Shoud I join the company pension scheme or start an ISA for pension?

bettypond

I am starting a new job in a few months that has a pension scheme. However I have been told that I should instead invest my money into an ISA for my pension rather than the scheme as this would be tax free? Looking for some guidance or advice on which would be best.

Thank you

ScottyLP

Is your employer going to be contributing too? If so, it's essentially free money.

xylophone

Your employer has a pension scheme and contributes to the pension so that not joining effectively reduces your salary?

Read this regarding tax relief

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

You save into an ISA from your income after tax - income and capital gains within the ISA grow tax free.

If you should fall on hard times and require means tested state benefits, an ISA would not be regarded as your pension fund - it would be taken into account and you would have to use the money to support yourself.

Your pension scheme funds are protected and you would not be required to draw on them until scheme pension age.

There is no reason why you should not have both a pension and an ISA.

bettypond

Thank you for your reply!

Its is the NHS pensions scheme. I am unsure if they contribute. I have no idea how this stuff works

Paul_Herring

bettypond wrote: »

I am starting a new job in a few months that has a pension scheme.

If your employer is also contributing, consider putting in at least the minimum required to get the most from your employer.

Doing otherwise is giving up part of your remuneration.


What you do with any extra you could save (either in a pension or ISA, or whatever) is possibly up for discussion... (i.e. increase your pension contributions or put it in an ISA.

However I have been told that I should instead invest my money into an ISA for my pension rather than the scheme as this would be tax free?

The ISA is "tax free" only in the fact that the money you'd be putting in has already been taxed before it went in (national insurance and income tax) so it's not taxed when it comes out. It's not tax free.

The money going into your pension is before income tax (and possibly NI depending on the arrangement.)

Whoever told you it was Tax Free is either simplifying the situation to the point of misleading you, or have been misled themselves.

bettypond

Thank you so much for your detailed responce Paul! I will join the pension scheme

xylophone

The NHS pension scheme is a defined benefits scheme and will pay a secure income for life on retirement.

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

It would be an unwise decision not to join?

Read the Scheme Guide here http://www.nhsbsa.nhs.uk/Documents/Pensions/SD_Guide_(V0.2)_Published_02.2015.pdf

jem16

bettypond wrote: »

Thank you for your reply!

Its is the NHS pensions scheme. I am unsure if they contribute. I have no idea how this stuff works

As the NHS scheme is a Defined Benefit scheme, you would be mad not to join. Saving into an ISA instead of the NHS scheme will not come anywhere near.

The employer does indeed contribute but it does not matter to you how much they contribute as you will be guaranteed a set of benefits when you retire.

I suggest that you read up on the scheme.

http://www.nhsbsa.nhs.uk/pensions

dunstonh

The NHS pension will trounce all over an ISA in terms of what you pay into vs an ISA. It is a complete no brainer to be in the NHS pension. Whoever, told you to use an ISA instead is either a trouble maker or a complete wally. If it is someone within the NHS then do be aware that the NHS, more than any other, is rife with misinformation to the level of intentional trouble making. So, always keep an open mind and check facts rather than believe fellow workers.

RichandJ

dunstonh wrote: »

The NHS pension will trounce all over an ISA in terms of what you pay into vs an ISA. It is a complete no brainer to be in the NHS pension. Whoever, told you to use an ISA instead is either a trouble maker or a complete wally. If it is someone within the NHS then do be aware that the NHS, more than any other, is rife with misinformation to the level of intentional trouble making. So, always keep an open mind and check facts rather than believe fellow workers.

I really do wonder sometimes if I'm safe in putting my health into the hands of those who work for the 'sainted' NHS. When this is the level of financial knowledge they have & the 'advice' they get from colleagues. If they can't be ar5ed to find out about their own benefit arrangements from information that must by law be supplied to them how confident should I be in their knowledge of their own job ?

Maelwys

bettypond wrote: »

Thank you for your reply!

Its is the NHS pensions scheme. I am unsure if they contribute. I have no idea how this stuff works

The NHS Pension Scheme is a Defined Benefit scheme that (whilst not as good as it has been in the past) will comfortably beat anything that you could possibly get for yourself.

You MAY wish to take out an additional personal pension - but this would be in addition to the NHS scheme, not in place of it. The NHS scheme's only downside is that the 2015 section is intended to kick in from your state pension age (instead of a locked-in age like 60 or 65) and suffers quite drastically from actuarial reduction if you take retirement any earlier than that. This means that if you plan to retire before your state pension age, you should leave your NHS scheme pension contributions alone and finance yourself somehow until you hit State Pension age - beit via savings or drawing down from a pot in a SIPP or whatever.

(Note that there is an ERRBO option available in the NHS scheme which lets you "buy out" up to 3 years worth of actuarial reduction. Whenever I looked into this for myself I decided that it wasn't worth the tradeoff, and I'd be better off putting money into a SIPP instead to cover me for the intervening years)