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To start a pension when DH doesn't agree?

(58 Posts)
nightowlmostly Wed 03-Apr-13 15:57:11

I'm having a dilemma! I am the main earner in our family, my DH is part time and looks after our son. We share our money and have for years, and there's never any problem with that. Neither of us takes the piss, any big purchases get agreed in advance etc.

The trouble is, I'd like to start a pension with my work and he doesn't agree. He feels we should focus on paying off the mortgage and investing in another property. I agree but think we should do both. I'd be receiving about £2K a year from my employer into the pension fund.

We've talked about it loads, and always ended up not doing it as he's convinced me! But now I want to do it, we've done it his way for ten years and I'd feel much better knowing I was saving. He did agree to it but I think he didn't think I'd actually ever get round to it. We talked about it again and he was quite anti.

My AIBU is, would I be out of order to use family money to start a pension fund when he isn't in agreement? It'd be about £150 a month which we could manage without at the moment. He's in no way controlling or anything sinister, it's purely a difference of opinion on the best way to provide for our old age. He doesn't trust the system, which I do understand, but I'd be prepared to take the risk. Help, thanks!

SueDoku Thu 04-Apr-13 20:34:01

I'm about to retire - and I can't tell you how glad I am that I've always paid into a pension. When my marriage fell apart in my late 40s I found myself facing a very different retirement to the one that we'd always planned for... But at least I shall have some money coming in to help with my state pension - and I haven't had to save all of it because of the employer contributions. It makes such a difference to my peace of mind. You never know what your future is going to hold - so start paying in now - you won't regret it...!

Wishiwasanheiress Thu 04-Apr-13 12:36:53

Replying direct to op - if employer is contributing u are mad not to take part. It won't pay for ur old age but will help considerably. U can always move it. Don't rely on the system but don't rely on dh either. Both are subject to change and things can go down as well as up in both areas....

chicaguapa Thu 04-Apr-13 12:34:44

It's worth noting that the maximum tax relief a company can give you on your contributions into a money purchase (defined contribution) scheme is 20%.

So if you're a higher rate tax payer, ie pay tax at 40%, you have to ask HMRC to rebate the additional 20% directly into your pension scheme. You don't get the additional 20% in your monthly pay.

It's different if you're in a final salary (defined benefit) scheme as the company can apply the full 40% tax relief to those contributions.

You don't pay the tax on the contributions on the way in but you do pay tax on it when it comes out as a pension. But it's very tax efficient if you pay 40% now as an employee and may well only pay 20% as a pensioner. You also only pay tax on 3/4 of it when it comes out as 1/4 can be paid to you tax free as a one-off lump sum.

Someone else made a good point up thread though that you don't know how much the tax will be when you retire. But I don't think this is a good enough disincentive to start a pension up.

Yes they are expensive, but they have to sustain an income over your lifetime and usually maintain its value through inflation, which will be a lot over 25/30 years. You don't know how long your life will be after you retire so I always think it's safer to buy a guaranteed income instead of leaving it in the bank. You might only live for 10 years and won't have got back what your paid in, but you'll have had peace of mind.

WorrySighWorrySigh Thu 04-Apr-13 12:33:18

You only pay tax on the profit on sale of a second property if above the threshold. You can offset some of the costs (maintenance, repairs, improvements plus buying & selling costs) against any cash surplus so it may still be worthwhile if the hassle of holding the property is great.

TheDoctrineOfSnatch Thu 04-Apr-13 12:22:34

Annuity yields may well be lower than rental yields though, and there may be CGT to pay on the sale of a second property - so selling a property to buy an annuity may not make sense.

chicaguapa Thu 04-Apr-13 12:16:48

Can anyone tell me, can you buy an annuity with any lump sum?

Yes you can, subject to anti-money laundering regulations.

chris481 Thu 04-Apr-13 12:02:12

Actually after a quick calculation, I think the correct tax rates are that 40% of what the employer pays out goes to the government for salary in the basic rate band, and 49% for higher rate salary.

