Pension advice for a beginner (24 years old)

bp5678

UPDATE:

Thanks everyone for your help (so far).

Based on the majority of the replies, I think for now I'm going to leave my contributions as they are to focus on saving for my first home. Once I've bought this (around the end of the year), I'll then try to up my contributions to at least 10% (maybe even 15%). I'll also look into changing from my default pension fund to perhaps Higher Risk or Sharia Funds pension fund schemes.

enthusiasticsaver

Just seen your update and think for now you are doing the right thing on focusing on saving for your first home. On the plus side you have a pension and are young and at present 8% is going into it. The general advice is take the age you start and halve it and that is the percentage you should pay in. This is a very crude formula but shows you should be aiming for 12% (yours and employer contributions combined) and at least the maximum your employer will match although if you are paying 5% and they are only paying 3% I guess they will not go higher. I would aim to increase to 8-10% as soon as you are able.

Good luck on buying a home.

Alexland

I would agree that for the long term circa 8% total isn't enough but in the short term getting on the housing ladder is the priority. However if you find yourself lumbered with heavy mortgage repayments due to the high income multiplier you might never get around to increasing your contribution.

It would be good if you could find a way to grow your income (such as taking a lodger) to make a greater provision towards your retirement perhaps using a S&S Lifetime ISA which might be more beneficial than additional pension contributions?

Alex

bp5678

Alexland wrote: »

I would agree that for the long term circa 8% total isn't enough but in the short term getting on the housing ladder is the priority. However if you find yourself lumbered with heavy mortgage repayments due to the high income multiplier you might never get around to increasing your contribution.

It would be good if you could find a way to grow your income (such as taking a lodger) to make a greater provision towards your retirement perhaps using a S&S Lifetime ISA which might be more beneficial than additional pension contributions?

Alex

Thanks. I think I'd be open to the idea of a lodger.

Interesting idea about S&S Lifetime ISA over the pension contributions. I'll revaluate this once Ive secured my property. It's a little too far away to work out what I'm going to do but thanks for the idea.

Alexland

It is likely your lodger income would be tax free under the rent a room scheme. We both took lodgers when we first bought flats in our 20s and it really helped us get financial security.

https://www.gov.uk/rent-room-in-your-home/the-rent-a-room-scheme

One of my lodgers married a friend from school and we had them around for a bbq this weekend with the kids all playing nicely together in the garden. I still occasionally meet up with another former lodger down the pub. My advice is to pick good people, don't charge too much and be completely reasonable and hopefully they will respect you and your property.

While you should obviously continue to harvest the maximum employer contributions to your workplace pension if you are basic rate and do not get salary sacrifice then a S&S LISA may be best for additional contributions as it is the same 25% bonus / 20% tax relief but with no tax on withdrawal. If you get salary sacrifice to save the NI it works out about the same.

Alex

jonnygee2

UPDATE:

Thanks everyone for your help (so far).

Based on the majority of the replies, I think for now I'm going to leave my contributions as they are to focus on saving for my first home. Once I've bought this (around the end of the year), I'll then try to up my contributions to at least 10% (maybe even 15%).

Sounds very sensible.

My two cents, I would say don't increase your pension contributions too fast though. Make sure you build up a good bank of accessible savings as a priority. Owning a home can be expensive, and if you fall on hard times a pension scheme isn't going to help pay your mortgage!

Your pension is important, and earlier is always better to start saving for it, but waiting a couple of years to increase your contribution levels isn't going to do too much damage, whereas running out of accessible cash could be catastrophic.