax) and then get 20% tax taken off, you are left with £100 (20% of £125 being £25). So you are paying in that £100 and are then being creditted back with the £25 that has previously been taken off in tax.

mark5

My view on this is that although your pension pot is small your not a big earner so you don't need to build a huge pension pot to maintain your standard of living.

You earn £16,000 per annum and probably pay about £950 in NI which you wont need to pay in retirement, that leaves roughly £15,050 income to find.

You pay £1200 per year to your pension so that leaves £13,800 which you need to fund retirement.

You will probably get a state pension of about £140 per week so you need to find about £6300 per year for retirement to maintain the same standard of living.

It might be better to put your spare money in a S&S ISA so that you can still access it now and feed it in to a pension to gain tax relief at a later date.

Thrugelmir

mark5 wrote: »

My view on this is that although your pension pot is small your not a big earner so you don't need to build a huge pension pot to maintain your standard of living.

A larger pot may allow people the opportunity to retire earlier. Also gives a degree of protection against uncertain markets.

Thrugelmir

Northerner1234 wrote: »

The total value at the moment is about £8000 and I can afford to increase my monthly contribution a bit. However, I was thinking of contributing a large one-off amount of a few thousand pounds but will it make much difference to my total value?

It will make a difference. Personally I would drip feed the money in over an extended period though. As markets are very uncertain at the moment. Whilst cash may not earn you a lot of interest you won't lose any capital.

atush

the money would be better in a pension than the S&S isa due to the tax relief and the fact you might be drawing your pension tax free in retirement.

But you dont want to put all your savings there. You should have an emergency cash pot of 6 months spending saved, and you should also have S&S isas alongside a pension if you have medium term spending needs (ie before retirement but more than 5 years away) such as a home purchase etc.

And I agree if you put in a lump sum, if you would be shocked if the market should turned down immediately after investing, than drip feeding in at 500 a month might be preferable.

My father died in 1987, and my mother invested his life insurance just before black monday. Wasn't a happy time for her. But in the end the funds rose to where they were and beyond.