Private Pension - continue or cancel?
Discussion
I only started a private pension last year (aged 32 with no previous pensions) only pay in around £250 each month (but this rises around 8% each year) I don't get any contribution from employer.
Reason I did it was
1) Tax relief, so each £250 I pay, actually paying in £318
2) I feel good time to pay into pension as share prices very low
3) forced way to save (but could do this on mortgage)
However, from reading tons of posts, the gist of it seems to suggest don't do pension unless you get decent contribution from employer - I get zero from employer. So thinking have I made a mistake and would this £250pm be better off going towards my mortgage and just use equity in the house once retire?
Reason I did it was
1) Tax relief, so each £250 I pay, actually paying in £318
2) I feel good time to pay into pension as share prices very low
3) forced way to save (but could do this on mortgage)
However, from reading tons of posts, the gist of it seems to suggest don't do pension unless you get decent contribution from employer - I get zero from employer. So thinking have I made a mistake and would this £250pm be better off going towards my mortgage and just use equity in the house once retire?
One thing to remember dont have all your eggs in one pot.
However firstly list out all your debts and the APR of each - you should always clear your highest costing debt first over everything else (debt wise & saving wise). Too many people have savings and are overpaying their mortgage and have personal loans and then have credit card debt.... Madness.
People bang on about you need 3 months salary as an emergency fund...well I say no you dont (in general) as long as you have a credit card say you have a cr limit of £5k surely that is enough to cover those unplanned problems.
However firstly list out all your debts and the APR of each - you should always clear your highest costing debt first over everything else (debt wise & saving wise). Too many people have savings and are overpaying their mortgage and have personal loans and then have credit card debt.... Madness.
People bang on about you need 3 months salary as an emergency fund...well I say no you dont (in general) as long as you have a credit card say you have a cr limit of £5k surely that is enough to cover those unplanned problems.
As part of a balance of retirement products they are probably no better or worse.
You get good tax breaks putting in, but pay tax on the way out & pay a huge penalty in terms of flexibility. ISA's however give no breaks on the way in but are delivered tax free on the way out and are flexible.
With the way governments seem to mess around with the tax treatment of all savings schemes it's hard to know what is the right thing to do.
The best thing is probably to review your total financial position then decide. Certainly without an employers contribution I'd be thinking twice about paying into a inflexible scheme.
You get good tax breaks putting in, but pay tax on the way out & pay a huge penalty in terms of flexibility. ISA's however give no breaks on the way in but are delivered tax free on the way out and are flexible.
With the way governments seem to mess around with the tax treatment of all savings schemes it's hard to know what is the right thing to do.
The best thing is probably to review your total financial position then decide. Certainly without an employers contribution I'd be thinking twice about paying into a inflexible scheme.
Soir said:
Thanks for the replies - no debts apart from the mortgage. I think I am leaning towards cancelling it and just put into isa's and mortgage...
I'd not take the cash out - (not yet anyway) due to the fact the equity is low & you bought at low ish values so leave it a few years then cancel it and do as you wish with the cash. My mortgage (offset) allows me to link it to Cash ISA's and savings accounts SO every tax year we always max out our cash ISA and therefore retain our tax wrapper so once the mortgage is cleared they are still tax free - clearly we need to save that same amount to actually pay off the mortgage but we could get to a fully offset mortgage i.e. zero interest charge and then quickly build up savings equal to the ISA's we have within the offset account.
Can any contractors or directors of ltd companies say what their pension arrangements are? I haven't really talked about it with my accountant at all...just wondering is it possible to get the employer's contributions from your own ltd company to make it worthwhile? Or does the paying yourself a £6k/yr income stop that dead right there?
And while we're on the topic, any thoughts about SIPPS? Recommended?
And while we're on the topic, any thoughts about SIPPS? Recommended?
Seany88 said:
Can any contractors or directors of ltd companies say what their pension arrangements are? I haven't really talked about it with my accountant at all...just wondering is it possible to get the employer's contributions from your own ltd company to make it worthwhile? Or does the paying yourself a £6k/yr income stop that dead right there?
And while we're on the topic, any thoughts about SIPPS? Recommended?
I use SippDealXtra. PM me if you want more infoAnd while we're on the topic, any thoughts about SIPPS? Recommended?
Seany88 said:
Can any contractors or directors of ltd companies say what their pension arrangements are? I haven't really talked about it with my accountant at all...just wondering is it possible to get the employer's contributions from your own ltd company to make it worthwhile? Or does the paying yourself a £6k/yr income stop that dead right there?
And while we're on the topic, any thoughts about SIPPS? Recommended?
If the co. makes teh payment its a biz expense so no Corp. tax of NI on that amount...pretty tax effeceint.And while we're on the topic, any thoughts about SIPPS? Recommended?
However, in VERY oversimplifed terms the best benifits only really come from a pension where the tax you pay as a contributor is higher than that when you retire...i.e You get 40% relife funding it then pay 20% when it comes back as an income.....or 20% going in then are a non-taxpayer in retirment (dont forget...non-working wife can still fund £3600 pa and get the 20% but (if their income as a pension is under the allowance) they wont pay tax on it when they draw it as an income......so make sure your wife is always going to get enough pension to use up her basic older persons allowance.
Tiggsy said:
Seany88 said:
Can any contractors or directors of ltd companies say what their pension arrangements are? I haven't really talked about it with my accountant at all...just wondering is it possible to get the employer's contributions from your own ltd company to make it worthwhile? Or does the paying yourself a £6k/yr income stop that dead right there?
And while we're on the topic, any thoughts about SIPPS? Recommended?
If the co. makes teh payment its a biz expense so no Corp. tax of NI on that amount...pretty tax effeceint.And while we're on the topic, any thoughts about SIPPS? Recommended?
However, in VERY oversimplifed terms the best benifits only really come from a pension where the tax you pay as a contributor is higher than that when you retire...i.e You get 40% relife funding it then pay 20% when it comes back as an income.....or 20% going in then are a non-taxpayer in retirment (dont forget...non-working wife can still fund £3600 pa and get the 20% but (if their income as a pension is under the allowance) they wont pay tax on it when they draw it as an income......so make sure your wife is always going to get enough pension to use up her basic older persons allowance.
perhaps not. assuming you will pay lower rate tax as a pensioner the tax relief element may be of little actual gain. the routine of paying is useful to some who lack the will power otherwise.
as a lower rate tax payer i would say you should make sure you have maxed your ISAs first.
in fact...even if you max your ISAs it would beinteresting to see the maths on funding a pension now vesus funding a unit trust (or similar) and then transfering those funds into an ISA when you are a higher rate tax payer.......i'm not clever enough for such stuff.
that said....it's likely that higher rate relief will be chipped away over time...the £150k stuff is only the start...it may be that when they finally hack into it proper those with regular funding already in place still benefit and those that dont cant start (which is a bit like what they've done now) so...who knows!
as a lower rate tax payer i would say you should make sure you have maxed your ISAs first.
in fact...even if you max your ISAs it would beinteresting to see the maths on funding a pension now vesus funding a unit trust (or similar) and then transfering those funds into an ISA when you are a higher rate tax payer.......i'm not clever enough for such stuff.
that said....it's likely that higher rate relief will be chipped away over time...the £150k stuff is only the start...it may be that when they finally hack into it proper those with regular funding already in place still benefit and those that dont cant start (which is a bit like what they've done now) so...who knows!
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