DFWBers .... let's not ignore pensions

lazer-zxr

I've just had a chat with one of my colleagues, who is also paying their way out of debt.
They made the comment that they will start their pension contributions after their debt free date.
But it is so important that pensions have time for the investments to compound and work.
Even though I'm struggling out of debt, I have not altered my 15% pension contribution.

What are your thoughts on this? Should I reduce the pension contirubtions? Or should my colleague reinstate theirs. What are you folk doing about this?

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zenshi

I'm doing the same as your friend at the mo.

At my worst, I had no choice but to put my private pension on hold as I just couldn't afford it. I can now but am choosing to plough through my debts

Maybe, my thinking in this is because I have a huge amount of equity in my house and plan to downsize in approx 10 years which if I chose to live off without investing properly would still give me a very nice income even with buying a smaller property to live in

Not sure it's the right way to do things but at least I'm not stressing about paying into a pension now. Other responses on your thread may alter my views

Shashy

Is your pension contribution private or as part of an employer contribution scheme? If the latter, wouldn't feel right to halt it since you'd presumably lose/lower the employer contribution?

Drawingaline

The pension situation for us is pretty dire. I pay the bare minimum through an employer's scheme. I have a debt free date two years away and I will not be looking to increase any payments to pension until then.

However I am aware do the situation........

January2015

We are deep in debt and both in our employer pension. We have a DMP in place to clear our debt by retirement. The plan is based on our net income (after all deductions). Our employers add about 14% of our salary to our pension scheme (so that's free savings if you like to look at it that way - because if we weren't in the scheme we wouldn't get that money). The pensions also provide us with life insurance cover for over 3 times our annual salaries. We wouldn't consider withdrawing from the pension schemes to service our debt. We can get through and clear our debt whilst remaining in the pensions.

another_casualty

I've always contributed to a works pension wherever possible .
Don't expect much though , as my salary has always been below the national average . The best thing about doing this , is that the money is deducted from your wages and you get used to your salary. Same with annual travel cards.
I know friends who are in professional type jobs and have no pension.
I treat it as a necessity . I made one or two mistakes by transferring one pension to another as I was naive and in my late 20's.but that's another story. Good topic

enthusiasticsaver

Saving for a pension is the most tax efficient way of saving, your employer normally pays a contribution and doing it from a young age gives compounding a chance to escalate the final sum as much as possible. People who struggle with their finances will often find excuses to delay paying off debt, starting a pension etc so my feeling is that pension contributions should be given as much priority as paying off debt.

BettyBones

I treat pension contributions as a priority. So much so that when I finished paying off my Tax Credit debt back in September I took £50 of the £130 a month I was no longer paying to HMRC and used it to make an AVC to my pension rather than put it all into snowballing my debt and getting it paid off sooner. But then all of my debt is on 0% and I'm on track to clear it by the time the 0% runs out without having to use this £50 so I guess I've only done that because the circumstance of my debt allows me to. Even if I was in a mess debt-wise though, I think I would still try to make a minimum contribution to my pension if only for the tax relief and the employer's contributions. And I think my future self will would thank me for that. So I would say don't reduce or stop your pension contributions unless you really, really have to.

lazer-zxr

Shashy wrote: »

Is your pension contribution private or as part of an employer contribution scheme? If the latter, wouldn't feel right to halt it since you'd presumably lose/lower the employer contribution?

Its an employer defined contribution scheme.
I am paying in 15%, my employer is contributing 8%.

I'm not far away from my debt free date (May 2017), and havnt altered my pension plan throughout the journey .... and glad I didn't.

It's worth considering, that paying into your pension scheme, considering tax benefits, and employer contributions, may be more worthwhile than achieving DFW status a few months early.

GeorgianaCavendish

Thanks for posting this thread, I was going to ask about pensions today!

I have a lot of debt on credit cards & personal loans (£35K) , no savings, but I do contribute to my company pension scheme (I'm paying in 3%, employer contributes 6%) and have done this for last 8 years. If I didn't contribute anything, my employer would pay in 3%.

I wonder whether it would be better to pay off the pension money to my debts, but then I think that it would be better for me to get a proper handle on my debts first, make sure that I'm doing absolutely everything I can to reduce my outgoings or boost income, see if I can switch any of balances to 0% interest, before I even think about stopping pension contributions. Does this sound like the right way of doing things, or should I be chucking everything at my debt repayments?

enthusiasticsaver

GeorgianaCavendish wrote: »

Thanks for posting this thread, I was going to ask about pensions today!

I have a lot of debt on credit cards & personal loans (£35K) , no savings, but I do contribute to my company pension scheme (I'm paying in 3%, employer contributes 6%) and have done this for last 8 years. If I didn't contribute anything, my employer would pay in 3%.

I wonder whether it would be better to pay off the pension money to my debts, but then I think that it would be better for me to get a proper handle on my debts first, make sure that I'm doing absolutely everything I can to reduce my outgoings or boost income, see if I can switch any of balances to 0% interest, before I even think about stopping pension contributions. Does this sound like the right way of doing things, or should I be chucking everything at my debt repayments?

Stopping pension contributions should only be done once you have done everything else you can to reduce the debt - move to 0%, cutting costs, increasing income. Years quickly pass and if it will take you a while to get rid of the debt that is a lot of compounding to pass up, let alone the 6% your employer is contributing. I would definitely not recommend you stop paying into your pension.