Why do people save?

RG2015

pearl123 wrote: »

I save also because at the age of 50 I know that I will just have a state pension.

I now get a buzz from saving. i doubt I'll ever be comfortably well off but I hope to do enough to stop much of the worry.

I took early retirement on a company pension so I am not up to date on the current options. However if you take out a pension plan you will get tax relief on your contributions. Or to put it another way, it is like regular savings earning 20% interest if you pay tax. If you are employed your employer will also contribute.

https://www.pensionsadvisoryservice.org.uk/about-pensions/saving-into-a-pension/pensions-and-tax/tax-relief-and-contributions

RG2015

RG2015 wrote: »

I took early retirement on a company pension so I am not up to date on the current options. However if you take out a pension plan you will get tax relief on your contributions. Or to put it another way, it is like regular savings earning 20% interest if you pay tax. If you are employed your employer will also contribute.

https://www.pensionsadvisoryservice.org.uk/about-pensions/saving-into-a-pension/pensions-and-tax/tax-relief-and-contributions

I think I need to amend my 20% statement as this can vary depending on how much tax you pay and at what rate. The link I gave to the pension advisory service will also give more details.

However, let's assume you pay basic rate tax at 20% and you save £80 per month in a bank. In
order to have £80 you would have been paid £100 less 20% tax giving you £80. If you had paid the £80 into a pension scheme it would get 20% tax relief so you would have £100 added to your pension pot

So to get to £100 you would have added £20 to your £80 which is actually adding 25% to your £80.

Therefore, in this example, it is equivalent to a regular savings account earning interest of 25% per annum.

Eco_Miser

RG2015 wrote: »

Therefore, in this example, it is equivalent to a regular savings account earning interest of 25% per annum.

No, just a one-off 25% on each subscription, which for a young subscriber could be locked away for over 25 years, so that's just 1% per annum.
And don't forget the tax on withdrawal.

This is not to say that a pension is a bad investment, but the returns mostly come from the investment growth, not the tax relief.

RG2015

Oh dear! I messed that up completely. Thank you so much for correcting me. That is one of the strengths of MSE in that there is always someone there to correct mistakes.

I hope that pearl123 is not put off in any way from checking out if a pension would be benefial for them.

I was thinking of my final year before retirement when my savings allowed me to put extra AVCs into my pension. Upon retirement, I took these as a tax free lump sum effectively giving me 25% tax free on this amount.

msallen

Pension contributions would still be beneficial for pearl123 given that she says she is 50 and has no pension other than the state one, as that means she will have some spare tax allowance when she retires and so could take approx 3000 per year (at today's figures) tax free out of it.

LuxuryWoman

What an in interesting thread, I've speed read but will read again and digest in a bit.
I was 'good' with money from the day I started work and all through my twenties when I bought a house when house prices were at an all time low (97) within 3 weeks of getting the keys I left my low paid job to do agency work and within a few weeks landed a job paying twice my previous., I also took a lodger which covered my mortgage and council tax so there was a mixture of pure luck and some sound judgement there.

At 31 I was very comfortable with a shed load of equity, savings etc. but I met the man who I would go on to have my child with and it was a financial disaster. He had no credit cards at the time but I didn't realise then that it was because his rating was shot. Long story short, he drank away most of our money, ran up card debts and I ended up having to sell my house. I take a large part of the blame for the mess we got into and don't dwell on it.

Anyhow, we did a deal that I kept most of the equity after the house sold which is now tied up in various accounts earning as much as is possible in this climate. I live modestly and am back in control of my money now.

Never, ever will I be in the position of having to pay off nearly 40k of debt.

Age 50 starting again, with confidence and determination which is paying off daily.

If I could go back I'd give myself a good shake but I can't, what I can do is try to assure my daughters future and never again merge my finances with another person.

Thanks for this thread, I can only urge the younger ones to keep saving and I shall take inspiration from the ones around my age.

Fatbritabroad

I save because I like the feeling of security. I k ow so many people that couldn't live for more than a month without a pay cheque and I literally couldn't live like that it would cause me too much stress. A recent death in the family (cousin at 50),has begun to teach me to loosen up a bit like others have said it's a balance. I've always made sure I put a decent amount in my pension (about 17% Inc employers) and have over 125k in that at 37. The rest I figure is almost a bonus if that makes sense allowing me to retire earlier if I choose. My next aim is to get to 100k non pensions saving as I feel that's an amount where gains and dividends etc really start to be a noticeable sum. Currently at 42k so I'm on my way!

Alexland

What are you planning for the £100k non pension investment? I find the advantages of investing in pensions and LISAs so compelling that I am only using S&S ISAs for leftovers these days.

Fatbritabroad

Alexland wrote: »

What are you planning for the £100k non pension investment? I find the advantages of investing in pensions and LISAs so compelling that I am only using S&S ISAs for leftovers these days.

planning (hoping) to retire early and not assuming they will keep the 55 private pension retirement age when I can gain access. Yes I could save more in pension (I put around 15k a year in) but the trade off is flexibility. I'm also conscious of the lifetime allowance which I certain lofty scenarios I'll reach

Alexland

Yes also in my 30s and have already contributed enough that with modest 2-3% growth above fees and inflation I will have used around half an inflation adjusted LTA already. That's why I am doing the LISA and when I can no longer contribute at 50 will focus on the ISA.

By then hopefully the ISA leftovers will have compound anyway which might cover me a bit before I can get access to the pensions.

It's a surreal feeling having already contributed nearly enough for the future but still needing income to afford the present. I can almost afford to retire just not live for the next 20+ years of grinding work.