Start pension or finish paying debt

charlfer

This is a simple question, but unfortunately I've not yet found a straightforward answer:

Is it better to pay off debts before starting to pay into a pension? I know that pension contributions have tax relief, but this is tax relief that I'm not going to access until I'm retired (I'm currently 28). Whereas I have to pay the principal on my debt now!

And then there's the fact of the time-value of money, which means unless my pension is guaranteed to grow at greater than inflation, any future income from it might be less than the cost of delaying paying off my debt! It's all too confusing.

BTW, debts are a mixture of student loans, graduate loans, small amount on credit card etc. i.e. not particularly expensive, but still...

Pal

It is usually worth paying debts off if you are going to pay more interest than you would earn from the pension investments.

It does however depend on the circumstances. If your debt is your mortgage, the pension may well earn more money than you pay in interest so the decision is more difficult.

If the debt is on credit cards then pay them off first.

HOWEVER, the big problem is that most people never pay their debts off as they keep spending at the same rate and never feel that they have any "spare money". The danger is that you never get around to starting your saving for retirement.

You need to write down a financial plan to sort your debts out by a specific date and then stick to it. Then start your pension contributions.

If your employer offers a pension scheme to which they contribute, it is almost always worth joining straight away.

deemy2004

Pay off debts first, then save in the tax free accounts, pension should come a distant last. Unless you think your pension fund at retirement will far exceed £40k in TODAY's money.

dunstonh

Pay off debts first, then save in the tax free accounts, pension should come a distant last. Unless you think your pension fund at retirement will far exceed £40k in TODAY's money.

But then people keep putting it off as they remain in debt and then end up with nothing.

Pal

Deemy keeps spouting off this same piece of "advice" ignoring the fact that the current idiotic means-tested benefits policy is not going to exist when most people retire. I have no intention of planning for my retirement in 20/30 years time on the basis of this current labour government's mistakes.

Robert_Sterling_3

Postponment of gratification is the name of the game here.
You should not get into "avoidable" debt in the first place.
You should pay off debt which is at a high rtae of interest as soon as possible.
You should put money aside ( what ever that might mean ) for when you retire.
What people should do and what they do do sometimes differs.

P.S.

You should not smoke

deemy2004

But then people keep putting it off as they remain in debt and then end up with nothing.    

I don't comprehend your post, as I did say pay of your debt first

deemy2004

Deemy keeps spouting off this same piece of "advice" ignoring the fact that the current idiotic means-tested benefits policy is not going to exist when most people retire.  I have no intention of planning for my retirement in 20/30 years time on the basis of this current labour government's mistakes.

the advice that I am spouting, apparently is to save money in your own name that you can call on at any time, rather than in a pension fund which is out of your hands both the returns on and the eventual annuity rate. Its much better to save that money in ISA's and fixed bonds that is always IN YOUR CONTROL.

With so many potential retirees in 20-30 years , where will the returns come from ?
People are living in a fantasy land, if they think these private pension instruments are going to deliver the growth that the pension funds of old did (i.e. we saw what happened to equitable lifes promises).

Ive got a pension fund, a SIPP, but I don't put a penny of my own money in, nope my employer contributes to it. When I retire yes I will get a very small private pension, but that will be far outweighed by the accumulated savings in my own name that I can do whatever I want to with and not be forced into buying an annuity at rock bottom prices, as with so many retirees you can bet that the annuity rates will reflect the situation.

The only people pushing these pension products hard are the IFA's who get a % out of every contribution made

Robert_Sterling_3

the advice that I am spouting
The only people pushing these pension products hard are the IFA's who get a % out of every contribution made

I think that the "keeps spouting off" is a way of saying "repeating"

The only people ........
You may say that I could not possibly comment. ;D ;D ;D

dunstonh

Its much better to save that money in ISA's and fixed bonds that is always IN YOUR CONTROL.

That is extremely bad advice. ISAs can form part of your retirement planning and for those closer to retirement, they can be a valid option. However, the lower charges on a pension coupled with the tax relief, particulary for higher rate tax payers, means that pensions are more suitable in the majority of cases.

With many funds nowadays being available for an ISA or a pension, the pension fund will show the highest projections when using the same rate of return.

People are living in a fantasy land, if they think these private pension instruments are going to deliver the growth that the pension funds of old did (i.e. we saw what happened to equitable lifes promises).

But you just told them to go into ISAs which invest in the exact same areas.

I don't comprehend your post, as I did say pay of your debt first

Perhaps you should live in the real world rather than the ideal one. People get into debt, they start to pay it off (often with consolidation) and then as one chunk of debt decreases, they soon return to their old ways and borrow again and start the cycle all over again.

The only people pushing these pension products hard are the IFA's who get a % out of every contribution made

Its funny that all the information currently available is that IFAs are not pushing pensions enough.

deemy2004

cash isa - 5.8% fixed 5 years NR.
Shares isa - gilts - You buy 1 gov stock say 10 gilt with a yield of 5% then thats your return fixed until maturity - no risk. All interest is tax free !

Not the same as a variable pension fund which may lose 23% or more (performance over the last 5 years).

A lot of people are waking up as they get their private pension fund letters through their doors on retirement and screaming - What the hell ??? And then go and demo outside westiminster. This is likely to be a growing phenomena