Almost 21 Years Old, I Want To Start A Pension Now

kteara

Hi all,

I am asking for information regarding Pensions. I was previously against the idea due to the notion of 75% of it being taxed. However, I am now led to believe that I will actually gain more from my money which has made me want to pay into a pension rather than saving all the money into an ISA.

I am currently 20 Years old (21 in March), I work part time at Waitrose earning roughly 800 a month (500 of which I save) and I study a degree which I'll hopefully graduate in 2 years. Waitrose offer a final salary scheme pension but I think I need to have worked there for 3 years before I can contribute. I've only worked there 8 months.

I know very little about pensions but I want to find the best one. I don't know how and I will benefit from any information I gain from this thread. Thank you!

xylophone

Waitrose offer a final salary scheme pension but I think I need to have worked there for 3 years before I can contribute. I've only worked there 8 months.

This will become five years apparently. http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/10607636/John-Lewis-to-cut-back-gold-plated-pension-scheme.html

However, there is a scheme in which new joiners can participate?

http://www.waitrosepartnerdevelopment.co.uk/media/60227/1774_recruitment%20interview%20partnership%20benefits.pdf

Presumably you will wish to buy a property at some point before you reach pension age so you will need to consider saving outside a pension as well.

kteara

xylophone wrote: »

This will become five years apparently. http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/10607636/John-Lewis-to-cut-back-gold-plated-pension-scheme.html

However, there is a scheme in which new joiners can participate?

http://www.waitrosepartnerdevelopment.co.uk/media/60227/1774_recruitment%20interview%20partnership%20benefits.pdf

Presumably you will wish to buy a property at some point before you reach pension age so you will need to consider saving outside a pension as well.

I save 500 a month for the possibility of owning a nice house one day. So the waitrose pension is out of question, what is the best pension I an pay into? If I pay in 100 a month what sort of returns can I expect to receive?

PeacefulWaters

kteara wrote: »

I save 500 a month for the possibility of owning a nice house one day. So the waitrose pension is out of question, what is the best pension I an pay into? If I pay in 100 a month what sort of returns can I expect to receive?

If you pay 6% of your gross income into the Waitrose scheme outlined in that PDF the company will double it.

Do that.

If £100 a month is more than 6% you'll still get the 6% employee match out of the company.

Southend1

The best pension to join now would be the waitrose DC scheme. You will make an immediate 100% return because the company matches contributions up to 6%, on top of any tax saving if you earn enough to pay income tax.

xylophone

So the waitrose pension is out of question,

Did you read the information in the pdf link in my previous post?
(Reproduced below)
"The Partner will become a member of the Partnership’s non-contributory,
final-pay pension scheme after 3 years’ continuous service.
During these 3 years they can however make voluntary pension contributions, up
to the value of 85% of their salary, to buy retirement benefits at their expense.
The Partnership will match their contributions up to the value of 6% of pensionable pay"

ViolaLass

kteara wrote: »

Hi all,

I am asking for information regarding Pensions. I was previously against the idea due to the notion of 75% of it being taxed. However, I am now led to believe that I will actually gain more from my money which has made me want to pay into a pension rather than saving all the money into an ISA.

Only if it went over your personal allowance (as I understand it).

kteara

Ok guys, Thanks very much. I will call up tomorrow.

If I earn around 800 a month and I pay £100 to the pension. I will get £48 (6%) matched by my employer? Will that money earn interest? I'm wondering if anyone knowledgeable could write some figures down to allow me to see what kind of returns I can expect to earn? I think I am offered some tax breaks or I will be taxed? I'm slightly confused as to how much I will infact be earning in terms of pension profit.

many thanks

xylophone

Surely you have received some information from HR about the pension scheme available to you?

Do you understand the difference between a DC and a DB pension?

The scheme currently available to you is a DC scheme.

https://www.moneyadviceservice.org.uk/en/articles/defined-contribution-pension-schemes

Waitrose say that they will match your contribution up to 6% of your salary.

You propose paying in more than 6% - you will receive tax relief (presumably at source) on your contributions.

http://www.pensionsadvisoryservice.org.uk/about-pensions/saving-into-a-pension/contribution-matching

https://www.gov.uk/pension-administrators-reclaim-tax-relief-using-relief-at-source

https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief

kteara

I have looked on the Waitrose internal website and it says that I need to be 22 years of age before I can contribute to the DC Pension.

It also says it will only match up to 4.5% of contributions

The Partnership will match your total (DC minimum and voluntary) monthly contributions, up to a maximum of 4.5% of pensionable earnings. The maximum you can pay is 85% of pensionable earnings.

The page was last updated on the 19/12/2013 however, so I'm unsure if the 4.5% is true or not but the minimum age of 22 is correct. What should I do?

princeofpounds

Hi welcome.

Don't know where you got the idea pensions get taxed at 75%. The whole idea of pensions is that you don't pay tax when you contribute earnings into one, in return for paying tax when you take money out in retirement. It's called deferred income.

As you typically earn less in retirement, you pay much less tax overall. Plus you currently get to take a large part of the pension tax free anyway.

Obviously there are many details beyond that, but that's the general principle.

The best pension for you is the one where you get free money. The DC scheme pointed out above matches your contributions up to a certain level. That is basically your employer giving you a pay rise in return for saving. You will not find a better investment (unless you invent the next Facebook or something)!

So typically it's a no-brainer to invest up to the level you get matching contributions. Beyond that the decisions are a bit more nuanced; you may want to save inside or outside of your pension (such as in ISAs) depending on your personal financial goals.

If I were you, I'd go for contributing to maximise the matching contributions, then save as much as I can in ISAs for the house deposit.

If you can save the max ISA allowance and those contributions, and/or start full time work, then I would revisit the question. But you can make the easy decision quickly, and spend time learning about the more subtle stuff.