Is this one of the worst financial decisions ever?

Dalemar

From today's 'Money Makeover' in the Telegraph.

'Three weeks ago Toby Smith, from Bromsgrove, Worcestershire, finally paid off his mortgage. 

But despite reaching this milestone, he still worries for his financial future. 

Partly because he joined on a short-term contract, Mr Smith, who has worked as a scientist for the civil service for the past 22 years, never joined his employer's pension scheme.

Now, at age 56, he finds himself with just £10,000 in savings and nothing else put away for later life. “I am kicking myself for focusing too much on paying the mortgage off early rather than saving for my retirement,” he said.'

O.M.G. as the kids say.

theblueflash

Paying mortgage off occasionally has mythical status in terms of how people perceive things once it’s gone. When I paid mine off, I didn’t really feel a thing. I think if you think or worry about money before - then mostly, you still will afterwards. As to not joining the pension scheme - that’s a doozy for sure. 

NedS

Big mistake, but hopefully he will join now and make extra contributions for the next 11 years equivalent (or more) to his previous mortgage payments in an attempt to catch up. Alpha is a great scheme and 11 years is still time to build a sizeable pension, especially with added contributions.

hugheskevi

So he opted out when he joined, then opted out again when automatic enrolment started around 2012, opted out when reenrolled around 2015, and again in 2018, and again in 2021. He also failed to join Partnership in 2015 when he became eligible, despite it being a non contributory scheme for members.

So that is 6 chances to shoot himself in the foot, and he took every one of them.

I guess the ultimate insult that at least he got full Serps and S2P... then ended up not being in the group of winners from New State Pension (contacted out). But it would be harsh to call that a 7th foot shooting.

barnstar2077

I have met a few people over the years that didn't join the company pension scheme, with various reasons given.

One chap expected an inheritance, the second guy, who is religious, said it wasn't morally right to invest in all of the evil big mega corps and that his house was his retirement fund.  The third one said that most of the money in a pension is put in in the last few years, so he will just start one in his fifties.  The last guy who said they weren't in the pension read the bit about how his money can go down as well as up and decided he was better off spending it than potentially losing anything.

I told them all it was like taking a large pay cut (as our company put in 10% if you put in 5%) and that the money could be invested in different ways (including bonds, that wouldn't line the pockets of evil capitalists) but they were all so entrenched, they seemed to gain some enjoyment from being contrarians.

CalJo99

Did he say how much his house is worth? He could sell up, downsize, put the difference into a pension pot, then keep adding to it while he's still working.

I do think, though, that those who go into retirement without owning somewhere to live are in a precarious position. If possible, one should always own the roof over one's head. Then it's just a case of paying council tax and utilities, and keeping food on the table................

eastcorkram

CalJo99 said:

Did he say how much his house is worth? He could sell up, downsize, put the difference into a pension pot, then keep adding to it while he's still working.

I do think, though, that those who go into retirement without owning somewhere to live are in a precarious position. If possible, one should always own the roof over one's head. Then it's just a case of paying council tax and utilities, and keeping food on the table................

Have often wondered how that works in , for example, Germany, where I always hear that most people rent. Which makes me wonder, firstly, who owns all the houses, and secondly, how do they all afford the rent, once they stop working?

Bimbly

You just can't tell some people.

A guy at work didn't join the pension scheme when getting a job because he didn't think he would be there long. He left six years later. Such a wasted opportunity.

He also quit just as they were doing a trawl for voluntary redundancies but decided it was better to walk away on his own terms (without a new job to go to) rather than work another three months to see if he could get a pay out worth six months' salary. 

Pat38493

eastcorkram said:

CalJo99 said:

Did he say how much his house is worth? He could sell up, downsize, put the difference into a pension pot, then keep adding to it while he's still working.

I do think, though, that those who go into retirement without owning somewhere to live are in a precarious position. If possible, one should always own the roof over one's head. Then it's just a case of paying council tax and utilities, and keeping food on the table................

Have often wondered how that works in , for example, Germany, where I always hear that most people rent. Which makes me wonder, firstly, who owns all the houses, and secondly, how do they all afford the rent, once they stop working?

