Credit card or pension ?

bigb66 · 19 August 2005 at 11:15PM

I guys I hope someone can help me, I am currently paying in to a private pension £80 per month and £35 per month in to a company pension which they then match I have also got a credit card with £4000 on it with capital one at 3.9%.

The Question is
I am thinking of stoping the £80 a month pension and paying more than the monthley min and clearing the card off quicker then when it is clear putting the £80 a month in to a savings account, and not in to the pension, as I keep reading about this and that company going to the wall and taking the pension fund with them, Am I right or am I wrong ??????????

thanks for the advise :T

ceebee_2 · 20 August 2005 at 12:06AM

Suggest that your first course of action is to get the #4000(Sorry, I've lost my pound sign) onto a 0% c/c.
However, my main point is that I understood that you could not pay in to a private pension at the same time as a company scheme. I'm sure wiser people than me can advise.

DavidLaGuardia · 20 August 2005 at 1:42AM

ceebee wrote:

However, my main point is that I understood that you could not pay in to a private pension at the same time as a company scheme. I'm sure wiser people than me can advise.

Firstly you have always been able to do this in repect of separate earnings not connected to your occupational scheme (e.g. a fireman who works as a barman part time could always put into a personal pension in respect of his bar earnings)

Additionally from the time stakeholders were introduced someone earing less than £30,000p.a. and a member of an occuaptional scheme can put in up to £3,600 gross without showing addtional earnings. The 30K limit is a bit useless as it can be curcumvented by creating addtional eanings that are declared -e.g. mowing next door's lawn for a fiver in which case those earning more than £30k have an addtional source of eanings and can also put in up to £3,600 gross.

A more obscure fact is that national health dentists and GPs who forego the tax releif on their NHS contribution can also put into a personal pension in repsect of their NHS earnings as if they were not linked to a personal pension (hence they could do more than £3,600 depending on earnings)

EdInvestor · 20 August 2005 at 9:34AM

Hello bigb66

If you are a basic rate taxpayer, I would suggest that the 80 quid could be redeployed either to paying down the loan or to a long-term saving or investment inside an ISA wrapper, rather than a PP - or, if the company will match it, to the company pension.

This is because IMHO the restrictions and other disadvantages of the personal pension wrapper, including the loss of the capital, outweigh the advantages of tax breaks for a BRT.The position is usually different for a higher rate taxpaper.Others may disagree with this view.

dunstonh · 20 August 2005 at 12:19PM

If there are childrens/working tax credits by receiving, the pension tax relief is effectively more than than the 22% basic tax relief. Therefore the advantages of the pension would be increased over the ISA.

As you are not a regular in the pension forum BigB66, you need to be aware that Ed promotes ISAs instead of pensions every time without knowing the facts. Although his suggestion may well be valid under some circumstances, it may also be incorrect under others. The blanket statement issued by him is misleading.

Things that are important to consider are (and you need to be honest with yourself):
1 - If you were to stop the contributions, are you likely to restart them when CC is paid off and restart them higher to make up the missing ones?
2 - Re ISAs instead of Pensions. Can you trust yourself never to dip into the ISA (which you cannot do with the pension) before you reach retirement?
3 - If in receipt of childrens/working tax credits, the amount you receive on those will be reduced if you stop the pension. Is this amount and loss of growth (over time due to missing years to get CC to zero) on the pension contributions going to outweigh the credit card interest?
4 - If you got the CC down to zero, would you start using it again and enter the credit cycle that many do (and very many do)? In which case you would never pay off the debt and if pension was stopped, you would have lower income in retirement as well.

The 0% option is a good one and should be investigated whatever you choose to do.

EdInvestor · 20 August 2005 at 2:18PM

dunstonh wrote:

As you are not a regular in the pension forum BigB66, you need to be aware that Ed promotes ISAs instead of pensions every time without knowing the facts. Although his suggestion may well be valid under some circumstances, it may also be incorrect under others. The blanket statement issued by him is misleading.

I don;t "promote" anything. But when I see the following, I feel the Moneysavers might perhaps like a bit more explanation:

A pension is just another investment tax wrapper with a defined maturity process.

Translation: once you put money in it, you can't get most of it out until you're quite old, and then only in dribs and drabs.

So, the focus is on tax. If you put £100 into an ISA, its cost you £100. With the pension, it will effectively cost you £60. Possibly even less if you have children/working tax credits.

Additional info: But you'll pay tax on 75% of the money when you take it out as income at the other end with a pension, while with the ISA, both income and capital can be taken out tax free.

Currently, the pension allows you to draw out 25% tax free lump on maturity with the remainder going towards an annuity. There are investment backed schemes which allow this to be deferred but that is often a decision not to worry about until you get there..

Translation: If you think you might need any of these savings before you actually retire, then a pension is the wrong wrapper for you, but let's just pass over this difficult point quickly.....

ISAs do not have that 25% limitation. However, the income they generate is likely to be lower than that obtained from an annuity.

Addtional info: ISA income may be a little bit lower than that generated by an annuity if you are already in your 60s, but with the ISA you keep all your capital.With an annuity you have to hand the pension pot over to the insurance company.

I just think that Moneysavers should get a balanced picture before they decide on these things dunstonh, and sometimes I'm not sure that's quite what you provide.

dunstonh · 20 August 2005 at 2:29PM

I will give you a chance to edit your post to reflect accurate information ed before I respond to the points. It gets a bit boring having to continue to correct you all the time.

bigb66 · 20 August 2005 at 8:37PM

so to get the gen drift of this

1. sort out the 0% route.
2. Put as much as I can in to a pension fund or an ISA

Is this Right ?

oceanblue_3 · 20 August 2005 at 8:44PM

Yes!!

Ultimately, it's your choice - but keep on asking questions until you're happy to make a decision (your decision).

To a large extent, ignore Edinvestor - her calico knickers are chafing her!!!!!

EdInvestor · 20 August 2005 at 9:06PM

Bigb66

bigb66 wrote:

so to get the gen drift of this

1. sort out the 0% route.
2. Put as much as I can in to a pension fund or an ISA

Is this Right ?

I would say

1.Move CC to 0% and clear it
2.Split savings money between company pension and ISA

On the pension front, there's now a Govt protection fund in place, so there shouldn't be any more failed company pensions.The company pension would be the best one to keep up as it gets the "free money".

oceanblue_3 · 20 August 2005 at 9:37PM

This is the interesting thing - whenever Edinvestor receives a "personal" response or a criticism, she gives sensible "advice" that is well worth listening to. Until then, she spouts rehearsed responses that mimic the mantras of her own website. Be wary - she is governed not by altruism but by ego.

Credit card or pension ?

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