What should I do about a pension?

Stu666

I am 26, self-employed and in long-term reciept of Disability Living Allowance.

I am wondering what to do about a pension, as different people are telling me different things.

Some people tell me not to bother with one, just to stick the money into a bank account and grow it that way.

A few years ago there was a bit of a scare about pensions and younger people, so I hastily signed up for a Virgin stakeholder pension. I've only been paying something silly like a fiver a month, so there isn't much in it. But I've recently been told that I might have 'contracted' myself out of the state second pension (whatever that is).

As you can probably tell by now, I really haven't got much of a clue about pensions and would appreciate any advice, thank you.

dunstonh

Some people tell me not to bother with one, just to stick the money into a bank account and grow it that way.

Those same people obviously want you to be poor in retirement.

A few years ago there was a bit of a scare about pensions and younger people, so I hastily signed up for a Virgin stakeholder pension. I've only been paying something silly like a fiver a month, so there isn't much in it.

£5pm is not worth the effort. Realistically, if you are going to pay in £5pm for 42 years (your state retirement age is 68) do you honestly think you are going get back that much more in real terms as an income? Probably around £10pm in real terms.

But I've recently been told that I might have 'contracted' myself out of the state second pension (whatever that is).

You are not contracted out. Self employed do not get full state pensions entitlement. You only qualify for the basic state pension and not the second state pension. So you cannot contract out of the second state pension.

As it stands, you are on track to retire at 68 with a basic state pension of £4716 a year and a stakeholder pension paying about £120 a year. Giving you the total income of £4836 a year.

Is £4836 a year enough for you to live on? That is the simple question when it comes down to it. If yes, then you have enough provision. If no, then you need to pay more.

EdInvestor

Stu666 wrote: »

Some people tell me not to bother with one, just to stick the money into a bank account and grow it that way.

This won't do the trick.However there is an alternative to a pension if you want to retain access to the capital but also get tax relief.This is the investment ISA.If you open one of these, you can invest in the same funds as you would with a pension, and thus have the prospect of long term growth and a reasonable income in retirement.

If however you feel that you may have to give up work and live on benefits later on, you may be better of with a pension, as it won't be counted as assets for benefits purposes (because you can't get the money out). The ISA will be counted up to a certain level (check how much).So it may be wise to start saving in the ISA then when you approach the level, switch contributions to the pension wrapper.

dunstonh

However there is an alternative to a pension if you want to retain access to the capital but also get tax relief.This is the investment ISA.

Is this a new product that I missed in the budget? An ISA with tax relief?

EdInvestor

dunstonh wrote: »

Is this a new product that I missed in the budget? An ISA with tax relief?

:rolleyes:

Gets it at the end rather than the beginning.