Save for pension in early 20s - but house deposit, etc?

8128

So I've just started my first job and trying to figure out my finances!

I had generally thought I'd go with the advice: "Take the age you start your pension and halve it. Put this % of your pre-tax salary aside each year until you retire." For me that would be 11%. But I found something in the comments section of an article online that brought up some of the doubts I'm having:

I agree [..], private pensions work. However, I don't know whether one should invest in them early in ones working life. It is probable that you will want your capital for other things (deposits for houses, children, etc.). So my suggestion is to use up as much of your ISA limits as you can afford and only put money into pension schemes when you approach retirement (say 5-10 years at most). You can still put quite a lot away tax efficiently but your only trying to guess what the government will do with your money for 5-10 years rather than 30.

The comments particularly about the property ladder resonates with me. Would it make any sense not to pay into my pension (beyond the 3% my employer will contribute) and instead put the money towards a bigger house deposit? That way I am borrowing less, and so pay back less interest on a mortgage?

(Sidenote: I can afford to max out a Help to Buy ISA, whether or not fI put in 8% a month into a pension)

justme111

I would do something but not as much as to affect your mortgage , children etc. I suppose the point is you contribute little so you so not even feel it but due to many years you have to go compounding interest makes it into something significant

atush

if you are saving for a hefty deposit, at the very least, join the work pension and get as much as they will pay in. If that, plus yours and tax relief are less than your target- so be it. Save to get on the ladder as well.

Just dont Not join the pension, and throw away free money.

enthusiasticsaver

I would pay something into the pension to get the tax relief and employer contribution and death in service benefits. If you are also saving for a deposit why not put in 5 or 6% initially and look at raising it in a few years time?

dunstonh

So my suggestion is to use up as much of your ISA limits as you can afford and only put money into pension schemes when you approach retirement (say 5-10 years at most).

The annual allowance would put paid to that (assuming you paid suitable amounts in). Plus, you would be risking future legislative change (i.e. will tax relief still exist then?)

There is always an excuse not to pay into the pension. First it is house deposit, then it is refurbishment costs, then its a further house move or wedding or children. Before you know it you are in your mid to late 40s or even 50s and you realise there is little time left.

nb0825

I'm in the same situation.

My employer matches my pension contributions up to 4%, so I've committed to 4% every month. I pay £200 monthly into a Help-to-buy ISA with halifax and £250 into a 6% regular saver with HSBC. Once the lifetime isa is released I will pay £4000 every year into that (equivalent to £333.33 every month) and the remainder I can afford into a regular saver. Until you have a mortgage I wouldn't commit anything else to a pension unless you're expecting a hefty inheritance sometime soon. Make sure you get at least 1 credit card to show you can handle credit.

Triumph13

Another factor to consider is your expected career trajectory. If you have chosen a career with a low staring salary (eg whilst getting professional qualifications), but with the expectations of a much higher salary later on, then it can make little sense to scrimp and save now to make contributions that would be replaced much more easily when you are earning more.

HardCoreProgrammer

For a different perspective from the other posters, I answered a similar question recently in https://forums.moneysavingexpert.com/discussion/comment/70217406#Comment_70217406

Your pension will only make a difference to you if you live to retirement age (whatever it may be in 40 years time), but buying a house will improve your quality of life right now.
And do not forget that if you get on the housing ladder early, the increase in house price could outweigh the value of employer contributions to your pension.

bigfreddiel

HardCoreProgrammer wrote: »

For a different perspective from the other posters, I answered a similar question recently in https://forums.moneysavingexpert.com/discussion/comment/70217406#Comment_70217406

Your pension will only make a difference to you if you live to retirement age (whatever it may be in 40 years time), but buying a house will improve your quality of life right now.
And do not forget that if you get on the housing ladder early, the increase in house price could outweigh the value of employer contributions to your pension.

Sorry but this is wrong, well not totally wrong, but you must start a pension now. No matter how small your contribution is. Your pension will grow but house prices can drop, look what happened in Detroit. Okay I know it's the US, but it just shows what could happen to house prices.

Your house isn't going to pay your bills when you retire. It may generate a lump sum, then you have the problem of turning that into an income.

So pension now no matter how small. Save for house, cut out all wasted expenses, like your daily costa coffee, prere porter lunch, takeaway evening meal, contract phone, Netflix, gym, etc

Good luck fj

marlot

HardCoreProgrammer wrote: »

...buying a house will improve your quality of life right now.
And do not forget that if you get on the housing ladder early, the increase in house price could outweigh the value of employer contributions to your pension.

I thought that when I first got married, in 1989. I spent every penny I owned on the house purchase (100% mortgage, but there were other bills) and the wedding. Mortgage rates then went up to 12% and took all my take home pay. And my house value plummeted by a third.

The house value falling wasn't a problem until I got a new job elsewhere in the country, but it really hurt.

I am concerned that after 8 years of very low mortgage rates, that people are becomign complacent - the housing market could go horrible again.

worried_jim

OP- I started my pension in 1991 aged 18 on a salary of £8500 and have over £100k now in funds. Start your pension now- it will be one of the best financial decisions you ever make, the years soon fly by.