Big house or pension?

[WhichHoose]

If you had a budget that could buy you a really nice house, would you go for a nice house or a more modest home (that still met your needs, but only just) and put the rest into your pension?

My pension pot is about £1k due to extended ill health and I'm 36 so while I really want a nice house, I'm scared of getting used to the space/comfort then having to leave it when I retire to fund my retirement!

My budget is £375k (North of England) and the houses that would just about meet my needs are £170k with repayments of around £300 a month with the deposit I have (£130k).

WWYD?

Pension - compound interest needs time to work.

I'd go pension too.

You need to get money into your pension. Otherwise how on earth are you going to live?

It all depends on a lot of factors. For myself, I would max out my house budget and worry less about my pension. But then I have a couple of inheritances in the pipeline (yes I know nothing is guaranteed but they are extremely likely), plus my career is likely to improve, earning me more money over the next 30 years.

There are other factors but those are the main ones for me.

So - given you may be working for the next 40 years (sorry) is it likely that your earning potential will continue to grow?

I’d also ensure all my state pension contributions were up to date and I’d pay for any missing years, and continue to do so to get full state pension at retirement.

Good luck!

House, but with a view to downsizing to help fund your retirement.

Compound interest is great in theory. In practice, the pension I started 15 years ago and paid into for 4 years is still only worth 20,000 today - I've had as many years in which the value has decreased, as increased.

I continue to pay into a different pension scheme, but see the equity I'm building in my house as a more reliable fund for my retirement.

Is there not a middle ground? I wouldn’t buy a big house if I didn’t need it, more to clean/maintain, but I also wouldn’t live in the bare minimum if I could afford better than that. I would buy a nicer house but not at max budget and add more to your pension.

I’d compromise. Smaller house in great area. Remainder into pension. Smaller house will save you £££ in short and long term. Less to decorate, furnish, heat, insure, clean etc. You can make it gorgeous in a much smaller budget.

I’d top up missing payments and invest in career/earning potential .

You may well be glad to move to a smaller home in retirement.

Houses makes more money than pension funds. But you have to down size to release

The area we're looking at doesn't have anything in the middle. The more expensive houses are exactly the same as the ones I'm looking at but not on a council estate (all 3 beds, either semis or detached). Then there's a jump to about £300-£325k to the 4 bed detached houses I like so still well within budget but repayments of about £1300 a month.

Hmm interesting that it's split though. I was erring towards pension because I'm very worried about only having state. My employer does contribute now but I was only fit to go back to paid employment 18 months ago and I'm part time so very little goes in. DH has a teacher's pension but we don't know whether that will be worth anything in the future as the scheme seems to have gone bonkers this year.

Pension. It’s so important, especially as they’re now saying we won’t get a state pension until 71.

Ok I just checked, my pension is actually currently about £2200 as I forgot to include employers contributions. It's still abysmal though.

Whatever you go for, don't just look at the repayments now, but stress test them up to interest rates of 15%. Then go with whats affordable at that and put the difference into investments. Thank me later.

I am a similar age OP and I am fairly doubtful we will ever be able to claim a state pension. I am building any retirement plans around it not being there.

£2200 what tho? Is that the total sum in your pot?

Is it defined benefit or defined contribution?

I must admit I don't fully understand it all myself.

Im 38 and also think the state pension won't be there for us unless we are in dire poverty.

Pension all the way. The government contribution to your payments is the most generous benefit (for normal people) around. If you don't make full use of your annual contribution allowance then you are chucking away free money.

Ignore the comments about houses doing better than pensions. That won't include the tax benefits above.

Make sure that you maximise any employer matching benefits and then consider taking out a SIPP for any other contributions. The SIPP will allow you to invest more widely and not get hamstrung by the ESG limitations found in NEST.

Get the free pension advice to confirm the above, i.e. don't trust me!

At your age I think you really do need more in your pension (assuming that is a defined contribution pot). However I may have gone too far the other way, I have a good pension pot but a house that needs refurbishment. The pension money I cannot touch until 57.

You should at least get the most 'free money' (employer contributions) you can to maximise your pension pot if your employer offers that.

I would go for the bigger house and worry about retirement later down the line and accept that you may have to downsize at some point. Life is for living not scrimping to save for a future that may never happen.

Thank you this is great advice. I was looking at opening a SIPP as I'm maxed out on employer contributions (they do the bare minimum).

Since I started work, my employer and I (and tax) between us have put in £2200.
It's stakeholder.

Another benefit of the pension is that if you use drawdown when you retire then any remaining funds are free of IHT if you die before 75. There will be more to it than that and rules can change, but at present it's a massive benefit over the house.

Did you have a job prior to this OP with another pension that you paid into?

Thanks, this is great advice. I love running the numbers on the MSE mortgage repayment calc and watching the graph change. We're also looking at overpaying on the cheaper house to build equity but I wasn't sure whether doing that + pension would be better.