Whats the point of private pension if youll never own a home?

[Queenoftheuniverseandgalaxy]

Im 30. I will never be able to buy a home (health reasons, salary etc)

Ive been putting a lot of money into my pension.

I was just talking to my friend and he said im making a huge mistake, that theres no point in me saving into a pension as a forever renter, because all that money will just be eaten by private rent and also, state pension might become means tested, so its just a waste. Private pension is only worth it and great if you will own a home/paid off mortgage he said. And that if i have little/ no private pension, just state, i at least might get help from gov paying rent or social housing? He said im setting myself up for poverty in old age by having a private pension.

He says i should opt out immediately

Is he right?

Is there a point of saving into pension if you're a forever renter?

@Tumbler2121

i understand that, BUT do you not get any comfort from owning your own home? & (in the Uk anyway (if you are?)) not having the insecurity of renting?

my place is tiny ( it was an intended flip many years ago, but 'life' happened & im still here) & not yet mortgage free (I'm choosing to save at a better rate, than pay my currently relatively low interest mortgage off. I'll pay a chunk of it off, depending on interest rates in 3.5 years, when my 5 year fix ends).

Yes it's a tiny place, no garden etc but it's MINE & no one can give me notice, it's an affordable mortgage and I'm not stuck having to try to find a place to rent (nothing here suitable/affordable).

You can currently take 25% of your private pension savings as a tax free lump sum when you retire.
You could theoretically use this tax free money to buy a small place on a cash basis.
You could then live in retirement without the need to pay rent or a mortgage which would make your money go much further.
Needless to say this is based on current pension legislation not being radically changed. However retirees are a large and powerful lobby group so home for the best 🤞

@Kryten1958

your pension would have to be huge to take 25% & buy a property cash. Well around here anyway.

If you are paying loads into a private pension then hopefully it will provide a decent amount at retirement age. It's those who have a very small private pension that miss out on so much when they are just over the pension credit limit. However even with a decent private pension you might still get some help from housing benefit towards rent, it really depends on your rent amount and your income. The aim of making everyone pay into a private pension was clearly to get the benefit bill down so I guess it's fair enough.

No-one can predict the future. However i have a friend who cashed in her private pension and spent it on amazing holidays and designer bags. She lives in a 1 bedroomed housing association property. She only has her state pension but she gets her rent paid and some other benefits. I have another friend who has a small private pension which gives her just under £300 per month on top of state pension. She owns a small 2 bedroomed flat. She is worse off financially than my other friend and is terrified of spending money.

I don't know the answer but unless you have a large pension or are otherwise wealthy there is an argument that it's not worth owning a property in retirement.

@invisiblecat

if you can't afford to live in a mortgage free home, you won't be able to afford private rent. Most people can downsize or move to a cheaper area to free up some cash & not having paid rent for years should mean more in savings anyway.

fuck knows what help anyone will get in the future. Owning or renting. I'd rather be as secure as I can be, and for me that's owning, not renting.

I deal with a lot of older people in my job ( benefits advice). The number of people still having significant mortgages to pay in their sixties and seventies is quite alarming, including interest only ones. Benefits won't pay towards a mortgage ( except for support for mortgage interest in limited circumstances). They never want to downsize !

@newleafontheplantjohn

my Aunt & Uncle have a lifetime tenancy on a beautiful bungalow with a fabulous garden, driveway etc etc I'd definitely swap it for my small place. Tbf they have made it beautiful by making some changes to it, knocking through a wall (with permission) putting in a new kitchen & always keeping it 'up' with flooring & decorating etc.

id seriously swap if I could.

however, they will always have to pay rent on it, though admittedly, I suppose once they can no longer afford to, they'll get help?!

but lifetime tenancies on lovely homes are few & far between these days.

Your friend isn’t wrong really.

You’d be better off putting the extra money into a deposit/buying somewhere and spending the next 30 years paying off the mortgage. That way by the time you hit pension age you’re living mortgage free and so no rent or monthly payment to make for your home, just bills/utilities etc

I don't understand this argument. Friend 2 is not 'worse off financially' than friend 1. Friend 2 can sell her flat and move to another area if she wants to whereas friend 1 is less able to pick and choose where she lives. Also, for friend 1 to be entitled to other 'top up' benefits they have to have less than £10k in savings for pension credit and less than £16k for housing benefit. And friend 1 is dependent on government policy, which could change or cut benefits at any time.

