What would your advice be for a first time buyer with a very small pension pot?

JustAnotherSaver

Not looking for 'an answer' as there isn't one. Just wondering on other peoples views.
Some of you will know i help my immediate family out where i can, such as with finances. If i didn't then it'd all be lumped in just the one account earning sod all & none of them would have any pensions or any ISAs, be they cash, S&S, HTB or LISA.


My sister & brother live at home. Sister is in her late 20s, in a relationship. Brother is mid 20s and after the last one i think he's been scarred for life so no ties currently.


I guess earnings are a little pointless as its all relative depending on what things around you cost also. I bought a decent house with my deposit. I probably couldn't afford a cardboard box if i'd done that in London.


Where would you focus your savings (regards retirement planning and saving for a house)?


Personally i think eggs in 1 basket leaves you a little short & chasing at a later date so i feel it's important to 'chip away' in all areas.



Right now out of each pay she sections off money for just general savings, holiday money, things like insurances & car tax, an emergency fund in a cash savings account, a HTB ISA & then her pension. There is currently more going in to the pension than the HTB ISA - both pots are really quite small. A few K in her pension, a couple K in her HTB ISA.



My brother is also more weighted towards his retirement planning than his HTB ISA, although for his age and earnings he's actually doing ok in both.






Though a point to make is obviously there's no guarantee that they'll buy at any time in their life, so the whole thing could end up as a retirement plan.
Just wondered what you guys would gear towards in their positions?


If any more info is required then shoot away & i'll get back to you when i can.

jamesd

For pensions just enough to get all available employer matching. Property buying can save long term costs and help the overall finances as well as adding a more secure life.

If available, an interest only pension mortgage is a very useful tool instead of a repayment mortgage.

JustAnotherSaver

I knew there was 1 thing I forgot to add - there is no employer matching for any of us. You guys must have some real sweet employers because none of ours will contribute any extra in any form including salary sacrifice.

Also the workplace pension is separate to my question too. That is minimum contribution for both but they ‘don’t count it’ as it’s taken out before it hits the bank so hey treat it like a bonus if you will. The pension in question is their personal one.

What’s this interest only pension mortgage you mention though? Never heard of one. Bought my first house 5yrs ago and we’re on a repayment one.

LHW99

there is no employer matching for any of us

Does this mean you are unemployed / self-employed? Otherwise your employers should by now have an autoenrollment scheme. Even if you are not automatically enrolled because your earnings are low, you should be able to request to be enrolled, and the employer shouldn't be able to say no.

JustAnotherSaver

LHW99 wrote: »

Does this mean you are unemployed / self-employed? Otherwise your employers should by now have an autoenrollment scheme. Even if you are not automatically enrolled because your earnings are low, you should be able to request to be enrolled, and the employer shouldn't be able to say no.

Sorry for my poor description.


What i meant by that was that the employer only pays in and only ever will pay in the bare minimum that they have to pay in. Right now that's 2% with the employee at 3%. In this case they will never pay in 3% to match because they don't legally have to.


When it shifts to 3% & 5% (i think those are the figures?) they will only ever pay in 3% because that's all they have to.


If they could get away with paying in 0% they would do.

kidmugsy

It has always seemed unwise to me for basic rate taxpayers to contribute any more to a pension than what's required to maximise employer contributions unless (i) they use sal sac, or (ii) they have passed, or are close to, age 55.

Your kin might be wiser looking at LISAs.

JustAnotherSaver

kidmugsy wrote: »

It has always seemed unwise to me for basic rate taxpayers to contribute any more to a pension than what's required to maximise employer contributions unless (i) they use sal sac, or (ii) they have passed, or are close to, age 55.

Your kin might be wiser looking at LISAs.

There was another member here who gave a shout to LISAs. alexland i think is the chaps name, but i'm not sure he was coming from the angle of LISAs in place of pensions but rather in addition to.


Now say a £100 monthly contribution, i don't know whether he was saying split that between a pension & LISA to some ratio or whether it was keep the £100 in the pension but if you can afford extra then throw the extra at the LISA or what.


Sister for example, she's putting £80/month at a pension & £60/month to a HTB ISA. This is A) separate from her workplace pension (like i said, that doesn't get counted, it's treated like a bonus if you will) and in addition to all the other things she's putting aside for (emergency fund, general saving etc).


