Company pension question

AliceBanned

Hi

I am currently paying in £120 per month and my employer is adding double this per month, into a company pension scheme.

To be honest I haven't looked at it for a couple of years. The sum in the pot is now £37,000, not a lot as I did not start paying into any until my late thirties. I have 19 years to retirement. However it is more than I expected as I haven't noticed the payments going out, as I joined as soon as I started my job. I did a lot of temporary jobs for years previously so missed out a lot on pensions.

I am trying to work out whether to take a break from payments for a few months, and then add more when my circumstances are better. Only say 6 months, definitely no more. The forecast according to Hargreaves Lansdown is only just under £5000 per year in today's money, but on the scheme website it forecasts £9-10k per year. I don't understand why there is such a big difference. Is the provider being too optimistic about its performance?

Thanks for any advice. I would like to be reasonably comfortable in retirement but aim to have no mortgage by then. I know it is probably silly to stop paying in, but this is only for a short time so that I can speed up repaying my debts and hopefully get a better mortgage rate and get closer towards having some savings, which I will invest (a few years down the line, but the long term plan is towards debt repayment and then increasing equity), as well as having money freed up to overpay my mortgage when the debts are repaid.

rpc

AliceBanned wrote: »

I am trying to work out whether to take a break from payments for a few months, and then add more when my circumstances are better.

You would be throwing away a significant amount of free money from your employer. You'd be giving up £360 in your pension for maybe £96 in your pocket (less if salary sacrifice or higher rate tax). Can any of your other plans do as well as that? Where can you put £96 that gets you more than £360 of benefit?

Only say 6 months, definitely no more. The forecast according to Hargreaves Lansdown is only just under £5000 per year in today's money, but on the scheme website it forecasts £9-10k per year. I don't understand why there is such a big difference. Is the provider being too optimistic about its performance?

Both should tell you the figures used in the forecasts (hit "Advanced options" on HL). The growth predictions are set by the FCA but the annual management charge and type of annuity bought might be different. Escalation/indexation and spousal provision have significant impacts.

Is your provider doing it in today's money terms? Inflation could knock that £10k back down to about £6k in today's money.

AliceBanned

Thanks - wouldn't the £360 back depend on how it performs also? And then be taxed before I receive it? I get what you are saying though. Just trying to weigh it up based on current problems..and needs to catch up with escalating interest on credit cards.

Oh maybe that is the case - I will check my account again to check whether the predicted amount is current or future value.

232607

Simple advise...Do not stop paying into this scheme, you'd be turning down free money from your employer (£240 per month) + the tax advantage you're getting.
You say you'd only come out for 6 months but this would only give you 6 x £120 = £720 and probably 20% less if you now have to pay tax on the £720.
Compare this to 6 x £360 = £2160 C/W all the tax advantages and you can see why it's financial suicide to drop out of this scheme.
There's also the danger you'd get used to the extra money and 6 months becomes 12 months, the 2 years ETc.

Don't get too hung up on forecasts, they are nothing other than wild estimnates.
Concentrate on working on your pension/becoming more knowledgable & you'll get the most out of it.

Regards.

AliceBanned

Ok. A friend suggested it, but he has so much in investments that he pays himself a salary out of it and doesn't need to work!

Thanks for the advice. I will stick with the pension and try to get a second job I think..

AliceBanned

Just a quick question - if the predictions mean nothing, isn't it a bit difficult to know what we are doing? I know it can't be accurate though but surely it gives some idea?

On top of this I would have the state pension so considering I'm used to scrimping I don't think I'll be too badly off if I carry on paying in?

LHW99

Its not that the predictions "mean nothing"
They will be made, using a specific set of assumptions (eg % rate that the fund grows, particular annuity type / rate etc).
You can look at the assumptions made by the provider, and decide if you think they are realistic or not, and so get an idea of how well off you'd be if they underestimated how things'd be at retirement (nice, but less likely) or over-estimated it (not so good).
The aim is to provide a semi-standardised prediction, so that you have some inkling whether you need to do a lot more or a bit more saving.

AliceBanned

Thanks LHW99. It has been helpful, as I had no idea.

I know this sounds a bit dim, but if it gives a predicted £5k a year, is that based on me continuing to pay in the same for the next 19 years until retirement, or only based on my pension pot amount now? If based on everything else I will pay in it's not a lot!

mgdavid

AliceBanned wrote: »

...... If based on everything else I will pay in it's not a lot!

It has to last a long time, at retirement your life expectancy will be around 25 years. So it is spread thinly, hence the importance of saving and investing from an early age.

LHW99

The statement should say if it assumes you continue to pay in at the same rate, or if its only based on the current pot.
Its usually in the (very) small print!

AliceBanned

mgdavid wrote: »

It has to last a long time, at retirement your life expectancy will be around 25 years. So it is spread thinly, hence the importance of saving and investing from an early age.

My retirement age is 67..:(

Gosh it is horrifying. I will need to start paying in more but I guess I will have some investments by then too. If I ever pay off my debts..