Is my GFs pension worth the effort?
Discussion
I've always advised my GF not to bother with a pension and to save money for retirement instead (make sure we've paid the mortgage, have other investments etc), personally I dont have a pension and I'm probably too old to start now as well. The best plan I've got is to own the house I live in, maybe another for income, or have a pot of cash stashed away, not the best but it's better than some! 
She doesnt earn a great deal, about 18k, paying £166 a month into her company stakeholder pension, dont know what percentage of that is a company contribution.
Looking at the projection on her statement she'll get £4000 a year in 2046, which will probably be the equivalent of about £10 a year now.
Her salary / career isnt likely to progress a hell of a lot further to be honest, not being mean but it's just one of those "office jobs" that people seem to do for all eternity without going anywhere. so even with payrises over the years isnt not likely to be a vast amount more than the projected amount.
but then again, what better option is there for a regular, small volume, saver?
For a low income worker the options seem fairly crappy, I've half a mind to tell her to spend it on shoes and handbags and rely on the state when she retires as so many others seem happy to do.
She doesnt earn a great deal, about 18k, paying £166 a month into her company stakeholder pension, dont know what percentage of that is a company contribution.
Looking at the projection on her statement she'll get £4000 a year in 2046, which will probably be the equivalent of about £10 a year now.
Her salary / career isnt likely to progress a hell of a lot further to be honest, not being mean but it's just one of those "office jobs" that people seem to do for all eternity without going anywhere. so even with payrises over the years isnt not likely to be a vast amount more than the projected amount.
but then again, what better option is there for a regular, small volume, saver?
For a low income worker the options seem fairly crappy, I've half a mind to tell her to spend it on shoes and handbags and rely on the state when she retires as so many others seem happy to do.
The pensions system may have settled by 2050 or so - At the moment it's reeling from the massive increases in life expectancy we are seeing.
You are right though - getting some property giving rent would be a better place to stick money; locally even the smallest flat would give £600 a month. That's going to be a lot more than a pension would provide me.
You are right though - getting some property giving rent would be a better place to stick money; locally even the smallest flat would give £600 a month. That's going to be a lot more than a pension would provide me.
davepoth said:
getting some property giving rent would be a better place to stick money; locally even the smallest flat would give £600 a month. That's going to be a lot more than a pension would provide me.
Precisely what I was thinking, obviously I'm talking about owning it outright and not buy to let. Either option would be beyond her income to be fair, thankfully I earn a fair bit more, but being a cynical s
te any advice I give her is entirely guided by the fact we may not be together, or I might not be alive by the time she's retired.The problem with property is that you can't bank on it continuing to rise in value, although it probably will. Rental will always be there though, and will provide a decent income. The trick is getting a deposit together so that the rental income pays for the mortgage payments; that way it is pretty much free money.
davepoth said:
The problem with property is that you can't bank on it continuing to rise in value, although it probably will. Rental will always be there though, and will provide a decent income. The trick is getting a deposit together so that the rental income pays for the mortgage payments; that way it is pretty much free money.
Not if you own a property that you can't rent off for whatever reason.Then it becomes a millstone round your neck......;)
Wacky Racer said:
Not if you own a property that you can't rent off for whatever reason.
Then it becomes a millstone round your neck......;)
Very true. But show me an investment that has no risk and I'll show you one that provides no income at all. Then it becomes a millstone round your neck......;)
Looking at the numbers for me at least, and assuming I can have a tenant for 75% of the mortgaged time of the property, the rent covers the mortgage, which I would then overpay with my own earned income to pay it off much faster. Any unlet periods would be covered by my earned income. Roughly 16 years in, the mortgage would be paid for, and I would be looking at, again based on it being let 75% of the time long term, an average of £450 a month for rather less expense than a pension would cost me, and it would start paying out 20 years earlier.
Aside from all the above, three things for the GF to consider.
1. How much is the employer paying into her pension, and is it worth giving that up by her ceasing to pay for her pension?
2. The capital accumulation in the pension is tax free. There will be tax paid when benefits become payable, however.
3. Soon new legislation will mean that all employers will have to have in place a pension plan for their employeees who will be required to join it. This used to be the case until many years ago when the then Conservative government introduced personal pensions and took away compulsory employer sponsored pensions..generally considered in retrospect to have been a bad move. So, if GF leaves her current plan, soon she may well find she has to join something sponsored by her employer anyway.
R.
1. How much is the employer paying into her pension, and is it worth giving that up by her ceasing to pay for her pension?