@virgocatlover Don't get me wrong, I'd rather be in friend 2's position. Yes, she could move somewhere else but she doesn't want to do that and her friends are here. The difference between a 1 bedroomed flat and a small 2 bedroomed isn't much and much of the equity would be eaten up in fees.

Friend 1 has no savings other than any money she doesn't spend month to month. She literally spent every penny when she cashed in her pension. Friend 2 has a small amount which she keeps aside for repairs etc.

What I was trying to say was that on a day to day basis friend 1 has more disposable income. It's noticeable.

You shouldn’t opt out of your pension but I think you are making a mistake with paying in so much. You would be better off with some savings you have control over

This is how I feel but at 48 I prob have at least another 20 years to work and lots can change in that time. One change that won't happen is I won't be able to buy property.

My DB works in finance and used to tell me to focus on getting a mortgage rather than savings/pension.

When I was late 20s it seemed absolutely unachievable but I started saving like mad and a few things fell in my favour and by the time I was 32 I had a tiny terraced house.

I think you're pretty well always better off, where you can afford it, saving into a pension. While you're under Pension Age it's one way, and there are very few others, where you can save significant money while in receipt of means tested benefits like UC.

If you're on Pension Credit as a Pensioner then, AIUI under current rules, you'll be expected to take the pension's payments but otherwise it will be on top of the standard pension, currently around £220/week. May affect HB for rent but I still think you're going to be better off than without.

Don't just abandon your savings now.

@Sunshineandrainbow the NHS/Local Government Pensions are as good as they get. Career average not final salary but for some people that works better. You'll never get anything like it if you stop paying in.

I know this becuase we stopped paying into my partner's when we first had kids and money was v tight. Not through choice but rather inertia we never got her back in. She gets £600/month and would be on 2-3 times that if we'd not been idionts.

I’d start looking around for some smarter friends

Interesting question. My parents bought their council house when Thatcher made it cheaper to pay the mortgage than the rent. But then regretted it in retirement as if he never bought, benefits would have paid the rent and the council would have maintained and upgraded his home. My parents live in quite a poor area and you can still spot many of those who bought their home due to the lack of upgrading of the roof etc.

Its difficult for you to know what is best to do as it will be difficult to work out what the benefits system will be like when you retire.

Its very expensive to move house and friend 2 may well not have to funds to pay for a move, even if she wanted to.

Hmmm….its a tricky one. My friend was made to retire at 60 (before the law changed, her birthday was 2 days before!). Her H had died when they were both in their 40s, she had given up work as they had 4 DC. He wasn’t in a high earning job, she had worked as a teacher for a couple of years.

His life insurance paid off the mortgage for her. She had to go back to work when she was mid-40s and only job she could get was a low paid admin job in a local school. She didn’t pay into the LA pension.

My dad thought she was mad as it’s index-linked, but on a low wage (less than 20k) it isn’t really advantageous and it would have pushed her just over the threshold for any benefits. As it was she was entitled to pension credit which meant her council tax was paid.

He says those with huge/big pension and no home would probably be fine too, it’s those with no home and small/average pension that will be screwed

crazy rent prices etc

he says even now those with no/tiny private pension and home cant qualify for help/pension credit and are suffering

Does anyone know any pensioners who’re renting in the private sector and get no help from the government? I don’t.

Sounds like he has a lot to say for himself. What ever you do don't make any decisions based on the opinions of one person. Because that's all it is - his opinion

Well it's not just opinion is it. You can look at it for yourself. Council tax is £130 a month where I live, band B, 25% off for being single, rent on a one bedroom place is at least £900 for a studio. So that's £1030 a month you won't see of your pension, before you even step out the door. To get just that ie just to have a roof over your head, you'd need a pension pot of £300,000. And you wouldn't have any left over, so you'd just have your state pension for spends. Or, you can let the state take the strain and still have your state pension for spends.