Pension questions
Discussion
Hi everyone,
I was just wondering if I could ask a little advice on pensions. As it stood I only started a pension in the last few years but it has stood at a 5% contribution from me plus 3% from my employer. With the company (Smart Pension) the membership fee is £1.25/month - whether that's paid by my employer or me I have no idea, but in the grand scheme of things it's hardly much. I think, but am not sure....trying to find out....that there are additional fees, if I remember correctly it's something like 0.3%, I've no idea on what's normal?
I'm currently 32 and the net value at the moment is £9200. I have been torn as to whether to increase my % contribution and/or overpay on the mortgage. Overpaying on the mortgage obviously has its benefits, and if I move house I obviously have that in equity, whereas I cannot draw from the pension should I decide to move. I was overpaying by £150/month prior to covid, then stopped, but the last few months I have restarted this. My normal mortgage is only £525/month, so £150 extra is a fair % overpayment.
My salary isn't fixed and has been hit hard with covid, was earning approx £50-55k/year prior, but now it is a little over £30k, although now things are returning back to normal that should hopefully go back to pretty much what it was, give or take.
Many thanks, I would appreciate your thoughts.
I was just wondering if I could ask a little advice on pensions. As it stood I only started a pension in the last few years but it has stood at a 5% contribution from me plus 3% from my employer. With the company (Smart Pension) the membership fee is £1.25/month - whether that's paid by my employer or me I have no idea, but in the grand scheme of things it's hardly much. I think, but am not sure....trying to find out....that there are additional fees, if I remember correctly it's something like 0.3%, I've no idea on what's normal?
I'm currently 32 and the net value at the moment is £9200. I have been torn as to whether to increase my % contribution and/or overpay on the mortgage. Overpaying on the mortgage obviously has its benefits, and if I move house I obviously have that in equity, whereas I cannot draw from the pension should I decide to move. I was overpaying by £150/month prior to covid, then stopped, but the last few months I have restarted this. My normal mortgage is only £525/month, so £150 extra is a fair % overpayment.
My salary isn't fixed and has been hit hard with covid, was earning approx £50-55k/year prior, but now it is a little over £30k, although now things are returning back to normal that should hopefully go back to pretty much what it was, give or take.
Many thanks, I would appreciate your thoughts.
CharlesdeGaulle said:
There is a chap called Nik that works for Intelligent Money. They sponsor some of the threads here. He is something of an expert in pensions for medical staff and offers free and impartial advice, regardless of who you invest with. Drop him a mail and you'll get some proper advice.
Thanks 
alistair1234 said:
Simple way of looking at it, overpaying mortgage saves c.1.5% interest. Contributing to pension saves 32.8% tax and NI, or 42% if you go back to higher tax bracket.
Yeah I thought as much, although I thought you pay tax etc when you draw your pension, thus negating at least some of that? I'm probably very mistaken!Might almost stop my mortgage overpayment and up pension contribution to 10-11% or something. I also have a lodger living with me for £500/month so clearly that helps too
edit - I used a salary calculator thing online and worked out if I stopped my mortgage overpayment how much difference pension contribution I'd need to add to make my net take home after paying the mortgage and yeah was around 10-11%, give or take. Think I'll do that as it seems the more sensible thing for now. I can amend my contribution as frequently as I like, it's all done automatically which is handy.
Edited by TyrannosauRoss Lex on Wednesday 21st July 17:40
It would also be worthwhile looking more closely(if not already done) at the actual investments within your pension.
I am 8 years older but in the last few years realised my pensions were quite low for my age due to missed years and not paying enough attention to pension contributions during the early part of my working life. I've moved to 100% Equities, it may or may not be suitable for you depending on your risk tolerance but you have a reasonably long timeframe to take additional risk and weather the peaks and troughs in the market.
I am 8 years older but in the last few years realised my pensions were quite low for my age due to missed years and not paying enough attention to pension contributions during the early part of my working life. I've moved to 100% Equities, it may or may not be suitable for you depending on your risk tolerance but you have a reasonably long timeframe to take additional risk and weather the peaks and troughs in the market.
PeteinSQ said:
I think you need to increase the percentage you pay in quite significantly. Depends what you can actually afford of course.
I have just upped it to 11%. My working hours are returning to normal from August, it'll take 1-2 months or so for my wages to get up again but I will look to make this a bit higher still. Do we think something like 15% would be a really good amount? I know it depends on one's salary, mind.I have a few other things I want to put money aside for though, otherwise I could put considerably more in.
