Pension - Can I opt out?

[BongoHunter]

You put in just shy of 2% of your salary? You want there at 10% or at least a lot nearer! IMO of course.

I think the issue I have in my mind is that any reduction I make to my savings will put me further away from buying a house. Prices are rising and seem to always be going up, going to 10% of my salary for pension would mean that I could be looking at 3 or 4 years extra to get to the 10% deposit I'm trying desperately to reach (esp. when taking into account the rate the market in the south-east is going up by each year!).

I think I'll try and find a decent IFA and figure out my next move.

 

[D.P.]

I currently get a 4% match and put in 15% myself.

I put in 8% and get a 5% match. My mortgage will be paid off next year and then I will contribute around 15% to my pension.

 

[dowie]

How would one go about working out the "optimum" amount that can be paid in per month

well the optimum varies depending on what the money means to you - the utility value of having it now etc...

but generally I'd look to max out the amount the employer will contribute towards... unless you absolutely need the extra few grand more within some short space of time for a flat deposit or masters course or something like that etc...

 

[D.P.]

I think the issue I have in my mind is that any reduction I make to my savings will put me further away from buying a house. Prices are rising and seem to always be going up, going to 10% of my salary for pension would mean that I could be looking at 3 or 4 years extra to get to the 10% deposit I'm trying desperately to reach (esp. when taking into account the rate the market in the south-east is going up by each year!).

I think I'll try and find a decent IFA and figure out my next move.

It still makes sense to maximize whatever your employer is matching (or in your case it looks to be doubling, so even more important to max that out).

House prices aren't increasing at 100-200% over a few years, more like 5% a year.

At the end of the day, at your salary, with your employer matching if you add an extra £100 to the pension then you have £300 invested. The long term return on the stock market is 5-7% approximately. If instead you want to put the money into savings, well you are at the 40% tax band so that £100 is only going to give you £60. Interest rates on mortgages are like what, 2-3% in the UK now? At 3% in 1 year that extra £60 will save you £1.8 in mortgage interest. If the FTSE returned the same as the last 20 year average 5.4%, your long term average expected return form your original £100 pension investment, which would be £300 invested, is worth £16.2 ( and even if your employer is just matching then that is is still £10.8).



Other things to consider for the mortgage is it may make sense to jump on the property wagon sooner with a smaller cheaper house than you think is ideal, which is presumably why you are continually saving. This means any equity you do put down will increase at the same rate as the housing market and should be building some equity. Having a smaller, cheaper house than you can ideally afford leads to many great savings. We could afford a house 2-3X more expensive but there was not really any point, instead we massively overpay the mortgae, will mortgae free soon and have no financial stress

 

[SpeedFreak]

Now I've read this thread I'm a bit concerned Im not making the most of the scheme they run at work...

I put £100 a month into my pension at work, and then my employer pays in double my contribution.

How would one go about working out the "optimum" amount that can be paid in per month - I seem to remember being told there are limits on what you can put in tax free? Though I'm not sure on this... reading the advice in the thread I should probably be putting in a lot more...?

So I'm putting in £1200 PA, with employer contribution thats rising to £3600 PA - this doesnt seem like a lot? I'm on around 65K PA.

I also put £250 a month into a employee Share Save scheme and £500 into personal savings, I think it would be sensible to reduce my monthly savings by about £100, I could then increase my monthly pension contribution to about £240 - with employer contribution this would mean I'm getting £8640 PA into the pot.

I'm 30 though and dont have a house yet, so maybe I should carry on focussing on my savings pot instead (I'm sick of rented accomdation after 12 years of moving...).

I feel like an hour of week at school on this type of stuff rather than the pointless General Studies AS would have been much more valuable!

It sound like we have the same employer lol. Mine also doubles my contribution and I too pay £250 into a share save scheme. I put in the maximum based on my income excluding bonus and it is about triple what you are doing. We seem to be on similar incomes and I also have a house and three young kids and it is quite manageable.

My advice would be as you have stated, reduce your monthly savings to ensure you are fully maximising your pension. The net impact will be very little to your normal cash savings.

Utilise your Share Save and every three years and use the vested money towards whatever you are saving for (e.g. house deposit). This is where Share Save Schemes are great as by their nature you are unlikely to dip into it unnecessarily. I am not sure how your employer discounts, but at even 20% under market and a flat share price you will clear £11.5k every three years.

 

[Mercenary Keyboard Warrior]

I will go slightly against the grain here.
The maths make more sense to me that you minimise the time it takes you to get on the property ladder. Saving for a house in reality is nigh on impossible in the UK right now and is NOT predicted to change (obviously predictions are guesses, hopefully just educated ones)

So heres the logic, your not saving for a house, your saving for a deposit to join the housing game.
Assuming 3% growth in house prices, and a £250,000 house, you can easily obviously replace with more logical numbers to yiour situation. The higher the house value the more it skews it to getting on the ladder sooner.
£250,000 becomes £257,500 in a year. To gain that £7,500 assuming the same 3% gain in assets you would need to contribute around £2460 to be matched by your employer and see 3% growth on average over the year (so assume net 1.5% approx. for this first year)

This is the fundamental of borrowing money when prices are rising. A lot of people don't get it and become too fixated on pensions being the best investment. Over time they are pretty much unbeatable but in the short term, especially when you want to buy a house in a rising market then getting onto that ladder trumps all. The short bit to remember you making 3% on the whole value of the house not just the bit you own, don't try to over save the deposit, join the game.

You need to know realistically what sort of timescale you are talking about though because pension savings are far better than short term savings. You can take a pensions contribution holiday as well, your well below the max you could pay in (would be around 100% of your take home at £40k per annum) so you can top up a bit in a year or so or a little after you buy a house, or you could to get the house sooner.
Risk : you lose your job and "waste" the opportunity of the matching.

