Should I be paying into a pension fund now?

luby-lou

Sorry if this has been covered before - please point me in the right direction if so, but my husband and I are not currently paying into a pension fund as money is quite tight and we are trying to pay off our debts first.

A bit of history in case it helps - I am 30 years old and my husband is 32. We have debts of approx £6,500 which will be paid off in 4 1/2 years at the most and we do own our own home (mortgaged but about £80,000 equity at present). I work 12 hours per week in the evening and my husband is working full time but employed with an agency on a long term, temporary contract which is due to come to an end in June. We both have had pensions in the past with Standard Life which are currently on hold as we are not paying into them.

Should we be making some sort of contribution, however small, or concentrating on paying off our debts first?


Thanks in advance.

EdInvestor

Concentrate on paying off debts as you have no company pension with free money on offer.

It would also be worth checking your state pension status later this year, when the compuetr has updated for the new rules, wqhich mean you only need 30 years NI contributions.There's also the state second pension (SERPS/S2P), so worth getting a forecast of both your situations there.

What fund(s) are your SL pensions invested in?

dunstonh

Whilst clearing short term debts is a priority you do need to be careful that you wont be clearing short term debts for the next 30 years. The problem many find is that they clear a bit, then borrow again, then clear a bit then find themselves in their 50s with no pension and still in debt.

The basic state pension of £4500 a year doesn't go far and there is no guarantee that the second state pension will exist in the future and shouldn't be relied upon. Self employed don't get that anyway and the Govt have reduced it three times in the past retrospectively and are increasing the retirement ages effectively making it a fourth reduction.

luby-lou

Will have to check on SL details - not sure off the top of my head - will come back.

Thanks.

EdInvestor

dunstonh wrote: »

The basic state pension of £4500 a year doesn't go far...

...but is going to be relinked to earnings rather than inflation soon and so will go further than before....

there is no guarantee that the second state pension will exist in the future...

There has been no suggestion it will be dropped.What will happen is that the amount currently paid to highest earners will be reduced and the amount paid to the low paid will be increased.

As it is, a person on moderate earnings with a full SERPS record from 1978 retiring now will get at least double the state pension.This is not to be sneezed at.You would have to save up more than 300k to get an income equivalent to the 2 state pensions at that level. :eek:

So SERPS/S2P should not be ignored.People should keep an eye on their entitlement in this area, by getting a forecast later this year when computers are updated from https://www.thepensionservice.gov.uk

They may be pleasantly surprised.

dunstonh

...but is going to be relinked to earnings rather than inflation soon and so will go further than before....

Still starting from £4500 though. The majority of people couldnt cope with £10k a year so its got a long way to go.

As it is, a person on moderate earnings with a full SERPS record from 1978 retiring now will get at least double the state pension.This is not to be sneezed at.You would have to save up more than 300k to get an income equivalent to the 2 state pensions at that level. :eek:

As it is a person starting out now cannot get "double the state pension" and self employed people dont get S2P at all.

So SERPS/S2P should not be ignored.

You overstate the position on S2P frequently. It has been a plaything of Govts and you shouldnt rely on it.

EdInvestor

dunstonh wrote: »

You overstate the position on S2P frequently. It has been a plaything of Govts and you shouldnt rely on it.

Advisors generally understate it of course, as if people realise they are already paying into 2 pensions and thus have a higher provision than they thought, getting a private pension is not such a compelling need.

It's wise to check your own individual position.

There are no guarantees about insurance company pensions either, as many who relied on them have learnt to their cost in recent years.

dunstonh

Advisors generally understate it of course

Of course. Its generally not reliable enough to base your whole retirement life on. Most people dont put enough away so if they get any S2P then it goes some way to make up for that.

There are no guarantees about insurance company pensions either, as many who relied on them have learnt to their cost in recent years.

There is no excuse for people to be in naff pension schemes. That is their choice. Its something that is easily resolved.

EdInvestor

dunstonh wrote: »

There is no excuse for people to be in naff pension schemes. That is their choice

IMHO that is a fatuous remark.No-one "chooses" to be in a naff pension scheme. There are a variety of reasons why a pension scheme might be "naff":

#It has very high charges and steep exit penalties because that was the type of pension available at the time.So when it started it wasn't naff compared with the available choice, but is now.(eg the likes of Allied Dunbar pensions)
#It has very high charges and a poor investment strategy because regulation and investment conditions have changed since it was taken out (eg many WP pensions)
# It has low charges but poor investment performance due to incorrect asset allocation by advisor or investor
#It has high charges and poor investment performance because the advisor acted on the basis of commission bias

How would an ordinary uninformed investor know that the pension was underperforming ?Please point to comparative lists of pension performance..

Its something that is easily resolved.

Not necessarily.First you have to realise you have a problem in the absence of no easy way to check.Then you have to work out exactly what the problem is.Then to fix it, you have to find a decent, honest advisor (perhaps the most difficult part) or study up on financial issues so as to DIY.

None of this is easy or straightforward.

dunstonh

Why dont we all drive round in 20 year old cars then or wear clothes from that time or have furniture etc etc... We review and update. Just as the people are told to do with their pensions when they take them out. Every product regardless of what it is becomes out of date sooner or later.

There are people that know their pension is poor and do nothing. There are people that dont know but should get their pension reviewed but dont. Once the problem is known there is no reason to stay put.

EdInvestor

dunstonh wrote: »

Why dont we all drive round in 20 year old cars then or wear clothes from that time or have furniture etc etc... We review and update. Just as the people are told to do with their pensions when they take them out. Every product regardless of what it is becomes out of date sooner or later.

Not at all.One spends half one's time advising people NOT to interfere with their final salary pensions.

There are people that know their pension is poor and do nothing.

And there are people who think their pension is poor (because it gets no bonuses) and want to do something with it, but shouldn't because it's got a stonking great GAR.

Once the problem is known there is no reason to stay put.

IF there's a problem.Can you rely on an advisor to have your best interests at heart when the correct advice (which might be to do nothing) would mean he earns no commission?

Quite frankly I can't blame people who stuff pension documents in the drawer, given the complexity of the system and the dubious credentials and attitudes of many of the people who purport to offer professional advice.