Having a break from pension payments to save house deposit??

laurajane6486

Hi all

I've never used this forum but I'm hoping for some advice from you lovely lot

I am 29, work full time for the NHS and have been paying into an NHS pension for about 4 years (I think). I am single and privately rent my home on my own.

I am desperate to own my own home and the most feasible way of doing that seems to be buying a new home (would be paying about £140k) using one of the help to buy, etc schemes where I would need a 5% deposit (£7k).

So I need to save about £7k, which on my own, with my current income and with my current outgoings is seeming pretty much impossible. I currently have £1k in a savings account but this number keeps going up and down. I'll add to it one month, and then the next month have an unexpected outgoing and my savings will go down. In short, I'm getting nowhere.

My mortgage payments (on the above figures) will be only slightly higher than my rent payments so once I've bought a house I will be in pretty much the same position I am now, but will own my home and won't need to save for a deposit anymore. So the affordability of a mortgage isn't really an issue, it's just the saving for a deposit that is holding me back.

I have worked out that in just the past 12 months I have paid £3200 into my pension. That's just 12 months. I know it's important to pay into it for my retirement but it feels really silly that I'm paying so much into my pension every month when I don't even own my home and am paying rent which isn't getting me anywhere financially, and house prices are rising. At this rate I'll have a great pension but still be renting at retirement age!

So I wondered if taking a break from pension payments would be a good idea? I think (having looked on the NHS pension website) it is possible, but I'll check on the phone tomorrow. If it is an option, what do people think? With my pension payments alone I could save the deposit I need within 2 years, and then once I've bought a house I could restart my pension payments.

I started paying into my pension when I was 25 ish so even with a 2 year break surely it would still be worth something reasonable when I get to retirement age? And at least I'll have started my mortgage younger than if I keep saving and saving and maybe won't start my mortgage for another 10 years.

Please let me know whether you think this is a good idea or not? I'm after honest opinions.

Thanks all, Laura

PeacefulWaters

Dreadful idea.

Cut back elsewhere.

Mini_Bear

Hi OP, I personally wouldn't stop paying into an NHS pension as the temptation to never restart and the missed compound returns will really effect your pot. Instead could you not economise in other areas? Move into cheaper, shared accommodation. Sell your car or work extra hours/get 2nd job? I'm guessing you're only on a 40 hr working week? I did all the above for 18 months. It was tough slog but sooooooo worth it. Plus I didn't have to go with a dodgy new build tiny deposit scheme! It can be done, I'm proof! good luck OP!

jem16

laurajane6486 wrote: »

I have worked out that in just the past 12 months I have paid £3200 into my pension.

Which after you have taken off the extra 20% tax and 1.6% NI you would only have around £2500.

I started paying into my pension when I was 25 ish so even with a 2 year break surely it would still be worth something reasonable when I get to retirement age?

It would mean you have lost out on approximately £1000pa index-linked pension for the whole of your retirement.

Please let me know whether you think this is a good idea or not? I'm after honest opinions.

Thanks all, Laura

Absolutely dreadful idea.

jem16

Mini_Bear wrote: »

Hi OP, I personally wouldn't stop paying into an NHS pension as the temptation to never restart and the missed compound returns will really effect your pot.

The NHS scheme is a Defined Benefit scheme so has no compound returns and pot. However the idea is right.

xylophone

Not a good idea.

Do you have the best current account for your needs? Have you looked at Santander 123?

Open a TSB current account as a savings account - put in that £1000 and add to it regularly up to £2000.

Look at where and how you spend - how can you economise?

Are you able to get a weekend job? Use the proceeds to save that deposit.

https://forums.moneysavingexpert.com/discussion/5221211
post 43 re other accounts.

laurajane6486

Thanks for your advice.

I seem to have had mixed responses as to how much my pension would be affected...what's a defined benefit scheme?

Selling my car isn't an option. I work shifts and on calls. I work too far from work to walk there, there are no buses at some of the times I need to be going to or from work, and when I get called out I have to get to work ASAP.

