Is my pension contribution "worth it"

Ad86

Some great replies, thanks.

We'll definitely do some serious thinking.


Of course ive been given the other side's cynical advice, why bother increasing pension amounts, you might not even see retirement age!!!! Lol, which I suppose is true if that's your outlook.

dunstonh

Of course ive been given the other side's cynical advice, why bother increasing pension amounts, you might not even see retirement age

4 out 5 people make retirement. The odds dont favour his argument. If you dont make it then your partner gets all the money in the pension (or children or whoever you nominate). So, its not lost.

Snakey

The ex-husband used to have that attitude and it drove me up the wall. He'd just turned 23 when I met him and any discussions about the future would invariably be shut down with "I'll be dead by then". He'll be 45 in January and is still alive and (as far as I know) well. I really hope he changed his mind and started paying into something years ago.

In your twenties it doesn't matter whether you're going to retire at 58 or 68 because either way you're still going to be really old and past it. Nowadays with all this pension crisis thing I'm hearing younger people saying "oh, I won't be able to retire until I'm in my seventies" as if it's no big deal, and they really (think they) mean it. But even at 42 the difference between 58 and 68 is starting to have a real meaning, and I'm sure that when I get to 57 1/2 and have started counting down the days I'll fully appreciate what it would have meant to have to work on for the extra ten years. And this is me doing office work. I can't even begn to imagine needing to be on my feet all day at that age.

gadgetmind

Ad86 wrote: »

Of course ive been given the other side's cynical advice, why bother increasing pension amounts, you might not even see retirement age!!!!

Yes, you get that. I always explain a few things to such people, which they generally don't listen to, and then just smile and shut up.

In 3.5 years time, I'll hit age 55, and I'll be doing a right lot more smiling then!

Ad86

Thanks for your opinions people

jamesd

If you don't reach retirement age, probably 57 or 58 in your case if you plan to do it early, all that happens is that the people you specify get to inherit the lot tax free. Like your spouse and any children.

What struck me besides you choosing to lose an immediate 100% gain on 4% of your pay is the house and rent part.

Do you actually need a house? The reason I'm asking is that it's far cheaper in many places to buy a used flat and this can let you get out of the rent is wasted money argument much faster. Even two or three years in the flat can leave you ahead after buying and living in a flat while saving for a flat can greatly speed up the time it takes to get to a good deposit.

It's also worth considering how committed you want to be too the getting of a deposit. There's often a lot of scope for cutting back without much pain in people's budgets. Things like packed lunches can save a lot of money without significant pain.

HardCoreProgrammer

I beg to differ with most of the posters here. This may be more than a case of "employer offers free money, so accept it".

Yes, you get your contribution matched by your employer with tax and NI (assuming this is by salary sacrifice) added on top, but bear in mind that:
a. You do not pay tax when putting the money into a pension, but you still need to pay tax when getting the money out. The tax rate may be higher when you get the money out.
b. You will not be able to get the money out from the pension until you are 55 (and even this may change in the future). In other words, you cannot change your mind and undo the transaction once the money has been paid into the pension, e.g. if you subsequently decide you would be better off using the money to buy a property, or to save yourself from repossession.
* c. The money in the pension will have a long time to grow, but this may be matched/exceeded by the growth in the value of the property if you can buy it earlier by not paying into the pension. In extreme cases (e.g. if prices of properties are rising quickly out of your reach), it may even make the difference of whether you can afford to get on the housing ladder or not.

Unfortunately at the end of the day, nobody will be able to tell you which option you should take. You will need to make an educated guess with the information you can gather (e.g. how may the the property market do between the time period it takes to save for the deposit a. while paying into a pension b. without paying into a pension, etc.)
If you are single and decide to buy a property, I would advise rebuilding a buffer (ideally 12 months worth of mortgage payments, after that hopefully the government would step in to pay the interest) before resuming saving into the pension.

atush

a. You do not pay tax when putting the money into a pension, but you still need to pay tax when getting the money out. The tax rate may be higher when you get the money out.

Not quite true. Many take early retirement and draw down income up to or under their PA each year, therefore paying NO tax. And no, i think it highly unlikely you would pay more income tax in retirement.

b, true. But it has always been the case, and I dont recall ANYONE saying not to have cash savings and S&S alongside (which can be used for any of your short to medium term needs).

c. Unlikely in the extreme as it has not been the case for the last hundered years or more that records have been kept.

PeacefulWaters

I'm in my mid-forties. Most of my retirement income will come from an old DB scheme.

But I am fed up with the workplace. I want out ASAP and I will be able to go before I get to 55 - sooner if the investment strategy pays off.

Something I didn't do when younger was AVCs. I thought everything I had would take care of it for me. I expected to work well into my sixties. A mistake. Not disastrous, but a mistake nonetheless.

Your 2% contribution is, politely speaking, a poor effort on your part. Using a £2k gross monthly income figure and assuming salary sacrifice you will free up around £27 monthly for your wedding if you stopped it.

90p a day.

You are thinking about massively restricting your options when you nudge towards retirement for the sake of 90p a day.

Approach this from the other end.

1) Both of you should increase your pension contributions to at least the level to maximise employer generosity. Do it next month. You will probably hardly notice it now but you will really appreciate it later on in life.

2) Sit down and work out where the penny pinching will start to pay for the wedding / house deposit. Here's some ideas that have worked for me.

- make your own lunch should free up £80 a month.
- SIM only mobile phones could be £50 a month.
- scrap pay TV and save £50 a month.
- give up coffee and save £80 a month
- park where it's free and walk / get off the bus at an earlier stop where the fare is cheaper.

There is an endless list of economies you can make. These assume joint benefits but there's £260 a month there v your pension contribution of £27 a month.

You can have a better pension. A decent wedding and a house deposit. If you really want to.

System

atush wrote: »

"In extreme cases (e.g. if prices of properties are rising quickly out of your reach), it may even make the difference of whether you can afford to get on the housing ladder or not."


c. Unlikely in the extreme as it has not been the case for the last hundered years or more that records have been kept.

I question that. Are you really saying no one in the last 100 years has failed to get on the housing ladder because of over-committment to a pension?