Pension vs House deposit

lurkerlongtime

Hi all,

For the past couple of years I've been self employed and running my own business however the time has now come to accept a permanent job as an employee with another company and close my business (using a Members Voluntary Liquidation).

My business has been quite profitable, and I expect to be able to extract a relatively large sum of money from the company. My question is, should I pay some of this money (let's say somewhere in the region of £10-20k) in to a pension or use it towards a (larger) deposit on a property.

Some more information:

• I'm 28
• I've not paid in to a pension in the past 2 years
• Obviously if I do use some of my company profit to pay in to a pension it won't be 'matched' by anybody else
• Pension contributions would be tax free, but I believe that any money that I extract (i.e. not put in to a pension) would benefit from entrepreneurs relief, and as such the tax would only be 10%
• If I use the money towards a deposit on a property it would likely take me in to an LTV of 75%, potentially unlocking better interest rates

I guess what I'm asking is does the traditional advice of always paying in to a pension whenever possible apply when (a) contributions aren't being matched by an employer and (b) the money could be put to another use, such as contributing towards a deposit on a house.

Any thoughts? Is this better posted to somewhere else (Mortgages & Endowments)?

GunJack

what's the company scheme like where you're going to work? The experts will ask this, and also what existing provision you have already...

lurkerlongtime

GunJack wrote: »

what's the company scheme like where you're going to work?

£270 a month pretax, matched by the employer.

GunJack wrote: »

and also what existing provision you have already...

I don't have the exact figures, but it won't be far off 5% matched contributions for 3.5 years on approximately £27k a year salary.. so around £9.5k total?

xylophone

Do you want to buy a house?

Are you currently renting/living with parents so that this would be for your own home?

You won't be able to extract money from the pension for close on thirty years.

lurkerlongtime

Yes, I'm currently renting, this would be my first home. I'm not considering trying to get access to any money in a pension pot, just asking whether its better to use a lump sum of money towards a deposit in order to potentially secure a better mortgage rate, or towards a pension.

xylophone

You wish to buy a home - you have already made a start on your pension savings and will have an employer contribution as well when you start your new job - this is planning for the long term.

You need a house in the short term - it seems wise to finance this as cheaply as possible and if a larger deposit will achieve this......

lurkerlongtime

xylophone wrote: »

You wish to buy a home - you have already made a start on your pension savings and will have an employer contribution as well when you start your new job - this is planning for the long term.

You need a house in the short term - it seems wise to finance this as cheaply as possible and if a larger deposit will achieve this......

This is along the lines of what I'm thinking at the moment, but should I be worried about missing 2 years of pension contributions?

jamesd

The deposit looks like the better move at the moment. If you want to you can check the mortgage cost at your current LTV and your LTV with this and pay say half of the difference in extra pension contributions.

atush

It wouldn't hurt to boost your pension by 5-10K.

But i guess that depends on your LTV with or w/o that extra 10K- ie will it give you a better rate? Do you know what sort of rate it will be?

greenglide

You have claimed to be "self employed". Is that true as it sounds as if you have been a director and employee of your own limited company?

If yourr company pays into your pension scheme there is no tax, NI or corporation tax liability which makes this a very effective way of getting money out of the company.

Taking the money as dividends etc incurs advance corporation tax (or it used to when I ran my own company).

GunJack

^^^ the OP was self employed, but is now taking a salaried position, so that may not be relevant now..