Am I paying too much into my pension?

edited 29 July 2018 at 5:06PM in Pensions, Annuities & Retirement Planning
25 replies 2.9K views
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  • badmemorybadmemory Forumite
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    Your Mum has given you the info to get you ahead of the game which is good & you obviously already know to put into your pension whatever it takes to get the max from your employer. You may however have underestimated how much it costs to "set up house". You don't need the £2k sofa but you do need a good bed for example. Also the higher deposit you have the lower the interest rate tends to be & the fees can be interesting!
  • edited 30 July 2018 at 8:48AM
    ConManConMan Forumite
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    edited 30 July 2018 at 8:48AM
    Atush - I paid into a DB career average pension scheme for under a year. Cost me about £1k all told. It then ended and turned into a DC scheme. The closing statement said it would pay around £300 pa. when I retire at 65. They offered £13500 to transfer out so I did. Placed in a global equity tracker.

    I'm not going to buy a house yet, but most of my mates have bought ones recently so I know the ball park I need for everything. I still need a bit more but don't intend to buy a house for the next 4 years anyway - I'll be way ahead of the amount they had when they bought, so fairly confident here.

    After I've maxed my LISA allowance each year, I'll be increasing my emergency cash fund. Only got £600 in my emergency cash, so this is clearly something I need to focus on. I'd like to get this to about £5k by the time I buy a house, which should be fairly simple.

    My other focus is the S&S ISA as I only have £4k in there.. Having considered the advice given, I've stopped my AVC contributions but stay on 10% contributions. LISA is maxed out this year, so now I'll focus on S&S and Cash. - I also have around £5k in p2p. This is actually how I first started investing. I know it's probably too much in here compared to the rest of my small portfolio, but I like having it as it's sort of the beginning for me. I only pay £60pm in there though so no biggie.

    Thank you all for your advice and suggestions.
    You'll find me sat in the corner with a pack of dry roasted and a Guinness.
  • edited 30 July 2018 at 8:48AM
    AlexlandAlexland Forumite
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    edited 30 July 2018 at 8:48AM
    I wish I had phased my pension contributions better.

    I have always paid in more than required to get the employer matching but this was less efficient at the start when I was a basic rate taxpayer and later it would have been more efficient to put all my higher rate income into the pension - which I now do.

    So if you intend to become higher rate later in your career then maybe hold back a bit while you are basic rate.

    Alex
  • TerronTerron Forumite
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    You seem to be doing pretty well.


    There is an old rule of thumb saying you should pay a $age of your ratnings into a pension equal to half your age when you start paying. So 5% plus 10$ from your employer looks enough for now.


    You should have an emergency fund like your S&S IS. Three months salary after tax is a bare minimum.



    You are planning to buy a house. You will probably want to do that before retiring. A bigger deposit will get you lower interest rates. so I would llook at increasing that - Using a LISA/
  • OldMusicGuyOldMusicGuy Forumite
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    My advice to my 22 year old son was to max his pension contributions to gain the employer max contributions, start a LISA (as he plans to buy somewhere in 2 to 5 years). He also has some money in an IT (gift from a grandparent). He is paying 20% into his pension but he has to pay 10% to get the max 10% employer contribution. So in your case, 15% is a pretty reasonable level to be contributing at a young age, and I think you could consider reducing the pension to invest in a LISA in the short term.
  • ConManConMan Forumite
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    Terron - I'm looking to increase my emergency cash and hopefully by the time I'm buying a house in 4 years or so, will have around 3-6 months salary.

    One issue I have, is the house deposit. I'll most likely be buying with my partner, but If I keep saving into the LISA, which I'll do anyway, I'll end up having a deposit of £35k, compared to her £10-15k.

    I mean I'm quite happy to do this, but there is always that thing at the back of your mind, what if and the issues that could arise should we end up splitting after buying the house. Which is what's happened to the guy sat next to me at work.
    You'll find me sat in the corner with a pack of dry roasted and a Guinness.
  • edited 30 July 2018 at 11:06AM
    AlexlandAlexland Forumite
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    edited 30 July 2018 at 11:06AM
    You don't have to withdraw the whole LISA balance for the property purchase - you could leave some of it in (and switch to S&S) until age 60 if you want your house deposits to be equal.

    In your position, as basic rate, I would follow OldMusicGuy's guidance to only put enough in your pension for matched contributions and the rest into the LISA. That also gives some flexibility incase you need a bigger deposit than expected to buy the property you want or if you end up buying on your own.

    Alex.
  • atushatush Forumite
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    Atush - I paid into a DB career average pension scheme for under a year. Cost me about £1k all told. It then ended and turned into a DC scheme. The closing statement said it would pay around £300 pa. when I retire at 65. They offered £13500 to transfer out so I did. Placed in a global equity tracker.

    With just one year in, many schemes force you to transfer out (or receive your contribs back- always a bad choice).

    In your case, if you were alllowed to stay in, that 300 a year would have been uprated by an inflation amount for the next 40 years. Could have been an idea to keep it.

    But you've done it now, and you are still in a good position for someone your age.
  • kinger101kinger101 Forumite
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    atush wrote: »
    With just one year in, many schemes force you to transfer out (or receive your contribs back- always a bad choice).

    In your case, if you were alllowed to stay in, that 300 a year would have been uprated by an inflation amount for the next 40 years. Could have been an idea to keep it.

    But you've done it now, and you are still in a good position for someone your age.

    I disagree. An inflation-proofed £300 pa is a terrible return on £13,500. The £13,500 has over 40 years to grow within the SIPP.
    "Real knowledge is to know the extent of one's ignorance" - Confucius
  • ViolaLassViolaLass Forumite
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    You seem to be counting on no emergencies before you buy a house.

    You need the emergency fund in place asap. What if you lose your job? What if your car dies?
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