So IMO priority :
1) House
2) Emergency fund (say 6 months take home)
3) Pump that pension till it bursts

 

[D.P.]

My advice was actually kind of agreeing with that, my point was to settle on a cheaper house, or have a worse LTV with a smaller deposit. Withdrawing £100 gross to out on a deposit goes a lot less than being tripled by the employer match. Someone earning 65k a year should be able to get on the property ladder but obviously not in the size and location desired always.

I see this a lot with people trying save for a 20% downpayment to get better rates. It's a fools game because they will just loose out to the house market growth. They are much better getting on the property ladder with a worse LTV and pay off the principle as much as possible.

 

[El Pew]

Assuming 3% growth in house prices, and a £250,000 house, you can easily obviously replace with more logical numbers to yiour situation. The higher the house value the more it skews it to getting on the ladder sooner.
£250,000 becomes £257,500 in a year. To gain that £7,500 assuming the same 3% gain in assets you would need to contribute around £2460 to be matched by your employer and see 3% growth on average over the year (so assume net 1.5% approx. for this first year)

So IMO priority :
1) House
2) Emergency fund (say 6 months take home)
3) Pump that pension till it bursts

You completely missed out the effect of requiring a mortgage to pay for the house. Your returns are muted by the requirement to pay interest on the debt, also by general upkeep and maintenance on the house - I've seen people estimating anywhere from 1-5% per annum to cover things like boiler replacements, roof repairs, down to much smaller things like repairing double-glazed window units or whatever else.

You also completely neglect medium-term non-retirement savings. Want to get married, buy a bigger house, pay for your kids to go to university? Then you need something like an S&S ISA with a view to investing over a 10-15 year timescale.

 

[Erich Kriegler]

I'm pretty young (22) and have started putting some of my salary towards my pension. I was given three choices, basically the least risky option, a balanced one and one that is more risky.

While I am young I guess it's wise to choice the more risky of the three?

 

[El Pew]

While I am young I guess it's wise to choice the more risky of the three?

The short answer is yes. When you're young you have more time to recover from market dips, and because you'll be adding contributions continually you'll actually be buying more units of your funds when prices are low. As you get closer to retirement you then want to move into less risky funds to preserve your capital.

The longer answer is that you will have to figure out your own attitude towards risk. If you're going to panic the next time the market tanks and either stop contributing to your pension, or look to move it to another market, or both, then you may want to look at less risky funds from the start. If you're happy to stick your fingers in your ears and ignore the Financial Times for the next 40-odd years and keep putting money away regardless, then risky is the way to go.

 

[triggerthat]

Thread revived...

Let's say I take part in my company's pension scheme and then I leave. What happens? Can I transfer it? Does it cost anything?

 

[Mr^B]

Thread revived...

Let's say I take part in my company's pension scheme and then I leave. What happens? Can I transfer it? Does it cost anything?

The company will stop contributing to it once you leave.
Yes.
No (probably, check the small print of both the existing and new ones for any admin fees associated with the transfer).

 

[Richdog]

Thread revived...

Let's say I take part in my company's pension scheme and then I leave. What happens? Can I transfer it? Does it cost anything?

That took 0.1 seconds to google. https://www.gov.uk/transferring-your-pension/overview

 

[sbk1972]

Hi all. Good thread.

Im an IT contractor and as I employ my wife had to set up a mandatory pension scheme. Its all now set up, albeit at the lowest rate, 1% from employee, 2 or 3 % from employer.

Now, Im a ltd company, so an employee and employer. I was going to get my wife to `opt` out the minute this was all set up as I saw costs/ admin. However, people keep telling me that there are tax advantages to keep it going. I'll admit now, accounts isnt my thing, so how does keeping this pension thing going, within a contractor / IT Ltd company, bring advantages ?

I pay a lot of corporation tax, so by contributing to a pension will it reduce it ? Will it effect dividends ?

Am hoping another contractor on here can help / advise. My accountants charge me per a second of advise.

SBK

 

[PlacidCasual]

I'm no accountant but your wife can certainly offset some of her income tax as a very minimum. So if you were so inclined you could increase her rate to pile money into her pension at reduced tax (up to a limit). With the new pension rules I imagine you can pull some or all of it out at retirement.

 

[Bald-Eagle22]

Don't worry chaps it's going up to 8% of your earnings in 2019 .

Let's see how many of you can afford to loose that for a long period of time . Pressures of modern life I feel this is to much .

QUALIFYING earning for me might just be to much . By my calculation as a higher rate tax payer that's £247.84 per month !!!

I want my mortgage gone sooner .

 

[Gammawolf]

Don't worry chaps it's going up to 8% of your earnings in 2019 ��.

Let's see how many of you can afford to loose that for a long period of time . Pressures of modern life I feel this is to much .

QUALIFYING earning for me might just be to much . By my calculation as a higher rate tax payer that's £247.84 per month !!!

I want my mortgage gone sooner .

Just to clarify for anyone its 8% total, with 3% mandatory from employer. So you need to make the shortfall of 5%.

 

[Jamesyboyjim]

I put in 4% and my company put in 8.5%

To opt out of that would be insane! As much as I would enjoy the little extra cash now

 

[johnloo]

What is your reasoning to opt out out of interest?

Well you pay 4% up till you reach retirement, when you get to your pension you most likely will not be able to claim a state pension and everything else will be mean tested. so you most likely end up with less than some one who never paid extra.
You are better off using that money somewhere else.

 

[krooton]

I pay 5%, employer pays 8%.

That's an effective interest rate of 160%, instantly.

Don't see getting those types of returns from any property, even in London, and it far outstrips the interest rates on my credit cards, so clearing my debt sooner actually isn't the best method for me.