A second job would be tricky I think, although I'm not against working extra hours. I work shifts, and there's no pattern whatsoever to my shifts. So working an extra job would be difficult as I wouldn't be able to commit to set days/hours as it might clash with my main job. I'm always trying to get extra shifts though (although they're not always available) and try to work as many weekends/nights as I can get away with as I get enhanced pay for those shifts.

I have a First Direct current account (I actually have two - one for bills and one for spending, to try to control my finances better). I didn't think current accounts would have that much financial benefit?? I have my savings in an ISA with First Direct. What's so good about a Santander 123 or TSB current account?

I'm trying to economise as much as possible, but it's hard. I don't have a raving social life (I mostly spend <£30 per month as most of my socialising is low key). I do my food shopping in Aldi to save money. I don't buy designer clothes, and don't often buy new clothes at all, I only spend about £30 a month on petrol, mainly getting to and from work. I keep a spreadsheet of all my outgoings each month and try to budget for everything. I will try harder though. And hope I win the lottery!

xylophone

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

Regarding the benefits of current accounts, see link in previous thread.

You are aware that your FD current account allows you to take advantage of the 6% regular saver?

laurajane6486

Thanks so much xylophone!

I didn't know about the regular saver and just assumed an ISA would have the best interest rate...how wrong I was! Just applied for the regular saver account.

jamesd

The big problem is the very generous NHS pension and the cost of taking time out of it when you are retired. Yet you need to make progress somehow.

First thing you could try is looking for cheaper places to buy. The schemes tend to be for new homes and those are notoriously poor buys on value for money basis. If you're looking at a house, perhaps look for a one bedroom flat in a less good area. Same for renting, maybe you could cut your expenses by £1000 a year by moving?

If you can find a way to get it done into a no more than you need place in no more than one or perhaps a maximum of two years the cost in retirement may be worth the benefit in the near future.

In your situation you should forget about the long term potential benefits of cash ISAs. You're not in a position to use the annual limit anyway so what matters most to you is highest achievable after tax interest rate. From no-risk products that means the 6% First Direct regular saver account and the similar one operated, I think, by M&S Bank.

One thing you probably wouldn't like is moving into a room in a shared house. A step back to what you may have done in the past. But have a look at the costs, including potential savings on heating, power, water as well as rent. What difference would doing this for a year make to the amount you could save and how long it takes you to own your own place? If you can deal with it emotionally and in lifestyle this is probably the option that allows most rapid progress, unless you care to move back in with parents and have them in a suitable location.

hugheskevi

I have worked out that in just the past 12 months I have paid £3200 into my pension.

Based on the 2014/15 NHS contribution rates, that suggests a salary of £34,400.

So I need to save about £7k, which on my own, with my current income and with my current outgoings is seeming pretty much impossible.

The salary should be sufficient to save £7,000 given you are single?

So I wondered if taking a break from pension payments would be a good idea?

No. A terrible idea.

I started paying into my pension when I was 25 ish so even with a 2 year break surely it would still be worth something reasonable when I get to retirement age?

Using the salary above, it would cost at least £1,274 of pension per year. That figure is higher if you intend to stay in the NHS all your career.

I seem to have had mixed responses as to how much my pension would be affected

There is consensus the impact would be too great to seriously consider opting out?

And hope I win the lottery!

That is one expense to cut out.

Forget about opting out of the pension. Your primary need is to cut expenditure. Putting a Statement of Affairs is a good start on that, and diligent tracking of expenditure is a good second move.

Making the most of the money you have is good, but it isn't going to make much difference given the amounts involved.

jamesd's and other posters suggestions above are good. The amount you spend on Council Tax will be one of your largest expenses and the only way to reduce that is to share the cost amongst more people. If you think the suggestions are unattractive then at least exploit easy ways of getting additional money - exploiting bank account sign-up offers which give extra cash, opening accounts which pay regular monthly rewards, or taking part in focus groups, for example.