My rule of thumb was, on any excess I had each month, was roughly spent
A third into pension
A third into mortgage overpayments
A third on fun stuff.
Try this site to work out roughly your retirement pot.
https://www.thecalculatorsite.com/finance/calculat...
A third into pension
A third into mortgage overpayments
A third on fun stuff.
Try this site to work out roughly your retirement pot.
https://www.thecalculatorsite.com/finance/calculat...
Thanks everyone. It is a little awkward in the sense that I do not have a fixed salary, it varies every month, so contributing by % or even a fixed amount is awkward to know what's best. At least with the mortgage overpayments I could see how much I had left and just bung that on the mortgage.
May just up it to 15% and reduce the mortgage overpayments to almost nothing and see what happens
Will have a chat with a financial advisor in the next few months I think.
Cheers.
May just up it to 15% and reduce the mortgage overpayments to almost nothing and see what happens
Will have a chat with a financial advisor in the next few months I think.
Cheers.
TyrannosauRoss Lex said:
Thanks everyone. It is a little awkward in the sense that I do not have a fixed salary, it varies every month, so contributing by % or even a fixed amount is awkward to know what's best. At least with the mortgage overpayments I could see how much I had left and just bung that on the mortgage.
May just up it to 15% and reduce the mortgage overpayments to almost nothing and see what happens
Will have a chat with a financial advisor in the next few months I think.
Cheers.
Seems reasonable based on my limited understanding of these things:May just up it to 15% and reduce the mortgage overpayments to almost nothing and see what happens
Will have a chat with a financial advisor in the next few months I think.
Cheers.
10% more on the pension equates to £3k of your £30k salary. The £3k 'earns' 32.8% or £984 in tax relief. When you retire, you will have to pay tax on any pension above the tax allowance. However, the 25% tax-free lump sum and lower living costs means that you are unlikely to pay much tax in retirement, compared to the saving you are making now.
If you instead put £3k of your net salary into a 2% mortgage, you save 2% of £3k which is £60 per year.
As you're a basic rate tax payer, a LISA may also be worth looking into - could be competitive with a pension.
Just remember that you really don't want to have to withdraw from your pension early, e.g., to prevent default on your mortgage. It can result in a big tax bill.
TyrannosauRoss Lex said:
alistair1234 said:
Simple way of looking at it, overpaying mortgage saves c.1.5% interest. Contributing to pension saves 32.8% tax and NI, or 42% if you go back to higher tax bracket.
Yeah I thought as much, although I thought you pay tax etc when you draw your pension, thus negating at least some of that? I'm probably very mistaken!
t load of tax on the rest. If you draw off your pension pot in a more sensible way, you might pay some tax, but probably nothing like the tax relief you got putting it in. If you have other savings, you might find yourself in a position similar to mine, where I can limit what I take to circa £16750 a year, and pay no tax at all, having saved a load of tax putting it in. TwigtheWonderkid said:
TyrannosauRoss Lex said:
alistair1234 said:
Simple way of looking at it, overpaying mortgage saves c.1.5% interest. Contributing to pension saves 32.8% tax and NI, or 42% if you go back to higher tax bracket.
Yeah I thought as much, although I thought you pay tax etc when you draw your pension, thus negating at least some of that? I'm probably very mistaken!t load of tax on the rest. If you draw off your pension pot in a more sensible way, you might pay some tax, but probably nothing like the tax relief you got putting it in. If you have other savings, you might find yourself in a position similar to mine, where I can limit what I take to circa £16750 a year, and pay no tax at all, having saved a load of tax putting it in. Burwood said:
TwigtheWonderkid said:
TyrannosauRoss Lex said:
alistair1234 said:
Simple way of looking at it, overpaying mortgage saves c.1.5% interest. Contributing to pension saves 32.8% tax and NI, or 42% if you go back to higher tax bracket.
Yeah I thought as much, although I thought you pay tax etc when you draw your pension, thus negating at least some of that? I'm probably very mistaken!t load of tax on the rest. If you draw off your pension pot in a more sensible way, you might pay some tax, but probably nothing like the tax relief you got putting it in. If you have other savings, you might find yourself in a position similar to mine, where I can limit what I take to circa £16750 a year, and pay no tax at all, having saved a load of tax putting it in. Gassing Station | Finance | Top of Page | What's New | My Stuff