I'm sure some people who haven't thought about it will be interested to know just how high the marginal tax burden is even for full-time workers only earning the minimum wage. Their marginal rate is roughly double that of pensioners on the same income. (In my view it is economically if not legally correct to include employer's NI in both the income and taxes of employees.)

chris481 Thu 04-Apr-13 11:40:53

A general comment on tax relief, since there has been some discussion.

Your pension income may fall into a lower tax band than your salary would have, but also you can take a quarter of your pension savings tax free, so even if it doesn't you will still pay less tax. Also if the contribution is by salary sacrifice you will pay less national insurance.

I usually make the assumption that my pension income will be taxed in the basic rate band. (I assume state pension will use up most of personal allowance and I'm not planning to have taxable retirement income of more than 40K) On those assumptions, my pension savings will be taxed on average at 15% (75% of savings taxed at 20% and 25% at 0%) but the tax relief on the salary I've given up will (from memory) be something like 46% for salary in the higher rate band or 38% for salary in the basic rate band. (These percentages include employers NI in both numerator and denominator, as unlike most people I also get employers NI saved by salary sacrifice paid into my pension.)

sashh Thu 04-Apr-13 11:18:40

I'm under 50 and I receive a pension because ill health forced me out of my job.

I will get far more out that I have ever paid in (v.lucky it was a final salary scheme).

What you pay into a pension you get tax back on top and your NI contributions are reduced.

You should both be paying into pension schemes.

chris481 Thu 04-Apr-13 11:16:04

I assume this is a defined contribution scheme.

In that case he would get the full value if you died, assuming you nominate him to get it. The people who got reduced pensions were probably in defined benefit schemes, which hardly exist outside the public sector any more.

It sounds like there are employer matching contributions, i.e. they will pay in some money if you will. You would probably be insane to not maximise the matching contribution you can get.

I'm also no fan of property investing, I think it is risky, a hassle and likely to have low returns in future. (But I may be biased because I only pay attention to London prices.)

The actual amount you are talking about contributing is quite small though, so my only worry would be if having savings would decreae any benefits you would otherwise get in retirement. In that scenario putting money into your own house looks attractive.

I see you have now signed up, and your employer is putting in twice as much as you - it's a double no-brainer!

PixieL Thu 04-Apr-13 10:58:40

Sounds like you've made the decisions already, but thought I would link to this anyway as it's a good overview

www.moneysavingexpert.com/savings/discount-pensions

The bit I was looking for when I found this page was the general rule of thumb that you take the age you start paying into a pension and half it. That figure is roughly the % of your income that you should consider puttin into a pension.

Also it's worth bearing in mind for those on higher salaries that a lot of changes to things like child benefit are based on taxable salary, not gross salary. So if you earn £55k but put £6k in a pension then your taxable salary is £49k.

HTH

GreenEggsAndNichts Thu 04-Apr-13 10:52:07

yep it'd be foolish not to have a pension. It's all been said here. I'm surprised your DH is so against it, but perhaps he doesn't understand how they work.

You've got time to get a second property, should you wish it. You can't get back the years you spent not investing in a pension, though.

prettybird Thu 04-Apr-13 10:45:02

your pension fund - not "our pension fund" blush

prettybird Thu 04-Apr-13 10:44:26

The money that you put into the pension fund is "tax free" - or rather, it comes from your salary before tax is deducted. So if you earn £50,000 and you put £10,000 into your pension scheme, then you are only taxed on £40,000 - and a full £10,000 goes into our pension fund.

Whereas if you want to save money from your salary, that comes from the money that you get after all £50,000 has been taxed. So that £10,000 you wanted to save would now only be £6,000 'cos of the 40% tax rate (I know that's ot strictly true because of tax allowance and NI etc). You could then choose to put that into an ISA, the interest/proceeds of which would be tax free.

badguider Thu 04-Apr-13 10:35:27

frog - it's the interest on the money that is tax-free. The only other way to make money tax-free is interest on ISAs and they are strictly limited in value.

return on any other investment (like regular income from property) is taxed every year.... or if you have a captial asset (like a property you sell) by capital gains tax.

prettybird Thu 04-Apr-13 10:30:57

If you are paying 40% tax at the moment, but when you draw your pension you are only paying 20%, then at a very simple level (ie not even factoring in your tax free allowances) you are gaining.

