private pension investment

kokolino23

Hello,
I did opt out from the private pension but I'm thinking if should I enroll back. I've always wanted to put my savings towards the mortgage so in about one year we'll finish with it.
My current situation - 50yrs old with salary £42k but I also get car allowance and overtime so every year I end up with more than £50k.
If I enroll back to the private pension, I have to pay 5% and the employer pays 3%. I was thinking to pay towards the private pension the amount exceeding £50k so I don't have to pay higher tax on it.
Would this be a good investment (if yes, why?) or should I consider other options?
Thank you

El_Torro

A pension is a great way to save for your retirement. This is especially true if you are a higher rate tax payer in employment and a basic rate tax payer in retirement. Don't forget the 3% that your employer is contributing, you won't get any of this if you don't enroll. 

Paying enough into your pension to remain a basic rate tax payer is a sound plan. Assuming you don't have a pension pot already starting at 50 is pretty late. It's worth thinking about when you plan to retire and how big a pension pot you will need to live a decent lifestyle. You might be surprised to find that you will need a pretty big pot.

QrizB

El_Torro said:

A pension is a great way to save for your retirement. This is especially true if you are a higher rate tax payer in employment and a basic rate tax payer in retirement. Don't forget the 3% that your employer is contributing, you won't get any of this if you don't enroll.

Yes, exactly this. That 3% is £1200 a year of your remuneration package that letting your employer keep.

kokolino23 said:

My current situation - 50yrs old with salary £42k but I also get car allowance and overtime so every year I end up with more than £50k.

50 is quite late to be starting to save for a pension. You've potentially been employed for 30 years. Do you have pension savings from previous employments? Or from this one, before you opted out of auto-enrollment?

If not, a very crude rule of thumb is that you should be saving "half your age" % of your income. For you, that would be 25% - so, your employer's 3% plus 22% of your own. This might seem a lot, but you've got 17 or 18 years to state pension age and can then expect to live another 20+ years after retiring, which means you have fewer years to build your pension than you will be spending it for.

badmemory

Do it asap.  Whilst your employer may only pay in 3% you can pay in as much as you like even if not into the companies plan.  Whilst it may have cost you money to contribute your employer is laughing because your co-workers have been costing them more than you have.  So almost like a pay cut.

Marcon

kokolino23 said:

Hello,
I did opt out from the private pension but I'm thinking if should I enroll back. I've always wanted to put my savings towards the mortgage so in about one year we'll finish with it.
My current situation - 50yrs old with salary £42k but I also get car allowance and overtime so every year I end up with more than £50k.
If I enroll back to the private pension, I have to pay 5% and the employer pays 3%. I was thinking to pay towards the private pension the amount exceeding £50k so I don't have to pay higher tax on it.
Would this be a good investment (if yes, why?) or should I consider other options?
Thank you

What are you going to live on in retirement?

Albermarle

I did opt out from the private pension but I'm thinking if should I enroll back.

I think you must mean your workplace pension ( not private). You have thrown away free money by opting out of it, so opt in to it asap.

kokolino23

Marcon said:

kokolino23 said:

Hello,
I did opt out from the private pension but I'm thinking if should I enroll back. I've always wanted to put my savings towards the mortgage so in about one year we'll finish with it.
My current situation - 50yrs old with salary £42k but I also get car allowance and overtime so every year I end up with more than £50k.
If I enroll back to the private pension, I have to pay 5% and the employer pays 3%. I was thinking to pay towards the private pension the amount exceeding £50k so I don't have to pay higher tax on it.
Would this be a good investment (if yes, why?) or should I consider other options?
Thank you

What are you going to live on in retirement?

I can live in my parents flat when I'll retire and rent our current house. Or buy another house in the meantime and rent it out.
I was thinking to invest my savings somewhere else (ETF or similar), ISA and fixed term deposits.

kokolino23

With this workplace pension, will we get any returns on top of what myself and employer are putting into the pot? 
I'm thinking about a 10-15 years period. I might retire earlier if my finances are right.
I did opt out from workplace pension scheme until now, I thought I'd rather pay towards the mortgage. 3% from the employer wasn't particularly appealing at the time. 

Dazed_and_C0nfused

kokolino23 said:

With this workplace pension, will we get any returns on top of what myself and employer are putting into the pot? 
I'm thinking about a 10-15 years period. I might retire earlier if my finances are right.
I did opt out from workplace pension scheme until now, I thought I'd rather pay towards the mortgage. 3% from the employer wasn't particularly appealing at the time. 

That depends on what you choose to invest in within the pension wrapper.

Your employer contribution is basically part of your salary you've chosen to give away.

Your own contribution gets basic rate tax relief, either by you actually only paying 4% but it's 5% gross with the tax relief or your 5% becomes 6.25% with the basic rate tax relief.

And you can make a personal tax saving as your gross contributions increases how much basic rate tax you can pay meaning less or no 40% tax is paid.

Not many people can afford to miss out on all the benefits a pension gives.

dunstonh

I did opt out from the private pension but I'm thinking if should I enroll back. I've always wanted to put my savings towards the mortgage so in about one year we'll finish with it.

All that free money lost.  What a shame.

 was thinking to invest my savings somewhere else (ETF or similar), ISA and fixed term deposits.

Why?   That would be worse than a pension (which has the same investment options as an ISA).  And still missing free money from the employer.

I did opt out from workplace pension scheme until now, I thought I'd rather pay towards the mortgage. 3% from the employer wasn't particularly appealing at the time. 

So, that turned out to be an expensive mistake by you. Do not compound that mistake any further.

Qyburn

Dazed_and_C0nfused said: 

Your own contribution gets basic rate tax relief, either by you actually only paying 4% but it's 5% gross with the tax relief.

Someone can check my maths, but assuming all employers contributions were from income taxed at 40% I think this would work out as 8% of your salary being added to the pension, at an eventual cost to you of only 3%.