Advice needed: Start pension or pay off student loan?

lamy2503

Hi all, starting new job in Jan where the employer will double all my pension contributions. However for one, I'm not yet sure (obviously) whether I will stay in this job for more than 2 years (in which case I would lose all my contributions) and I'd also like to get rid of the student loan (I know it's cheap debt but 4.8% interest on 13k will quickly add up). For what it's worth, on starting salary my S.L deductions will be £315 p/a. My thought's are to put 5% gross monthly into a high interest account and make an annual overpayment, instead of contributing to a pension - that is at least until I'm sure where my medium-term future lies.


All/ any thoughts welcome!!

Lavendyr

Why would you lose your contributions if you don't stay in the job for more than 2 years?

If your employer will match your contributions I would look into a pension. You're immediately gaining far more than you are losing towards your loan.

I would recommend you don't overpay your student loan. For one thing, it will only be 4.8% for this year and may well go down next year and in future years. For another, if you use ISAs and high-interest savings account (6.21% is current market-leading ISA rate I believe, which is tax-free, and 6.41% gross in high-interest savers), you can earn more in interest than your loan is costing you. Finally, if you ever plan to buy a house, your mortgage interest rate is almost certainly going to be higher than the interest rate on a student loan, so it is better to have a student loan and put down a bigger deposit on a house with your savings than to have less of a loan but also less of a deposit. It all depends on your plans.

I am in a similar situation and since my employer does not match pension contributions, I am saving into my ISA (with NS&I) and my savings account (with Icesave) rather than paying off my loan more quickly than I have to.

simonleblank

Are you male?

lamy2503

Thanks for the replies - Lavendyr; it's the company's pension policy that any contributions are non-transferable for 24 months, which seems to be my main crux. I'm also expecting savings rates to increase in the coming months regardless of what B.of.E does to base rates (different story for a different thread IMO!).
I do agree completely with the deposit-pot idea 'though.

Simonleblank - yes.

Andy_L

The 24 month rule usually means that you can't transfer the pension to a new scheme. If you leave before this you get a refund of your contributions only, ie you lose the employers contributions & the tax relief

Dithering_Dad

I'm pretty sure that since the 'A' day regulations, your employer has to give you the option on fransferring your pension elsewhere. I was with my previous employer for 23 months and they told me that they would not allow me to remain within their pension plan and said I could either take cash (less tax and their contributions) or I could move to a personal pension. Naturally I moved to a personal pension.

You may also find that 2 years passes quite quickly and if it's a choice between hanging on for a couple of extra months or losing thousands of £'s in employer contributions you'll stay on!!

lamy2503

Thanks for all the advice...it does seem that I'd be a little unwise not to join in then!