It's just whether she'd be better at this stage in life going more one way than the other kind of thing.

Mr.Saver

Personally, I'm facing the same decision - pension and house deposit. I'm currently prioritising pension over deposit.

So back to OP's question:

I guess earnings are a little pointless as its all relative depending on what things around you cost also.

It turns out that earnings aren't irrelevant.

I'd prioritise deposit if I was to earn below the 40% rate. Because delaying the house buying means paying more rent, and the rent would eat away a relatively large portion of my earnings if I don't earn a lot.

However if I earn well above the 40% line, I'd prioritise pension over the deposit if I can rent cheaply. This is because the 40% tax relief is unbeatable, I'd only be paying less than 15% tax (25% tax free, then 20% tax on the remaining 75% above the PA) when I live on my pension. The 25% difference is net gain. Also because if I earn more, the rent will eat a smaller portion of my earnings, allows me to save more.

So this really is a case by case thing, it depends on earnings, pension pot size, expenditures (including rent), house price, (predicted) inflation, tax policies and many more factors.

Alexland

JustAnotherSaver wrote: »

There was another member here who gave a shout to LISAs. alexland i think is the chaps name, but i'm not sure he was coming from the angle of LISAs in place of pensions but rather in addition to.

It really depends on circumstances.

Pensions are great where there is an opportunity to get employer matched contributions (even if only the auto-enrollment minimum), make contributions from your limited company or where higher rate tax relief is available.

LISAs are great for contributing from basic rate income where pension income might use up your personal allowance in retirement so it is the same initial 25% bonus / 20% tax relief but with the LISA there is no tax on withdrawal.

Where someone is basic rate with salary sacrifice then pension and LISA contributions give similar benefit. The LISA is also useful as it does not count towards pension LTA.

So for some people (depending on how much they intend to contribute) they might be best just making pension contributions, others could contribute to both and probably very occasionally (eg a sole trader with a pension from previous employment) maybe just a LISA.

Alex

JustAnotherSaver

Mr.Saver wrote: »

Personally, I'm facing the same decision - pension and house deposit. I'm currently prioritising pension over deposit.

So back to OP's question:


It turns out that earnings aren't irrelevant.

I'd prioritise deposit if I was to earn below the 40% rate. Because delaying the house buying means paying more rent, and the rent would eat away a relatively large portion of my earnings if I don't earn a lot.

However if I earn well above the 40% line, I'd prioritise pension over the deposit if I can rent cheaply. This is because the 40% tax relief is unbeatable, I'd only be paying less than 15% tax (25% tax free, then 20% tax on the remaining 75% above the PA) when I live on my pension. The 25% difference is net gain. Also because if I earn more, the rent will eat a smaller portion of my earnings, allows me to save more.

So this really is a case by case thing, it depends on earnings, pension pot size, expenditures (including rent), house price, (predicted) inflation, tax policies and many more factors.

For those in question they are not 40% tax payers and very likely never will be.



The other thing i'm wondering which obviously you guys can't help with is whether they'll ever be in a position to buy and i don't mean totally money.
I could save & save fairly hard. They can't, not like i could, nowhere near.

I had a tunnel vision goal of buying my house & not struggling. They have various goals, mostly regarding enjoying today & tomorrow but next week is so long away.
I was in a very solid relationship. Sure everything can change but i don't see my wife & I ever separating. We barely ever argue, we're very well suited, been together for 15+ years. My sister is in a relationship but despite it being 2-3 years in i do wonder. My brother is against women full stop after the last episode & that was 3-4 years ago.


So i wonder if they'd ever buy anyway or just rent.

My sister doesn't want to rent but who knows.
My brother is extremely green in life to a level where you guys reading this would think i'm making it up. I'll give you an example - he was given a scratch card & asked what it was. When he was told he asked what you're supposed to do with it. :rotfl:I don't mean he's mentally handicapped but he's just pretty clueless in life. I'm not sure how he got to be so bad at it. So i'm not sure whether he'd actually function on his own.
Still, better to have the money there as an option than not.

Alexland

I must be green too as I have never bought a lottery ticket or game card. It really irritates me when I am queueing in a shop behind someone buying them as it's a complete waste of their money and all of our time.

Alex