If you are late 30’s and can only afford to pay a small amount into a pension is it worth it?

[Moongazingbare]

If you are in your late 30’s and haven’t been able to start a pension before now but now have the chance to join a work auto enrolment pension where you can only afford to pay the minimum contribution which works out at about £75 a month,
Is it even worth joining?

Looking at pension forecasts for that amount I wouldn’t get much at all at retirement as I don’t think there’s enough for it to grow

Yes!

It really is.

It might not be loads for your retirement but it will be more than if you do nothing.

If your work will match your contribution, that’s free money for you.

Plus, you’ll get an immediate boost to it from the tax back, so your £75 becomes (umm, maths…) nearly £100 straight away.

Do it!

I saved the maximum (8%) for just a couple of years on a part time wage and that pot currently has 10k in it. Whereas if I had saved it in a savings account it would be far less.

Doing the pension forecasting though it says it would be potentially worth about £100 a year and if I took a lump sum 25% at retirement it would be just a few thousand.

Am I getting this wrong? It can’t be worth paying into sometime every month for years to then find I’m only getting slightly more back as a yearly payout not even monthly

Do you need to take the lump sum? If you don’t it’ll make your pot bigger.

What is your alternative plan for retirement?
Not having a pension is fine if you have properties or large savings.
I would always pay into a pension.

Maybe.

Depends on: How much is your employer putting in? Are you getting tax relief on top, or is that including the tax relief? Are you renting or homeowner?

You may need to go back a step and think about what your retirement plans are. What age, where will you live, if you own will you downsize, are you married etc. How much money will you need to live off when you’ve retired, and what’s the gap between your state pension and your needs. Would you be eligible for housing benefit/pension credit (if those things are around when you retire)?

This is a bit old but the article and comments dig into some of the arguments as to whether it’s worth saving or not: www.lovemoney.com/news/16879/pension-saving-benefits-flawed

I’d generally say it’s best to save what you can, particularly if you get employer contributions, but also to try to inform yourself about what the options are on retirement, what you’d be investing in within your pension fund, the charges and making a plan that fits your circumstances. Try pension advisory service if you have questions, or there are good online forums like Meaningful Money on YouTube and Facebook where you can learn and ask questions.

Also try some other pension calculators, according to my pension provider they just give the figure if I took an annuity and I would get about £500 a month but if I left all my money invested, no lump sum, drew down 3-5% a year of the pot it would be a lot more.

My company don’t match my contributions. They put in the minimum required which is 3%

I have a home. It’s got good equity but is mortgaged but will be paid off by retirement

I am married and we should both get full state pension

Initially our plan for retirement is to downsize to release money from the house. We are just outside London so in an area where the house we currently own is expensive despite being tiny and the same house could be bought an hour or two away for half the price.

I am starting to consider though that we might change our minds about moving away depending on where our children end up as I’ve known others with a similar plan and then they end up staying in this area despite it not being suited to retirement because of children / grandchildren being nearby.

There’s also the alternative that the children move further away too

I’m finding it so hard to know what to do for the best when it’s so long away and I’ve no idea what will happen in life

Yes. I had one with on old employer and its worth about 30k
I can withdraw it when I'm 55 and I'm going to take some and buy a new car
I have another bigger one for later in life

You are in your late 30s not in your late 50s.

If you were in your 50s I would probably say forget it as you would be doing yourself out of pension credit and associated benefits. (I remember watching a programme about this funnily enough before I did some work in the pensions industry.)

As a 30-something you have over 25 years of work to go before you can draw your state pension. Your state pension age will be a minimum of 68, though the legislation hasn't gone through yet, or even a year to 18 months higher.

So with tax relief, your employers contribution and interest added on to those amounts you pot could be bigger.

Added to that your financial situation could improve as you get older. I've worked with women in their late 40s/early 50s who were earning a lot more than they were in their late 30s. Even if that doesn't happen if you can end up having more money due to other life changes e.g. child being more financially self-sufficient.

I would be surprised if £75 a month from late 30s would be £100 a year, if you are paying in for 30 years and drawing your pension for 30 years, you should get at least as much back as you paid in, more if the investments have grown. Like a previous poster said, annuities aren't very good value so a lot of people go with pension drawdown.

Full state pension isn’t much to live on - work out what you would pay for now (minus the mortgage) and see if it’s covered by the current state pension.
Also worst case scenarios: your DH dies/you get divorced/one of you needs care then the funds in your house could be lost.
You are only in your 30s, I recommend getting some professional lpension advice.

Pension calculators can be crap - they have to be very conservative and usually assume you’re going to take a lump sum then an annuity which isn’t necessarily the best use of your money.

Have a play around with a compound interest calculator - £75/month for 25 years at 5% growth gives you over £42K. Draw that down at 4% and that’s £1700/year, or £140/month, so you’ve doubled your investment effectively.

And that’s being conservative - it’s not including your employer match (free money!), tax efficiency, pay rises, or any other increase (as money frees up due to kids flying the nest, or mortgage paid off etc).

Also think about how else you could free up cash - for example if you do end up wanting to stay in the area, could you potentially think about going from a 3 bed house to a 2 bed flat eventually? Etc etc.

I pay £100 and my employer pays the same. It's better than nothing. I'm 40 and it does worry me.

If you don't do it, you're turning down free money in the form of the employer contribution and the tax relief. It's worth it for that alone and will top up your state pension. Unless paying the £75 pm will cause hardship now, it's always worth it.

@Tibtab

What is your alternative plan for retirement? Not having a pension is fine if you have properties or large savings. I would always pay into a pension.

TibTab - Spot on!

So the sums appear to be:

Contribute £60 per month (net), so £75 (gross) plus £45 (employer) = £120 goes in - I think

Double your money - what's not to like?

Coming out, at least 25% tax free, possibly all if you only have a state pension

30 years provides over £40K even if no growth. More if there is growth

Yes you have a house - but you'll still need one, and there may be reasons such as illness why you can't move

£60 net per month is less than £2 per month. Now if you have a mobile SIM contract in excess of £7 per month, switch to Lebara for £5 per month - job done!

Are you sure it isn't £100 a month?

My contribution,employers and tax relief is predicting around £200 a month after a lump sum and only a little more is going into my pension than what your paying. I have though put mine In a higher risk Nest fund than the standard one.

The 3% from your employer is free money. Invest your money in a broad low-cost index fund (vanguard all-world is just one of many examples). You have 25+ years of stock market growth and compound interest working in your favour.

I wouldn’t rely much on the U.K. state pension, it’s the measly sum.

Yes!! I’m a similar age to you and really don’t think we can count on a state pension until 70+ that’s a long time to work, what is your plan if you can’t? Does your husband have any additional pension?

Absolutely, yes!

Thanks everyone
I’ve done some different calculators and it does seem to work out more favourably than what I had thought

I will make sure I’m paying in and hopefully my salary will eventually increase to help it grow further too

Apologies for the error - should have been - £60 per month is less than £2 per DAY 🙃