2. The capital accumulation in the pension is tax free. There will be tax paid when benefits become payable, however.
3. Soon new legislation will mean that all employers will have to have in place a pension plan for their employeees who will be required to join it. This used to be the case until many years ago when the then Conservative government introduced personal pensions and took away compulsory employer sponsored pensions..generally considered in retrospect to have been a bad move. So, if GF leaves her current plan, soon she may well find she has to join something sponsored by her employer anyway.
R.
Good points leaper, I had a chat with her earlier and the employers contributions are about 50% of the total paid in every month, so fairly generous as it goes. It also transpires she has private healthcare as part of her package which she's never bothered to have a look at to see what it covers! She's going to kick herself if it covers dental after having shelled out £800 at the dentists recently.
Anyway, with the 50% contribs from the employer, and the fact it's tax free, it would only save her £50-ish a month to cancel the pension and she may be forced to go back into a scheme anyway..
"Stick with it" is the ultimate verdict.
Thanks again everyone.
Anyway, with the 50% contribs from the employer, and the fact it's tax free, it would only save her £50-ish a month to cancel the pension and she may be forced to go back into a scheme anyway..
"Stick with it" is the ultimate verdict.
Thanks again everyone.
If the company are paying into it as well it is hard to not take it.
As you have highlighted the conp pays in the same amount your wife does. So opting out you'd need exceptional returns to to gain parity with the scheme.
As for leveraging pension is different the risk is less so returns would be less. As with any investment lower risk equals lower returns.
You also have the hassle factor with renting. Even if it's fully managed you will get niggles in that time frame you will need at least one new boiler new double glazing three kitchens and three bathrooms 4-5 sets if carpets throughout the house, rewire for sure over a 20-25 year ownership, exterior painting twice min new guttering. Probably need to repoint the chimney. New fences every ten years. New garden shed once maybe twice.
Possible roof repairs.
Also there is the other issues ie one set of tennants I had in a fully managed house house share 5year old house upvc windows and doors. They left the front door unlocked as they didn't know who would be in last at night ... They were robbed and one being self employed lost all his tools. Now letting agent called to let me know. Then three days later they tried to sue me as they claimed they refused to lock the door as it was a fire hazard ... Basically their insurance wouldn't cover it so they lost a fortune and they pushed constantly for new doors. So constant hassle for a month or so - in the end I got the police and double glazing security people round and they checked the door which was excellent fit for purpose clearly they had to lock it.
A big hassle I can tell you.
Another is when I self manage get a call at 10pm no hot water or heating. I have full br gas landlord cover so they have to call them out ... Thing is none of them could work from home and they refused to take annual leave which meant I had to.
Another issue happened while we were overseas so had to get family to take a day off again for the fault to be fixed.
It's not easy those get rick tv shows do not tell you real life stories. In theroy great but even with brand new boilers etcthey break then it is your problem
As you have highlighted the conp pays in the same amount your wife does. So opting out you'd need exceptional returns to to gain parity with the scheme.
As for leveraging pension is different the risk is less so returns would be less. As with any investment lower risk equals lower returns.
You also have the hassle factor with renting. Even if it's fully managed you will get niggles in that time frame you will need at least one new boiler new double glazing three kitchens and three bathrooms 4-5 sets if carpets throughout the house, rewire for sure over a 20-25 year ownership, exterior painting twice min new guttering. Probably need to repoint the chimney. New fences every ten years. New garden shed once maybe twice.
Possible roof repairs.
Also there is the other issues ie one set of tennants I had in a fully managed house house share 5year old house upvc windows and doors. They left the front door unlocked as they didn't know who would be in last at night ... They were robbed and one being self employed lost all his tools. Now letting agent called to let me know. Then three days later they tried to sue me as they claimed they refused to lock the door as it was a fire hazard ... Basically their insurance wouldn't cover it so they lost a fortune and they pushed constantly for new doors. So constant hassle for a month or so - in the end I got the police and double glazing security people round and they checked the door which was excellent fit for purpose clearly they had to lock it.
A big hassle I can tell you.
Another is when I self manage get a call at 10pm no hot water or heating. I have full br gas landlord cover so they have to call them out ... Thing is none of them could work from home and they refused to take annual leave which meant I had to.
Another issue happened while we were overseas so had to get family to take a day off again for the fault to be fixed.
