Am I paying too much into my pension?

ConMan

Hey Guys,

I'm wondering what people are think about my situation. Over the last 2 years, I've really gotten into investing and pensions etc. It's really good and I enjoy reading people's thoughts and opinions.

My situation

23, years old, salary around 23k.

Pension

1) - Sipp £14500
2) - Workplace pension - £19500.

total £34000

I pay in 10% and my employer pays in the same. I also pay £105 AVC. 10% is sal sac, avc is not. (I think)

I'm also contributing to a S&S isa. But much lower amounts as I can't afford too much as the rest is going into my pension.

What I'm thinking is that I'm paying too much into my pension, and should reduce this and pay the additional amounts into my S&S instead.

i.e. I can pay 5% and my employer will still pay 10%. I can then pay the £105 avc and other 5% into the S&S isa instead.

S&S isa - £4.5k

Welcome people's views.

Brynsam

What are your objectives, in particular what timeframe? If you don't have a 'rainy day' fund, then having savings you can access before the age of 55 (possibly older) makes a lot of sense. If you are likely to be saving for a property, then again, think about whether it is wise to tie up so much cash in your pension.

Maximising the amount of cash from the employer makes a lot of sense.

Zorillo

What are your aims? On the face of it, you're massively over prioritising retirement ahead of other 'life goals' but if you have got your other bases covered (eg home ownership, emergency fund) then there's no harm in contributing as much as possible towards retirement.

A salary of £23k is pretty good at 23 but by the time you've deducted all of that you're not leaving yourself a massive amount to live on.

Why a SIPP?

kidmugsy

ConMan wrote: »

I pay in 10% and my employer pays in the same. I also pay £105 AVC. 10% is sal sac, avc is not. (I think)

I'm also contributing to a S&S isa. But much lower amounts as I can't afford too much as the rest is going into my pension.

You say you need only contribute 5% to get the employer's 10%. Then reconsider - the case for the extra 5% from you is not overwhelming. The case for the AVC seems to be downright weak. You will probably have demands for capital to be available long before age 55 (or 57, or 58, ...).

If you have never owned residential property but would like to do so one day, then urgently consider a LISA rather than an S&S ISA. If the house purchase were to be in the next four or five years then you'd want either a Cash LISA (Skipton or Nottingham BSs) or you might take the risk of an S&S LISA invested in something that you might hope to mimic house prices (e.g. Hearthstone). Or, perhaps consider a Help to Buy ISA.

ConMan

Thanks for the quick responses. I'll try and answer your questions

1- Brynsam

No particular objective. It's just long term investment. I already have a house deposit saved - circa £14k. I'm now also building my emergency savings as I know a lot of people on this forum and elsewhere recommend that. Hopefully have that sorted by Decemeber.

2 - Zorillo

Sipp - I transfered out my FS pension scheme.

3 - Kidsmugsy

I've got my Lisa and house deposit is sorted.

___

I think it's clear from your responses that I'm probably not investing my money right here. I think I'll go ahead with reducing my contributions to 5% whilst maintaining the maximum employer contribution of 10%. I'll invest the AVC and the rest of the money into my S&S.

My mum always hounded me to pay into the pension, but I think I went a little overboard.

Zorillo

I'd consider keeping your pension contributions at 10% but then steering everything else towards the house deposit. The less you have to borrow in the future, the more you can invest later on.

Your mum's advice was sound but as you say, there is a case that you've taken it too far.

Zorillo

And does the workplace pension accept transfers in? If so, it might be cheaper than the sipp (that's a guess, never had cause to investigate sipps myself!)

Linton

There is a good case for you to make more use of your S&S ISA as it gives extra flexibility which could be useful when you are young. At a later date you could put the money from the S&S ISA into your pension and so still get the extra tax advantages.

atush

Sipp - I transfered out my FS pension scheme.

What FS pension? why did you transfer it?

AS for the rest, build up your emergency cash pot, then look at S&S isas for your extra over employers match for pension. Once you have bought a place, then you can ramp up the pension.

Kynthia

I wouldn't necessarily decrease it yet. Once you are paying a mortgage, have children to pay childcare costs for, are working part time or school hours, etc then you may not be able to afford to put extra into your pension and be happy that you did it now.

kidmugsy

Kynthia wrote: »

I wouldn't necessarily decrease it yet. Once you are paying a mortgage, have children to pay childcare costs for, are working part time or school hours, etc then you may not be able to afford to put extra into your pension and be happy that you did it now.

Poor logic, I think. Pop it into an ISA now; it can always be pulled out in future and put into a pension - perhaps when the terms are better.