Is it worth paying into a pension anymore?

400ixl

As people are saying a private pension is becoming more important, not less. Even to live on the state pension is not going to be easy, so as a minimum to top that up.

As the state pension age increases more people are going to want to retire before that and will need a private pension to be part of their capability to do that.

The earlier you start the longer it has to grow and with free money from your employer and the tax relief it makes sense to take advantage of it as soon as you can.

eskbanker

elsien said:

State retirement age isn’t always the most relevant factor. 

But to reiterate the point made above in an earlier post (and yours!), there's no such thing as 'state retirement age', there's 'state pension age' (defining when payments start) and separately there's the age that individuals choose to retire from employment....

Moonwolf

The only change for me is that my nephews and nieces might not get as much if I haven’t managed to spend it all and I still think it is worth it. 

I have tried to balance it so that my lifestyle won’t change from before to after retirement.  Save too much and I’m more impoverished now, too little and I am impoverished later, I hope I have it just right.  Anything left is a bonus for the niblings, even if it was first taxed at 40%.

If you are saving for your retirement and not to avoid IHT it is still at least as good as ISAs and probably better if you get employer matching.

However I accept that I am an outlier in that I don’t have kids and I don’t have an innate hatred of paying tax, particularly given the cancer care I have received which had to be paid for somehow.

Also, even if you think you will die young; if you are married or in a civil partnership your partner will probably benefit and they are still likely to get the pension tax free. The chance of at least one of a couple living past 85 are quite high.

RogerPensionGuy

eskbanker said:

elsien said:

State retirement age isn’t always the most relevant factor. 

But to reiterate the point made above in an earlier post (and yours!), there's no such thing as 'state retirement age', there's 'state pension age' (defining when payments start) and separately there's the age that individuals choose to retire from employment....

To add to this point, many people and organisations so often hard line & hard link employment, not employed, the phrase retirement, pensions retirement or maybe target retirement date etc etc.

We can do pension inputs/contributions whilst in paid employment or when not employed.

We can withdraw funds from pensions currently from age 55 now generally, however some pension schemes do have minimum age, but possibly earlier in various circumstances. 

We can draw from pensions being still employed and also put in to pensions at this same time.

People and organisations hard linking stopping working on a Friday and then activating pensions the next day. 

The above is one of my big bug bears, I've been to so many pension outputs and 99% of general outputs do tend to hard link these events together. 

With so much government pensions and tax football so often, I see the flexibility of augmenting employment, contributions, pension activations, stopping and restarting pensions is potentially so helpful and especially if people have balanced investments and cash flow possibilities, the last budget is just another good example and maybe some people will decide to drain DC Pots earlier and deeper than previously were thinking. 

I wish us all luck going forwards trying to play football when the referee keeps changing the rules and the referee makes us use a rugby ball to make the game even more hard to use and consistent strategy effectively, Crazy!!! 

hugheskevi

I always consider that contributing to a pension is great where:

• You get a contribution from the employer, taking full benefit of any matching on offer
• You are a higher/additional rate taxpayer
• You have access to salary sacrifice, especially where the employer shares employer NI saving
• You are in receipt of means-tested benefits, at the lower end things like Universal Credit, at the higher end things like Child Benefit and free childcare

Even now I have reached the point where I am going to be a higher-rate taxpayer in all years from age 55 to death, I am still contributing heavily to a pension as I will have Lump Sum Allowance available. So everything I put in the pension gets 40% relief and I will pay 30% when withdrawn so that is an uplift of nearly 17% on pension contributions compared to taking cash now.

My wife is in a better position, she will be a higher rate taxpayer from State Pension age, but will have basic rate available between 55-State Pension age, so pension contributions are hugely valuable for her, benefitting from a 42% uplift compared to taking cash.