With the new (still to be confirmed through parliament?) allowance of £10,000, if your pension was only £10,000 a year (although you'd need more! grin), then you'd pay no tax on it.

Plus you don't need to pay NI contributions on a pension.

frogwatcher1 Thu 04-Apr-13 10:15:10

I don't understand the tax side of pensions. Surely you don't pay tax paying it in but pay tax when drawing it out - therefore tax wise there is no benefit to a pension?

BlueberryHill Thu 04-Apr-13 10:06:46

You should probably talk to an advisor, have a look at SIPPs, I think that you can put a property into one, not sure about the costs of setting it up and ongoing ones.

Disclaimer, I am not a financial advisor or have any experience at all.

BTW agree that you should have a pension, if you have your own property plus a BTL as your pension plan you have no risk diversification in your assets. A lot of older people have been stung with this property crash as they planned to downsize and live on the money released doing so, they either cannot sell as the price they want to or have to accept a lower price and hence less cash.

nightowlmostly Thu 04-Apr-13 09:58:48

Hi again, thanks to everyone for their advice.

So I signed up for it, I put in 3.5% and they put in 7%. It won't amount to a great deal in the end, which is one reason I was put off originally. But as you say, it seems like a good idea because of their contribution.

Can anyone tell me, can you buy an annuity with any lump sum? As in, if we had a property let out and it became too much hassle, could we sell it and buy an annuity with the proceeds? Am a bit clueless about this stuff tbh!

Beaverfeaver Wed 03-Apr-13 21:10:14

I'm dead against pensions and would rather be in control and make my own investments.

Me and DH have talked in me goth about pensions and he agrees with me mostly.

However, if he decided he wanted to get a pension through his work one day, I wouldn't stop him or be upset. It would be his choice.

Neither of us see ourselves in our companies for life. We have good jobs but our goals are to start a business and the small amount in a company pension, even if it does do well, wouldn't really touch the sides when you come to needing it.

i'm pretty sure my mum only gets half my dad's company pension now he's died.

sounds like you are missing out on free money OP - i'd go for both the pension and property if you can. The more eggs in your basket the better.

chicaguapa Wed 03-Apr-13 21:06:17

You can ask what will happen to your pension fund if you die before retirement. There might be a lump sum paid on death too if you're still working for the company.

The general rule of thumb is that you join a company pension scheme before overpaying on the mortgage due to the extra money from the company and the tax efficiency. But overpay on a mortgage before paying into a private pension because there's no extra money from a company.

If you are both working and have access to a company pension scheme, you should pay into it. If you wait until you are automatically enrolled anyway, the company will probably only pay in the minimum 1.5%. But doing it now may will get you into a better scheme where they match what you pay.

But you'll have to get your skates on as the staging dates for auto enrolment are looming.

Tethering Wed 03-Apr-13 20:54:19

If you set up a SIPP you can use the funds to invest in a commercial property which might keep you both happy.

WileyRoadRunner Wed 03-Apr-13 20:44:11

Most pensions only pay half to a,surviving spouse so if you die before you begin to draw your pension he would only get half. The other half just disappears so I understand.

There is something in this ^ . Sadly my mum passed away at 61 unexpectedly. She had a pension worth a lot but my dad does not benefit from this in totality. It was one of the things that upset her most in the Hospice when she was dying.

whois Wed 03-Apr-13 19:29:59

If your employer will make employer contributions it's a total no brainer to pay into a pension - free money! Also compound interest and all that, the sooner you start the more it grows.

I can see the idea of over paying your mortgage is attractive but I still think pension is worthwhile to have.

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