That flowchart is being printed tomorrow at work and stuck up in my room and my kids rooms!
I didn’t bother with a pension until about 4 years ago. I wasn’t paid enough to want to sacrifice part of my salary
Then I got a decent ish wage and set up the company pension - and had two floating around from two different jobs. One is transferred into PensionBee, and waiting on the other. Also got a pension through Monzo.
When I got my first job at 18 (where I still work), I set up a pension and am paying a decent amount of money into it.
At the moment I’m not very good at saving money (although I’m getting better). I like to see my pension as set and forget. I’d probably not save enough myself
With tax relief and employers contribution your of to a good start roi straight away
I am not sure if my previous employers had a pension for me to just put both details into pensionbee to see if they did. Thought it was worth a try. When did it become mandatory for employers?
Is PensionBee worth doing it then? I had a small pension with the first place I worked, not sure about the second. The ‘Combine your pensions into one new online plan’ puts me off. My current pension is good, so I don’t want to mess with it.
Guess my question is, will Pensionbee mess with it?
I suggest you should check with your current Pension provided and see what will they charge for you to bring your old pension into the current one. For me, this was the most cost-effective way. My employer has People’s Pension as a provider.
I didn’t know that could be an option, I’ll check that out. I work in as support staff in a Uni so I have a public pension, so I’ll get on contact with them. Thanks for the suggestion!
This has always been my biggest financial question mark. I have been eligible for the Teacher’s pension scheme for six years but have always stayed opted out. My wife is in the same position. The reason is I want my money in my control, not put away and untouchable for 40+ years. Also, I can’t access it until projected 72 (I am born in 1987 and this is when the retirement age is projected for me). Also, if you leave Teaching, the pension is non-transferable and cannot be added to. I will not be a teacher when I am 72, nor do I plan to be over 50. I also am unsure whether the world as we know it will even be here in 40 years, so I would like to have my money to play with now. This was how I was able to buy my first house at 22, pay the mortgage off by 25 (had a little family help) and now have moved to a large family home with a moderate and affordable mortgage that will be paid off in 22 years.
Who knows what my house will be worth in 22 years, but with current rates of house price increases, it should be well over a million so my thinking is that this is a much more valuable investment than a pension and also accessible and usable in the meantime.
Sure, but are you then going to sell it when you retire so you actually have a source of income?
Pensions are still a tax efficient mechanism for saving for retirement (and the whole point is that you aren’t tempted to spend it now, so there will be an income for future you). Even if you don’t want to pay into your Teacher’s pension (which is defined benefit btw, so you are guaranteed an income at the end, as it is government-backed), you could still pay into a private pension yourself (and claim tax relief on it) and start drawing down on it at (
state pension age -10 years).
Also the earlier you start saving, the less you have to save in a private pension thanks to the magic of compound interest.
If house prices rise and you then sell your house. Other houses will also have risen in price. Unless you move to a less expensive area.
Pensions are great. You get tax relief, which is especially helpful if you are a higher or additional rate taxpayer, and you get employer contributions. It’s free money
Or if you’re scaling down because you’re now retired and no longer need room for your kids.
It depends a lot on your situation. I’m not sure the dichotomy presented in the poll is a good way to think about it - for most people the answer is both Pension and Investment ISA to varying degrees. Pensions are less flexible and not accessible till you are older, but your employer and the government contribute at the start which is a massive boost. You can always transfer/combine employer pensions into a SIPP later on and the rules are pretty flexible nowadays. I see it as:
- Pensions - inflexible, long term, restrictions but higher contributions, taxed on the way out
- ISA - flexible, accessible, perhaps more control/more growth but for me this is less important than flexibility, after tax on the way in, no tax on the way out
- Property - inflexible, long term, but hedge against inflation as you take on large debts against an asset which will usually increase long term, no tax on the way out on own home
I don’t buy that a person’s own investment acumen will lead to better returns over decades than most pensions, it’s possible but unlikely for most over the long term. If you believe this just save into the pension then transfer to sipp later and invest as you wish once you have all the contributions. Most people simply don’t have the time or the emotional detachment to be happy making investment decisions frequently though, and fees and outside contributions (like tax breaks or employer contributions) are more important than which investments you make in the long term IMO.
I think saving into a mix of pension, property and ISA is a good strategy for most people, don’t just try to pick one. Contributing more to a pension when younger is the one thing I’d change about my earlier life - the earliest years are most significant when it comes to saving, and yet the time when people are least interested.
[edit - uncle_fungus pointed out that ISA savings are after tax]
Pensions are not taxed on the way in, but are on the way out.
ISAs are effectively taxed on the way in (because you pay into them from net income) but untaxed on the way out.
All things being equal, contributing the same gross amount into both vehicles, with identical performance, a pension will provide a greater return because the tax you didn’t pay is also growing.
You are taxed on the gains from the pension though on the way out so if you make big gains you pay more tax… all a bit complicated and depends on how much tax you pay right now and how much you’ll draw as a pension and how tax rates change (unknowable). Pensions definitely better than ISAs in some cases, though you give up flexibility and control which people do value too - good to save into both options IMO.
I’ve edited the point above to be clearer about ISAs - as you point out it is best to think of them as taxed on the way in.
Definelty a good idea to have both. I have a stocks and shares is a that I pay in to each month. This will hopefully allow me to retire early, but I can’t turn down the free money I get from my employer. I pay 5% of salary to my pension and my employer contributes 10%, it’s effectively a 10% pay rise
I only did it so that my old pensions were in the same place. I barely knew who held the old ones
Yes, that’s a very fair point @kennygrant! I think hearing both ends of the argument had made me think in terms of extremes, but I should have included an option for an intermediate stance on the poll.
I feel you there Andy! I’d love to learn more about this though, and my understanding is that there are fairly safe investments you can make that in the long-term should produce a gain (i.e. if they don’t, it will be because the economy is doing very badly anyway) – indeed, I assume, the kinds of investments pension funds deal in. I’m signed up to Freetrade and am hoping to dive a bit more into that sometime soon.
I’m in the same boat, Beth. I’ve put in my employers into it to see what they drag up. I don’t have any more info regarding them than that. I don’t even know if I had a pension with a previous employer!
The general wisdom is that if you hold onto a broad investment in the stock market (i.e. not just one company but many companies) long enough it will always be up eventually. Sounds kind of too good to be true but I heard this great fact recently which kind of makes the point:
In the UK if you had invested £100 in a FTSE tracker at anytime between 1970 and 2015 then the chances of your investment being up would have been:
- The day after: 52%
- 1 year after: 68%
- [can’t remember 3 and 5 years]
- 10 years: 98%
- 11 years: 100%
Which makes the point - it is all about time horizons!