Pay pension or pay off debt

JPIK

Hi everyone
I'm new to the Forum and this is my first post
I recently joined the pension scheme where I work. It is a very generous scheme and my employer contributes an above average amount by today's standards.
However, my contribution is around £220 per month. This is a fair amount of money. I wonder if It is even worth my while while paying in to this pension if I have credit cards and loans to pay off? Also, I can't see me sticking around too long in this job as I am not particularly happy where I am. I wonder, is this a waste of my money? I think I have now contributed 8 months worth.
I'm sure I remember Martin saying a while ago that there is not much point paying in to a savings account if you have debt and that you should pay the debt off first. Do you think the same would apply to pensions? BTW I am 43 and haven't paid in to a pension before! bad I know! Could never afford it. getting on the property ladder was my main aim.
Cheers

Malthusian

If the employer contribution is very generous then you should be paying the maximum. How long you are going to be in the job is irrelevant. Even if you end up quitting next month, that's still one month's worth of free money.

The only way it would be advisable to pay off debt instead is if you have absolutely crippling high interest credit card debts and can't pay them off any other way. Most likely, you should maximise your employer contributions, and use other money to pay off the credit card debts as soon as possible.

If you are on the property ladder then yes you could afford pension contributions, you chose a nicer house instead. Don't talk yourself into throwing away more free money.

Kynthia

The advice about not paying into savings accounts when you have debts is usually dye to the debt interest being greater than the savings interest, and if that's not the case you don't overpay your debts in place of building up savings.

It's likely that 25% more than the take-home pay you are giving up is going into your pension, if not more should your employer use salary sacrifice and you are saving on the NI deductions too. Plus if you need to contribute in order to receive a matching employer contribution then that's free money you'd be giving up if you opt out. So it's possible that for every £80 of take-home pay you give up £200 or more is going into your pension. Your debts won't be costing you anything like this so giving it up would be crazy unless you genuinely can't afford to live despite having cut all costs you possibly can. Therefore you should at least pay the most you need into your pension to get your employers maximum contribution, and more if you can afford it and are happy to lock the money away and have emergency savings.

JPIK

Thanks to you both for replying.
You're right. My debt isn't crippling and I guess I worry too much. I could definitely cut back on some luxuries. Thanks for the sense check!!

ThinkingOutLoud_2

So on the basis that your employer is matching your contributions - that is like a huge instant rate of interest on you money plus tax benefit too. Keep going.

Clearly, your debt needs to be shifted too. Try to make sure you have it financed in the most cost effective way and have a plan how and when you can pay it off - lots of advice elsewhere on this site.

Also, as you are 43 without any pension savings / much awareness as you say - time to do some more reading so you get the backdrop on why having more than the state pension will be a good idea and make you feel more comfortable with your decision here and need to keep going.

MEM62

JPIK wrote: »

Hi everyone
I'm new to the Forum and this is my first post
I recently joined the pension scheme where I work. It is a very generous scheme and my employer contributes an above average amount by today's standards. Nice :-)
However, my contribution is around £220 per month. This is a fair amount of money. I wonder if It is even worth my while while paying in to this pension if I have credit cards and loans to pay off? Also, I can't see me sticking around too long in this job as I am not particularly happy where I am. I wonder, is this a waste of my money? I think I have now contributed 8 months worth. On what basis do you think that paying into a pension a waste of money? And why would the amount of time that you spend in one particular job dictate whether you save for your retirement or not? Neither of these statements makes any sense.
I'm sure I remember Martin saying a while ago that there is not much point paying in to a savings account if you have debt and that you should pay the debt off first. This is not a savings account Do you think the same would apply to pensions? No - unless, of course, you are happy to look at your retirement years without any income. BTW I am 43 and haven't paid in to a pension before! bad I know! Yep, but at 43 it's not too late to start. Could never afford it. You can't afford not to - again, unbless you want to face poverty in old age. getting on the property ladder was my main aim.
Cheers

Everone has to set their own goals and proprities but you will want something to live on in old age. Money in a pension will serve you well in old age and there are few, if any, more efficient ways to prepare for retirement.

I have never understood why the prospect on only spending a short time with a particular employer is often held up as a reason for not paying into a pension. It is completely irrelevant.

atush

Contribute to get the max employers contribs.

Then get out of debt the old fashioned way. Buy not spending on what you cant afford. Do a spending diary and an SOA and get monthly bills down and cut out waste and the luxuries you currently cant afford.

A pension isnt a luxury, it is a necessity.

woolly_wombat

It's not a case of either/or.

You need to do both if at all possible.

Start chipping away at the debt whilst interest rates remain at all-time lows.

steampowered

JPIK wrote: »

BTW I am 43 and haven't paid in to a pension before! bad I know! Could never afford it. getting on the property ladder was my main aim.
Cheers

Could you afford to live on a state pension of £8296 a year (assuming you qualify for the full amount)?

If not, you need to be heavily contributing into your pension.

You need to put some figures into a pension calculator to see what your £220 a month contributions (plus any employer contributions) will get you.