Should I bother contributing myself?

WLITC

I'm 47 (48 this year) and have done little or nothing about my pension over the years. I think I opted out (Surps?) back in the 90s for about 2 years with United Friendly and that pension now is worth about £2500, I also have a work pension that I've had for the last 5 years and its a pension where they contribute 10% of my base salary. I looked online the other day and its currently worth £15.7k.

My question now is should I contribute something myself? The obvious question is probably yes, but I am also saving to buy next Autumn (2017) so any pension contribution will of course diminish my deposit pot. However, I read something about pension contributions being tax deductible (20%?) so does that mean if I were to pay in an extra £100 pcm, I would effectively pay £20 less on my PAYE so net result on paper would be the equivalent of only reducing savings by £80?

Assuming that correct, would a contribution as low as £50 be of much benefit? Is there other less obvious advantage of making even a small contribution yourself?

mania112

When you contribute to a pension, a £100 contribution only costs you £80 from your net pay, it's topped up by £20. When you draw it out age 55+ you can have 25% tax free cash, then the rest is taxed as income, just like income from work.

The rules are likely to change in some way after the Budget in March, so maybe wait a few weeks are review it again then.

£50 pm isn't going to change your lifestyle in retirement, but in the words of Tesco 'Every Little Helps'.

dunstonh

My question now is should I contribute something myself?

Any money you put aside will benefit you later.

However, I read something about pension contributions being tax deductible (20%?) so does that mean if I were to pay in an extra £100 pcm, I would effectively pay £20 less on my PAYE so net result on paper would be the equivalent of only reducing savings by £80?

Yes, pensions gain an immediate boos due to tax relief.

Assuming that correct, would a contribution as low as £50 be of much benefit?

You are aged 47 with the pension provision of a 28 year old. You need to be realistic about this. £50pm at your age will make a difference but it will be similar to getting £50pm in retirement. Its better than nothing but its not good enough given your overall planning shortfalls.

xylophone

Yes, pensions gain an immediate boos due to tax relief.

Perhaps there will be "boos" after the budget if TR is lost....:eek:

atush

yes, you should contribute as much as youo can, deposit not withstanding. 80 a month shouldnt slow you down too much, and will give you 100 a month into your pension.

You are behind in your saving, so maybe do a spending diary and cut out waste?

WLITC

dunstonh wrote: »

You are aged 47 with the pension provision of a 28 year old. You need to be realistic about this. £50pm at your age will make a difference but it will be similar to getting £50pm in retirement. Its better than nothing but its not good enough given your overall planning shortfalls.

atush wrote: »

yes, you should contribute as much as youo can, deposit not withstanding. 80 a month shouldnt slow you down too much, and will give you 100 a month into your pension.

You are behind in your saving, so maybe do a spending diary and cut out waste?

I know, I really should have dealt with it years ago but I wasn't in a great place financial for years so I just ignored it. While I mentioned £50 pcm, I was only suggesting that for the next 18 months - 2 years while I save for the house deposit. Once I have my own place I was planning to save around £150 pcm or possibly more, although I'm a bit pessimistic, don't want to spend all my 50's scrimping and going without to pay a large payment into my pension each month and then drop dead at 60. I was planning (and thinking it was more beneficial) to overpay my mortgage by around £300-£400 a month so that I would be mortgage free by retirement and able to live on a much lower income.

Anyway, I'll wait for the budget in case there is anything specific to pensions to consider, but assuming all it fine I'm going to go with £100 for now, as you say not going to majoring hurt my mortgage savings but it'll help the pension and I'll benefit from some tax relief,

dunstonh

don't want to spend all my 50's scrimping and going without to pay a large payment into my pension each month and then drop dead at 60.

Statistically, you are not likely to drop dead at 60 and by spending now, you are effectively stealing from your future self and making your future self suffer for your current spending habits.

I was planning (and thinking it was more beneficial) to overpay my mortgage by around £300-£400 a month so that I would be mortgage free by retirement and able to live on a much lower income.

And you can then do equity release and borrow on the house again just in time for retirement.

WLITC

dunstonh wrote: »

Statistically, you are not likely to drop dead at 60 and by spending now, you are effectively stealing from your future self and making your future self suffer for your current spending habits.



And you can then do equity release and borrow on the house again just in time for retirement.

Thanks, I think once I have the mortgage sorted I think my best bet will be to sit down with a financial advisor and look at all the options..

pathtofreedom

When are you planning on retiring? As this might limit the term you can get for your mortgage, making it unaffordable if you were looking at a 18 year term but can only get 12 years say. I'm 38 and am taking out a 25 year mortgage soon, but as I'm hoping to retire by 60 or before, I had to show my current pension forecasts, and the details of what I plan to over pay to show I would still have enough income to pay it after 60.

WLITC

pathtofreedom wrote: »

When are you planning on retiring? As this might limit the term you can get for your mortgage, making it unaffordable if you were looking at a 18 year term but can only get 12 years say. I'm 38 and am taking out a 25 year mortgage soon, but as I'm hoping to retire by 60 or before, I had to show my current pension forecasts, and the details of what I plan to over pay to show I would still have enough income to pay it after 60.

I'm planning on 70 hopefully that will get me a 22 year mortgage but I'd like to get a 25 year mortgage and over pay (so I have the flexibility of lower payments if needed). but I don't know how much they would expect my pension forecast to be to cover those last 3 years. In my mind the lump sum tax free payment from the pension would probably clear any remaining mortgage at that stage but I appreciate it probably doesn't work like that.

pathtofreedom

WLITC wrote: »

I'm planning on 70 hopefully that will get me a 22 year mortgage but I'd like to get a 25 year mortgage and over pay (so I have the flexibility of lower payments if needed). but I don't know how much they would expect my pension forecast to be to cover those last 3 years. In my mind the lump sum tax free payment from the pension would probably clear any remaining mortgage at that stage but I appreciate it probably doesn't work like that.

If you're talking about only having £100 a month spare for a pension though, I don't think they'd think you're going to have enough affordability to do OP's on the mortgage too, not unless you're already saving 500+ a month towards your deposit/fees.

Have you talked to any brokers about this as you might find you can't afford a mortgage anyway, if your budget is that tight especially on that long a term. From what you've said above you'd only get a few grand as a lump sum as well, so that wouldn't be enough, unless you're looking at crazy cheap houses up north or somewhere.