Pensions! What should I do?

[pensionconfusion]

I have a personal pension from years ago that I stopped adding to when I had my DC. Worth about £1k per year when I retire.

I started a works pension a few years ago and put in the minimum and employer also adds to it. At the moment it's worth £100 per year when I retire.

It looks like I may be getting a promotion soon and was wondering whether it's worth adding to the pension (and i presume my employer's contributions would also rise?) or put money into savings.

I'm mid 40's.

What would you suggest?

Thank you 😊

It is difficult to say without knowing wider financial circumstances and debt etc. Generally pensions are always a good idea due to the tax relief, but obviously you cannot access the money. So if you are carrying credit card debt etc I would suggest you pay it off first and also make sure you have enough in a rainy day fund

I know for some, if they are low paid and able to claim benefit if not working, paying pensions is viewed as pointless because there is a certain threshold of fund needed to override (exceed) means tested benefits (I seems to recall £100k fund

I personally am not a fan of pensions because you have to wait to get your money, and you might not actually live that long. Saying that, you’re missing out on the employer part if you don’t have one.
But then there’s not a lot to be gained in interest right now if you invest it.
Its a hard choice.

For the old pension, find out what type of pension it is. Defined Benefit or Defined Contribution, Defined Benefit schemes are often provided by NHS, Military, Teaching, Local and National Government, some very large companies. Defined Contribution are the the schemes which most other places use.
With Defined Benefit you pay in money but you are not building a pot of money for yourself, instead you get the promise of a benefit amount, paid to you every year for the rest of your life. With defined contribution, you build up a pot of money, which is invested, and then you take money out of that pot and when it is empty that is it all gone.

If it is a defined contribution scheme you can transfer it to another defined contribution scheme... so you merge small pensions to keep the admin tidy and the costs low.

With your new pension, find out if by paying in more that your employer pays in more. They probably won't pay in more, The amount they pay in is often based on your salary, so as your salary goes up, the employer contribution goes up.

Paying more to pension is nearly always the best thing to do, long term. However you need to think about short term things as well, such as having an emergency fund, not having debt, and known upcoming big expenses.

Video: Pension vs saving in ISA.

I would definitely look to increase your pension contributions as much as possible. Your existing pension is obviously too small to live off, and who knows what will have happened to the state pension by the time you're retired. It's already a tiny amount.

No pension should be invested in a pure interest account. They are long term investments which should be in the stock market and investment funds . Mine has generated 30% growth since 2019 but I benefited from a covid bounce as invested more after the market crashed. You should really be looking towards 5-8% per annum with ups and downs, recognising it is long term

Yes, I think you need to be really focussed on building up a reasonable pension now. What does your workplace offer?

I meant not a lot of interest if you put money into a bank account instead of a pension.

Always always choose a pension. Even if you don’t live long enough to receive it you be paid out as a lump sum or provide a survivors pension or a pension for eligible children.

Pension over savings.

Find out the terms of your work scheme, and maximise your employer’s contributions if these do rise with the amount you pay in (not all do, so check.)

But regardless, put as much into your pension as you can if you are mid 40s.

But you may live until 95 and then have to live 30 years in poverty. Pensions are crucial. My pension pays out to my surviving family as well, so the money isn’t lost.

Mid forties with very little pension is a big concern. I’d definitely focus on adding extra into your pension asap.

"Pay off the mortgage early, if you can. That gives some security and the savings on interest are bigger than you can get on an investment."

This is not true.

Paying £200 monthly into a pension or stocks and shares ISA with a 5% average annual return over 10 years will generate more income than you will save by overpaying your mortgage by £200 a month for 10 years for example.

Look at the ultimate mortgage calculate on moneysavingexpert and then compare with a compound interest calculator.