I suspect that in Germany the system is fairer and more organised on both sides - landlords cannot get away with shady practices and there are regulations around rent increases etc, but on the flip side you cannot get away with not paying your rent for months and refusing to leave.  The reason it's precarious in this country is that it's left almost entirely to market forces and even the regulations that do exist are not well enforced.

I was reading an interesting article in i the other day about early retirement - one of the couples they spoke to had sold up their property in the UK - they now travel the world in winter taking short term rentals in countries with low living costs, and take short term rentals in the UK in the UK summertime.  Conventional wisdom is that this is crazy as you must "stay on the UK property ladder" but I'm not so sure about that - as I think someone else pointed out on here recently, properties have a lot of fixed costs other than just mortgages and I think people tend to forget about these when analysing the case.

Of course when you get too old to travel it might be better to have money set aside to again purchase a property.

Mr.Generous

An example I know is a house purchased for £78k many years ago now worth max £350k, a pension scheme paid into over a 28 year career including AVC's from mid 20's worth over £800k. Total employee contributions probably £30 - £40k?

Buying a property feels the better option but the pension looks far smarter. But don't expect the same now as the final salary schemes have all but disapeared.

Suhusa

eastcorkram said:

CalJo99 said:

Did he say how much his house is worth? He could sell up, downsize, put the difference into a pension pot, then keep adding to it while he's still working.

I do think, though, that those who go into retirement without owning somewhere to live are in a precarious position. If possible, one should always own the roof over one's head. Then it's just a case of paying council tax and utilities, and keeping food on the table................

Have often wondered how that works in , for example, Germany, where I always hear that most people rent. Which makes me wonder, firstly, who owns all the houses, and secondly, how do they all afford the rent, once they stop working?

There's no section 21 in Germany and you've generally got much more rights as a renter (there are accepted values for how much can unilaterally decrease your rent to make the landlord make repairs, for example). The standard is to expect you'll live in your home (whether rented or owned) until you die or move in a care home. Also, because buy to let is not that much of a thing it's often cheaper to rent (this is currently changing because the housing markets starts overheating). There's also no property ladder. People generally only buy one house in their life (the ideal is to buy a plot of land and build your house; if you buy one that's already standing then it will be completely gutted and rebuilt at the very least) and deposits are larger than in the UK. If you rent you will also live somewhere long term on a permanent contract due to the aforementioned strong renters rights, and unless you're one of the poor souls with their rent indexed to inflation, the rent increases will be fairly moderate, compared to the UK (the one thing outside indexed rents that drives rent increases is people moving, because there are fewer restrictions on rent increases between renters). Due to the costs of buying a house a lot of people leave buying to their 40s (30s if you earn well), so essentially people who buy take a huge chunk out of their savings 20-30 years before retirement and won't have much money left over to save while they pay off their mortgage, while renters can continue to save. For reference, what I paid in the Northwest outside the big cities would still count as a madly overpriced rent in Germany. Berlin is on track to approaching these values, and even the perpetually expensive Munich is quite a bit cheaper than Southeast England.

As to who owns the houses - some towns and cities still hold on to their housing stock, others have sold their stock off to big coporations (Vonivia and Deutsche Wohnen are some of the giants). Housing cooperatives own a noticeable chunk of stock (in the low double digits on average) - you have to buy shares to be come a member but then you live cheaper and even more securely, which is why they're madly popular in cities to the extent that they have even closed off their waiting lists. There are also people or families who rent out a building (I used to live in a flat in a building which has been in the same faimily since 1900).

The attitude to housing is simply quite different in Germany. I know I shocked my British colleagues when I said 'why would I want to own a house?', whereas in Germany it's quite reasonable to say that you don't want the hassle of owning a house or flat. Also as a fun fact, the value of your house is not counted towards your assets unless you're rich because a) most normal people don't know the value of their house anyway and b) because it's not something you'd sell to make money (in the same way as you wouldn't try to cash in the clothes you wear or the bed you sleep in) unless you're approaching extremely dire financial straits.