I've had confusing pension advice - help!

Lufeplanner44

Hi All,

I wonder if you can help.  I have had two advisors state different opinions, and I could do with some clarity.

In simple terms, is it better to pay £320 a month into my pension each month for the next 10 years, or is it better to put £38,400 (the equiilent amount over the 10 years) in straight away and then no more.  Which would likely perform the best?

Thanks,

Dazed_and_C0nfused

Lufeplanner44 said:

Hi All,

I wonder if you can help.  I have had two advisors state different opinions, and I could do with some clarity.

In simple terms, is it better to pay £320 a month into my pension each month for the next 10 years, or is it better to put £38,400 (the equiilent amount over the 10 years) in straight away and then no more.  Which would likely perform the best?

Thanks,

Do you earn enough to be able to add £38,400 in a single tax year?

As in contribute that within the pension contribution rules, not whether you can afford to do it.

Lufeplanner44

Hi Dazed_and_C0nfused, yes, i have a lump sum.  Its more hypothetical - is it better to contribute regularly or a one off over a long period?

Dazed_and_C0nfused

Lufeplanner44 said:

Hi Dazed_and_C0nfused, yes, i have a lump sum.  Its more hypothetical - is it better to contribute regularly or a one off over a long period?

Having a lump sum isn't all that matters though.

Are you entitled to add that much in one go and get tax relief 🤔

What sort of fund will you be choosing within the pension wrapper?

Lufeplanner44

sorry, perhaps keep it really simple for me: is it better to contribute regularly or a one off larger payment?  in my mind, a larger payment has a longer period to compound

SVaz

Best case scenario, yes.  At 6% average growth then it’s 78k after 10 years vs £52k with the monthly option. 

Worst case, imagine that £38k dropping 30% the week after investing and taking 5+ years to even recover back to the original,  you would need 5 years of above 6% growth for £52k.

I’d probably go half and half. 

I once shoved £25k into a bond fund and it fell 25% the very next week,  talk about bad timing ! 

Lufeplanner44

thanks SVaz

LHW99

1) Rules are that you need to have earned at least £38,400 in this tax year to get that amount into a pension (by contributing 80% and getting it topped up by basic relief), even if it actually comes from savings.

2) Generally they say a lump sum at the start will do better than drip feeding - as long as you can accept a drop of maybe 50% soon after it gets invested and still stay the course without selling to cash again.

Cobbler_tone

For me it would depend on my age and whether I was ever likely to need to funds before I could access it again.
Plus if it is a lump sum you have been taxed on, you are putting it somewhere that you are probably going to pay tax on some of it again.
All assuming you have the relevant income to allow it.
Basic maths tells you that starting with a larger sum leads to a larger amount....assuming there is growth.
I'd probably buy a new car in my situation, so context is everything.

Marcon

Lufeplanner44 said:

sorry, perhaps keep it really simple for me: is it better to contribute regularly or a one off larger payment?  in my mind, a larger payment has a longer period to compound

You have pound cost averaging in mind: https://www.aviva.co.uk/investments/investing-for-beginners/what-is-pound-cost-averaging/

kimwp

You will only know which would have been better in ten years time - it depends on what the market does in those ten years.