To not bother with a pension?

Greenwich_girl

I have a pension pot of £50K. I was a SAHM for four years and I'm now a freelancer and I've earnt £6K in my first year (it's early days!). I'm 41, married with two young kids. We have a large mortgage with very little left at the end of each month and only around £5K in savings. My husband has a good salary and part of his pension is final salary. Upon retirement we will have an index linked pension income of £40K from it. It stands at £20K a year now.

I logged into the government gateway and I need 10 more years of NI contributions to get the full state pension which should be achievable as I will continue to bring in some income and I am entitled anyay until the kids turn 12.

Are we right in thinking that I shouldn't bother with a private pension? Or should I set one up with around £100 a month just so that I benefit from the tax break? I may once the kids start secondary go back to an office job but I'm not sure. I think we need to concentrate on building up some savings instead... Thanks!

Stubod

..not sure what else you intend to live of when you retire? Pensions can also be tax efficient....wish I had started mine earlier and put more away!

marlot

If you put £2880 a year into a personal pension, you'll get tax relief to take it up to £3600.

Triumph13

It all comes down to when you want to retire and how much you income you want in retirement. At the end of the day, the whole purpose of pensions is to defer some of your current income so as to be able to use it in later life. The normal aim is to try and smooth your available income over your lifetime.
Your husband has a good DB pension. If he keeps working to normal retirement age that plus 2 state pensions will leave you very comfortably off - possibly more comfortable than you are now with two small kids and one big mortgage. If so then there is little sense in making things even tighter now just to have even more spare money in your old age.
OTOH, if you do make pension contributions now that would make it easier for you both to retire earlier, it would leave you better positioned if he lost his job or was unable to work for some reason, etc.
From a tax point of view contributions for you are a great deal, but only as long as you can get them back out tax free. That would apply if you retired before SP age and even after until you have enough to use up your personal allowance.

AnotherJoe

If you could save £1200 a year (that's your £100/month) you'd get £300 a year added.

If you did that for 14 years until you were 55, that would be 14 x £300 = £4,200 plus whatever growth it got, so conservatively £5k for nothing, plus the £17k maybe risen to £20k (£1200 x14 x growth) you could draw down from, a total of about £25k, without paying tax on (as long as you weren't earning then and took it out over a few years)

Spreadsheetman

Before making any pension decisions I'd look carefully at the DB pension benefits if/when your Husband dies and make sure that you can live on the resulting amount plus your SP.

Also having a big pension imbalance between partners isn't usually tax-efficient, so trying to find ways of equalising things a little is useful so you maximise use of personal allowances and avoid higher-rate tax.

Greenwich_girl

Thanks for the advice - lots to think about!
Yes thinking about when we want to retire would make sense. It does seem daft to effectively turn down money and £100 for me to put in a pension would be doable.
We have life insurance that would pay the mortgage off and give each of us a small monthly income until retirement. I would be entitled to a high percentage of his pension.

kidmugsy

Greenwich_girl wrote: »

I have a pension pot of £50K. ... I'm now a freelancer and I've earnt £6K in my first year (it's early days!). I'm 41, married with two young kids. We have a large mortgage with very little left at the end of each month and only around £5K in savings. My husband has a good salary and part of his pension is final salary. Upon retirement we will have an index linked pension income of £40K from it.

Are we right in thinking that I shouldn't bother with a private pension?... I may once the kids start secondary go back to an office job but I'm not sure. I think we need to concentrate on building up some savings instead...

It would be perfectly logical to build up your emergency savings now, and to save into a pension once you're earning more (especially if the tax relief deal changes in your favour in future).

You really must contribute to a pension eventually, but it's not top priority at the moment. If you should suddenly receive a windfall of some sort, then be sure to bung some into your pension.

MallyGirl

I would make sure of the details of the widows portion of the DB pension - it is often just 50% and one person does not tend to cost half as much as two as there are fixed overheads to consider.

xylophone

£5000 is a very small emergency fund - why not use your income to build it up to six months' income and then start saving into a pension for yourself?

Don't forget to use interest paying current accounts where these give a better return than savings accounts.

Don't forget that as a very modest earner you should make as much use as possible of 0% savings band/PSA etc.

Is your husband a higher rate tax payer? If so, is he paying enough into his pension to bring him into basic rate and keep the full Child Benefit?

atush

Put something into a pension if you can, but you do also need to boost your cash savings as 5K isnt enough.

How much can you save each month? Split it between the 2. You will have a PA in retirement so you should try and use if by drawing a pension down tax free.

Then the OH, what is the scheme retirement age for his pension? Does he have any DC pensions too? if he wants to retire earlier than scheme age, he may want to start a DC pension too.