The benefits of pension saving are so good I am even in the process of taking out a mortgage as I purchase a new house to use as a pension mortgage (ie repaying borrowing from pension income). We have been mortgage-free for several years, but this enables me to save more into DC pensions, as we already probably have about as much DC pension as we will need to smooth income from age 55.

This means that all my higher rate income is taxed only slightly more than the rest of my income, as I will pay 8% NICS and 20% income tax on my income below higher rate (ignoring Personal Allowance) but 2% NICS now and 30% income tax later on the money that goes into a pension. For my wife, that will be just 2% NICS now and 15% income tax later, so the tax burden is actually lighter than for her basic rate income.

So I think pensions are still pretty amazing for Income Tax avoidance, if not for Inheritance Tax avoidance anymore.

crv1963

badatdeciding said:

With the cost of living rises, I am wondering if it is worth reducing or stopping my pension contributions. If retirement ages are likely to rise to 71, if pensions are to be taxed more, and I have genetic risk factors for dementia and cancer that could mean I may be dead before I am 80, should I just use the money now to make life easier?

I would suggest as have previous people posting that you have underestimated the benefit of pension savings. The relief going in is still of great benefit when you consider the tax saved. Depending on your withdrawal plans tax can also be kept to a minimum.

Regarding State Pension Age being 71 years old, I for one have not read this anywhere so I am curious to your source. Pensions are not taxed more than wages, and benefit from not paying 8% NI (at present). The tax free allowance is still generous, there are few who get million pound pots, those that do, good on them I say! The only change is the restoration of IHT on the DC pots, it was only abolished in 2015.

As for your own genetic risks, these are exactly that - risks. Risk events or illness may or may not happen, living in the expectation of their certainty is not advisable, what if you spend everything now, no additional pension savings and then experience robust health into your 90s in poverty? 

Good luck deciding, my suggestion is save in a pension but it is up to you.

theoretica

badatdeciding said:

With the cost of living rises, I am wondering if it is worth reducing or stopping my pension contributions. If retirement ages are likely to rise to 71, if pensions are to be taxed more, and I have genetic risk factors for dementia and cancer that could mean I may be dead before I am 80, should I just use the money now to make life easier?

I want a reasonable expectation of balance in my life - not beans on toast now and champagne and caviar later, but also being sure I will not be restricted to beans on toast later on, even if it means not having things I would like now.  As others have said, I really don't want to stay full time employed until state pension age!

ali_bear

Maybe it is not worth paying into any pension if you have a terminal diagnosis and expect to live less than maybe a couple of years. Otherwise I struggle to think of any reason not to. How and how much is a more complex question. 

Altior

A contrarian perspective, the OP has not outlined their current situation. For example, don't go into debt now or significantly compromise your living standards today, in order to save for something that might not even happen.

It's all a balance, in an ideal world you'd save a proportion of disposable income toward a pension. 

My own approach is broadly three funnels, one third to enjoy now, one third toward any time access (emergency/ISA/RS/cash bonds), one third pension. With a target of rebalancing into pension the closer I get to accessing it. Then I will try to maximise drawing on the pension with a marginal rate of 0%.

If you can afford it without compromising 'today', at least utilise 'free money' provided by pension contribution matching by your employer (if employed) as this will also benefit from tax relief. 

Dazed_and_C0nfused

Altior said:

A contrarian perspective, the OP has not outlined their current situation. For example, don't go into debt now or significantly compromise your living standards today, in order to save for something that might not even happen.

It's all a balance, in an ideal world you'd save a proportion of disposable income toward a pension. 

My own approach is broadly three funnels, one third to enjoy now, one third toward any time access (emergency/ISA/RS/cash bonds), one third pension. With a target of rebalancing into pension the closer I get to accessing it. Then I will try to maximise drawing on the pension with a marginal rate of 0%.

If you can afford it without compromising 'today', at least utilise 'free money' provided by pension contribution matching by your employer (if employed) as this will also benefit from tax relief. 

It won't, but free money is still free money and always worth availing yourself of if it's available 🙃