It's not easy those get rick tv shows do not tell you real life stories. In theroy great but even with brand new boilers etcthey break then it is your problem
With regard to renting that's still my plan but certainly not a buy to let, unless it's a very small mortgage. Wouldnt be looking for capital growth at all, just a steady income. probably buy something new quite close to when I retire, right now it seems viable with the days of 10% p/a growth in house prices a thing of the past for the forseeable future.
davido140 said:
With regard to renting that's still my plan but certainly not a buy to let, unless it's a very small mortgage. Wouldnt be looking for capital growth at all, just a steady income. probably buy something new quite close to when I retire, right now it seems viable with the days of 10% p/a growth in house prices a thing of the past for the forseeable future.
And why would you want to buy it for cash? You will pay a lot of tax. What you aim to do with rentals is to break even ie mortgage interest and allowable deductions are equal or greater than the rental income.
In the situation you describe having the cash you'd leave that in the bank account earning interest you would ne notably better off
fid said:
Sure the £4k/year isn't the projection at today's prices without taking inflation into account?
It has to be - however what isn't clear by the OP is is the £4k pa what has been earnt to date or is it earnt to date plus the assumption she keeps working at the sale company same salary until retirement. One thing he does say it includes life insurance... That's usually the case with final salary pensions in which case If it is final salary DO NOT get out of it. You'd need some spectacular reason to pull out.
Final salary or even career average salary are keepers. The defined contributions the risk is on you and the stock Market could collapse just before you retire as such your pot decreases drastically ie your annual pension would be notably less. If they don't contribute at all your only getting the tax refund benefit 20/40% which is still worth having but clearly out of the four scenarios it's the worst situation for the employee. Better than no pension
davepoth said:
The pensions system may have settled by 2050 or so - At the moment it's reeling from the massive increases in life expectancy we are seeing.
You are right though - getting some property giving rent would be a better place to stick money; locally even the smallest flat would give £600 a month. That's going to be a lot more than a pension would provide me.
This is exactly what I'm doing.You are right though - getting some property giving rent would be a better place to stick money; locally even the smallest flat would give £600 a month. That's going to be a lot more than a pension would provide me.
We've bought a 3 bed house. With the profit we make on the rent, and putting £400 a month into it, we will own it out right after 11-12 years.
Thats way better performance than my pension scheme, and of course its something we can pass onto our kids, unlike my pension.
We've also bought a studio flat that makes a 12% return, so we don't need to put anything into that one.
We're looking to buy a second house in the next month or so, and that will be my retirement sorted
Buy to let's are 75 % ltv ave uk house price is 165k so you need a 40k deposit.
Given most people cannot buy their own house until they are in their mid 30's how do you propose they save up for both?
I've got buy to lets so it's not from a vested interest perspective.
I'd say given the time lag involved a residential house is number one not a buy to let therefore a pension is paramount.
Can I ask you share what your co were offering as a pension as in how much they would pay in. Also why you didn't consider doing the pension and then avcs for the extra £400pcm that would make quite some pension.
Given most people cannot buy their own house until they are in their mid 30's how do you propose they save up for both?
I've got buy to lets so it's not from a vested interest perspective.
I'd say given the time lag involved a residential house is number one not a buy to let therefore a pension is paramount.
Can I ask you share what your co were offering as a pension as in how much they would pay in. Also why you didn't consider doing the pension and then avcs for the extra £400pcm that would make quite some pension.
Welshbeef said:
Buy to let's are 75 % ltv ave uk house price is 165k so you need a 40k deposit.
Given most people cannot buy their own house until they are in their mid 30's how do you propose they save up for both?
I've got buy to lets so it's not from a vested interest perspective.
I'd say given the time lag involved a residential house is number one not a buy to let therefore a pension is paramount.
Can I ask you share what your co were offering as a pension as in how much they would pay in. Also why you didn't consider doing the pension and then avcs for the extra £400pcm that would make quite some pension.
The company contributed nothing unfortunately. I contributed a reasonable sum for about 8 years and the projected returns seem tiny. At the same time my brother all but lost his pension in the equitable life crash.Given most people cannot buy their own house until they are in their mid 30's how do you propose they save up for both?
I've got buy to lets so it's not from a vested interest perspective.
I'd say given the time lag involved a residential house is number one not a buy to let therefore a pension is paramount.
Can I ask you share what your co were offering as a pension as in how much they would pay in. Also why you didn't consider doing the pension and then avcs for the extra £400pcm that would make quite some pension.
My endowment plan is also unlikely to pay off my mortgage, so I'm not a big fan of financial products I have no control over.
BTL's don't need to be expensive, I'm going to look at a 100k 2 bed place in about 15 minutes, it will rent at about £650.
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