pension problem

joesan

Hi ppl

I am 28 I dont pay tax. I have been thinking about paying some money into some kind of pension but not sure what. I have been reading some articles about a stakeholders pension etc it says that if you pay 22% tax then putting 100 into a pension you are infact putting 78 as it is offset against your income. I dont pay any income tax so therefore it would not benefit me am i rite?

The papers have been saying so many negative things about the state pension is it worth me paying voluntary NI? At the moment i can pay voluntary NI for the last 7 years or so whcih is just over 2000 i think do you think i should pay the NI at least upto the minimum number of years to get a pension if not more? or would the money be better invested else where

CIS

1 yr of the basic sate pension is work approx £186 per week, so 7 years would be worth £13.00 per week or £676 per year.

If you claim your pension at 65 and live for 20yrs, thats £13500.

To pay for 7 yrs, costs at most approx £2500. That could give you approx £11000 extra, if you want to take the gamble and pay.(it all depends how long you live after 65).

I dont think that many bank accounts would give you that level of return in the long run. £2500 invested for 20yrs at 5% would give you £6500, an increase of £4000. compare this to the amount from your state pension.

But as I always say, contact State Pension forecasting for a pension forecast (0191 2135000) , it'll tell you where you stand and what you can pay. If you then have any queries just post again and we'll try and help (I was a state pension forecasting advisor for over 3yrs)

dunstonh

..and non taxpayers or lower rate tax payers still get 22% tax relief, meaning it would cost you £78 for £100 contribution.

cheerfulcat

Hi, joesan,

joesan wrote:

Hi ppl

I am 28 I dont pay tax. I have been thinking about paying some money into some kind of pension but not sure what. I have been reading some articles about a stakeholders pension etc it says that if you pay 22% tax then putting 100 into a pension you are infact putting 78 as it is offset against your income. I dont pay any income tax so therefore it would not benefit me am i rite?

Even non-taxpayers can contribute to a personal pension and have the contribution grossed-up, though there is a limit to how much you may pay in per year - it's currently ~£2800, which will be topped up by the taxman to £3600.

The papers have been saying so many negative things about the state pension is it worth me paying voluntary NI? At the moment i can pay voluntary NI for the last 7 years or so whcih is just over 2000 i think do you think i should pay the NI at least upto the minimum number of years to get a pension if not more? or would the money be better invested else where

To be honest, I think that by the time you are a pensioner - and bear in mind that the pension age could easily be 75 by then - it is quite possible that any state pension will be means-tested. Whether voluntary contributions will be treated any differently from compulsory ones is questionable.

CIS

The pension may be means-tested but if you dont get the contributions paid , you will loose the chance to pay them.

Future plans at the moment indicate that the pension will continue as is for the foreseeable future. It may change, but is it worth the gamble ?, thats what you have to ask yourself.

voluntary contributions are treated exactly the same as compulsory contributions with the exception that class 3 voluntary contributions dont accrue S2P. It's probably going to stay the same in the future, if it did change any contributions already paid will almost certainly be protected.

dunstonh

I think its very much a judgement call based on how you feel. No-one can say for sure what will happen.

If the state retirement age does get moved up, and you don't make it to that age, then the money is basically wasted (subject to spouse entitlement, which in itself is likely to change).

Perhaps, the the closer you are to the state retirement age, the better value these voluntary contributions may be. Any changes that do occur are likely to affect those further away from state retirement age. Very similar to when they increased the state retirement age for women a few years back.

At 28, any change in state retirment age in the next few years is almost certainly going to affect you. If you were 58, then it probably wouldnt.

joesan

thanks for all the advice guys
I guess its probably worth paying the last seven years and future years until at least i think 14 years which is the minimum for a pension to be had. If rules change in the future i can always stop paying any in the future and jus stick with what i have.

do you think its worth while for me to invest in a stakeholders?

CIS

Minimum pension is 11 yrs (25% of the requisite yrs needed, 44)

dunstonh

do you think its worth while for me to invest in a stakeholders?

Depends. At 28, you may find personal pensions offer a cheaper alternative. It all depends on how long you intend to be paying, how you intend to pay and where you want to invest.