Gear Head

iTrader: (2)

I currently looking at how and where to start a little nest egg me and mrs.
I'm 26 and the company I work for do not offer a pension. I can afford to put across around £120 a month. Do I put it into a private pension, ISA, property? I have no idea and would be grateful for any advise offered.

Fantom

Am in a similar situation myself. My company run a scheme which they also contribute as well but wouldn't let me join a couple of years ago They have to provide a stakeholder one by law but I turned it down cos they were not going to put in as well.

Should really do something on my own as 30th birthday is coming soon.

cookstar

iTrader: (6)

You will struggle to break into the property market with £120 p/m!

stilover

Pensions are pointless now IMHO.

I cut back on payments a few years ago. The amount of money they wanted me to invest every month was silly. If I'd kept things going as they wanted, I'd be putting a third of my wage into it.

In order to get the equivilant of £20,000 per annum when I retire, I'd need a pot of over £1.5m. This achievable by increasing payment by 6% every year and the pension fund increasing by 12% each year.

A year or so after I took my pension out, they changed all the figures. The figures I was quoted were redundant, and would never achive the required pot.

I stick in about £80 a month at the moment. I got a letter last year asking me to increase my payments by Hundreds of pounds a month, or I was looking at £2500 a year on retirement. Based on retiring at 55. Might have to change that.

FlightMan

I think the majority of people under 40 will be either working well into their 70's or they'll find life extremely difficult in the future.

Agree with the above, pernsions at 65 or pointless now. We can't afford them.

Gear Head

iTrader: (2)

I don't think I could hack retiring at 55! I'd be bored out of my brains!

Coffin Dodger

You say that now

In theory the best time to plough loads of money into you pension is when your young as you'll reap greater rewards on it as the fund matures, however you've usually got better stuff to be spending you money on.

My company contribute an amount equivalent to 5% of our basic salary into a personal stakeholder pension with Aviva (Norwich Union), it's up to us if we want to add to it. I pay 12% out of my own wages and also have opted out of state earnings related pension so that goes into it too. Problem is that hardly any of the funds seem to perform particularly well especially in the current climate so often wonder if my money would be better off elsewhere.

If it weren't for the fact that you don't pay any income tax on pension contributions then they'd be a complete waste of money. There are far better ways to invest cash the entrusting it to some fairly poor fund managers. But being able to offset my 40% tax bill with it does kind of make it worthwhile.

So assuming you are taxed at the 22% rate your £120 contribution would be roughly equivalent to £154 if paid into a pension scheme.

Gear Head

iTrader: (2)

Yeah, that is what I have been led to believe. I just don't know whether it's better just sticking it a pot under the bed. I suppose I could start throwing the money into an ISA for now and review the situation in a few years time.

cookstar

iTrader: (6)

Does anyone know what kind of contributions you would need to make, for say a £30k equivalent pension. Starting at say 30 years old?

Gear Head

iTrader: (2)

****loads, probably around £500 a month!

Coffin Dodger

Pension is better from an income tax avoidance point of view. Your pension contributions, however small, will be taken before any income tax is applied. The interest you earn on it is also free of tax. So whatever you put in think of it as having an automatic 22% bonus applied.

Whereas with an ISA you pay money into it that has already had 22% tax deducted. Only the interest payments themselves are free of tax.

Downside with pensions is the money is pretty much locked away until you retire so if you suddenly decided you needed it for something else in future you're stuffed.

cookstar

iTrader: (6)

Just had a quick check on L&G calculator, and £600 P/M gives a smidge over £1100 per month pension at 60

Stainy

Swings and roundabouts....You pay the tax on the ISA when you're paying money into it, but it's tax free later, when you draw. Whereas a pension is tax free going in but you pay tax as earnings when you draw.

For me, the fact that the ISA 'pot' is yours at the end to do with as you wish, swings it. With a pension, your fund is never yours and you have to buy an annuity

Deep Singh

Is that guaranteed or projected depending on x, y, z % growth rate? If the latter then it might well give you next to nothing.

Even if the former, if you dropped dead at 61, its all gone, nothing goes to your kids even though you will have paid 35x12x600 = £250000!

Its a mugs game, tax relief or not. Only public sector final salary schemes are worthwhile.

I would drip feed them into FTSE, S and P500 etc index trackers within an ISA wrapper, maybe split with cash ISA.
Or save away until you enough for a deposit on another property

Kevin Greeley

"Even if the former, if you dropped dead at 61, its all gone, nothing goes to your kids even though you will have paid 35x12x600 = £250000!"

Not strictly true, if you pop your cloggs *before* taking your pension, the funds are returned to your estate.

Pensions are great for higher rate taxpayers due to the generous tax relief.

It's a swings/roundabouts decision for standard rate taxpayers whether you go for a pension or save in an ISA.

Kevin.

wasbakerman

Have to be careful here guys about what you are saying e.g. you do not have to buy an annuity until 75 under current legislation. A modern drawdown product effectively gives you what you describe, a lot of people will save themselves using their own methods (e.g. ISA) and then dump it into say a SIPP claiming tax relief and then take 25% tax free cash lump leaving a pension pot behind - from that they then take a regular income. OK SIPPs as a product are more expensive however they do give you some freedom.

My advice is either do a lot of work yourself looking into the options or talk to a professional. If it were me however if you are a lower rate tax payer and only looking at 100/month I think the short term is best to put it into an ISA (cash or investment?), a year or two down the line you can then throw it into a pension and get the tax relief - obviously if the tax relief rules change then you might have to change the plan as well.