Crossroads - savings or pension?

ElmoR

Hello Pensions Threads people, I'm just peering in from the Mortgage Free Wannabee threads.

In the next few months, I have to decide whether/what proportion of my income should go to either savings or additional pension contributions. I've read a few forum threads and am not a complete novice to savings/pensions matters. What's making this tricky are several nagging doubts about:

1. the possible robustness/health/worth of the pension scheme I'm in, which is a biggy (the universities superannuation scheme, USS) but has burned us all badly in 2016, and seeing the unicorn final salary pension die and be replaced with something that has cut projections dramatically. What if the Pensions Protection Fund goes too? Do I want to pay more in? It's just been valued as massively in deficit too.

2. the obvious (and eternal) volatility of investments/ISAs. I opened a Vanguard Lifestyle 60/40 ISA this year but have paid very little in there so far having gone hell for leather on the mortgage (about 3 months away from being paid off now  ...).

To complicate matters, I also kept up a NEST pension that was opened because of a small piece of contracted work this year and I thought it might be an idea to trickle a small amount into that each month to have more eggs in baskets? But there are no employer contributions going into that one, just my monthly punt. I did speak to a Financial Advisor as part of a free appointment through my union but their comments said to plough spare cash into the USS because it's great and a no brainer, but is it great?

I'm 51, just in the higher tax bracket, my DH earns less and only recently started (last 5 years) pension savings (the People's Pension I think?). What I would like to do is retire at 60 ish. At that point I will have all my NI stamps for the state pension thanks to working as a teenager and part time all through education. Have done the calculations on what we would need to save from now til then etc and also a plan from 60-67 years old. Question is, where do I stash it all? Pension (s) or Savings?

Presumably this is one of  the most frequently asked questions on the forum, so please feel free to just answer back with key thread links from the past that would be useful.

It would be good to hear back from any other USS pension people too - are you bricking it as well?

Best wishes to all, ElmoR

OldBeanz

2. What rate are you paying for your mortgage and what calculations did you do to see if it was more beneficial to pay it off?

AlanP_2

OldBeanz said:

2. What rate are you paying for your mortgage and what calculations did you do to see if it was more beneficial to pay it off?

Surely that is water under the bridge now irrespective of whether it was the most financially beneficial thing to do or not?

OP - Can't comment specifically on USS but in general terms I would rather have a DB pension than a DC one even if the final salary link has been lost.

Albermarle

I can not comment on the USS scheme , except to say that the worst public sector DB pension is still going be much better than a private DC pension.
If you are going to save separately a DC pension is more tax beneficial than saving in an Investments ISA. Particularly if you are a 40% taxpayer , although in your case you are only just a HRT so the extra benefits would be limited .
On the downside the DC pension will not be accessible until your late 50's .

squirrelpie

Note that the HRT pension relief factor may disappear quite shortly!

xylophone

At that point I will have all my NI stamps for the state pension thanks to working as a teenager and part time all through education. 

Have you obtained a state pension forecast?

https://www.gov.uk/check-state-pension

What if the Pensions Protection Fund goes too? 

https://www.gov.uk/government/organisations/pension-protection-fund

PPF is a public corporation of the Department for Work and Pensions.

As good a guarantee as you'll get?

If you are happy with Vanguard, you might consider their pension? You could transfer in the NEST?

Brynsam

Albermarle said:

I can not comment on the USS scheme , except to say that the worst public sector DB pension is still going be much better than a private DC pension.
If you are going to save separately a DC pension is more tax beneficial than saving in an Investments ISA. Particularly if you are a 40% taxpayer , although in your case you are only just a HRT so the extra benefits would be limited .
On the downside the DC pension will not be accessible until your late 50's .

If you're going to save more in the USS, then you will do so through the Investment Builder section (which is DC) - indeed, depending on how much you currently earn (anything over the salary threshold, which is £59,585.72 for 2020/2021), some of your contributions may already be heading there.

warmsnow

Hello - I've got a small USS entitlement and a larger private pension from a prior career. Mostly people cannot answer the questions you raise! But I can provide a few pointers that seem important to me.
The problem with USS isn't its robustness, its going to survive because its quite simply too big to fail + the university sector has a fairly stable revenue stream. The problem is actually that they keep reducing the benefit and raising the contribution. So you only get a career average pension up to 59k, and you're already contributing 9.6% (you) and 21.1% (employer) - and this is going to get less attractive. Recent numbers are speculated at 40-70% of payroll! However the way to think about this is that salaries and take home pay is going to get squashed, not that the pension won't be there.
The second important point is that you can actually take out of a private pension from 57. That means you can add to your pension at 50, the government will defer most of the tax you owe on that, and then you can have your cake and eat it in about 7 years.
Put that together and the easy point is that you can stop stressing about USS and you should pay more into your pension if you're happy to save now for pounds in a few years.
The pension protection fund is also fine. If the government doesn't stand behind it, there's a case to be made that you'll have even bigger worries than your pension. Literally the country will be bust at that point and the pound will be worthless.
Whether or not you should put it in USS investment builder or something else like Vanguard is super difficult to say. They look pretty similar to me. If you want more control its easier to argue that you build up a private pension elsewhere like HL.
There's a lot going on here so I'm not going to cover what you should do with the cash you take out when you retire. Probably find a decent platform and run a very low risk portfolio with flexible drawdown. My sense is perhaps you're trying to tackle too many questions at the same time

bluenose1

I am in USS, age 54 and saving as much as i can into my DC pension pot as the benefits of salary sacrifice definitely  make it a no brainer from a financial perspective. I am putting in the max allowed in monthly as want to retire in next year or so.
Not in the slightest worried re the robustness of  USS, it would take all the Universities to go bust for there to be any risk, and if that happens we will have more important things to worry about.
What age do you plan to retire? 

Albermarle

 So you only get a career average pension up to 59k, and you're already contributing 9.6% (you) and 21.1% (employer) - and this is going to get less attractive. Recent numbers are speculated at 40-70% of payroll! 

If you think that the average private sector employer only contributes 3 % , and even a generous employer would rarely contribute more than 10% , then you have not got so much to complain about really.

warmsnow

Albermarle said:

 So you only get a career average pension up to 59k, and you're already contributing 9.6% (you) and 21.1% (employer) - and this is going to get less attractive. Recent numbers are speculated at 40-70% of payroll! 

If you think that the average private sector employer only contributes 3 % , and even a generous employer would rarely contribute more than 10% , then you have not got so much to complain about really.

I wouldn't be so quick to applaud this high employer contribution. You follow the logic through and it suggests students are paying too much for their studies and staff are being underpaid. Imagine 40 years of 30% total contribution only to end up with a pension of 50% of your salary for an average of 15 years. Its really creeping into bad value. I don't know if you have a rule of thumb about what might be a good deal salary contribution vs pension?
A further problem with this is there are clauses such that the universities aren't allowed to offer a competing pension, so the only alternative is opting out - and then only getting back your employee contribution i.e. a pay cut.