Some Pension Advice

[bennsmithy]

I am a teacher and I currently contribute to Teachers Pension Scheme (for those unaware, this is a 6% rate final salary pension that pays back 1/80 of final average salary * pensionable service (Years))

Due to my time at Uni, I have a poor credit rating and have difficulty in obtaining even sub-prime credit (especially in todays circumstances.)

What I am considering doing is taking a break from pension contributions this year (for what would be my 2nd year in teaching) in order to build up savings which can be used in emergencies (such as car breakdowns) and also to service some debt so I can begin to improve my credit worthiness.

I know the usual advice is not to leave a pension, and the "earlier the better" for beginning payments, but in my set of circumstances I am not sure whether my needs would be better suited in ensuring that I am financially stable in the present time and putting extra away in the next few years when I am on an even keel financially speaking. (I am 27 by the way)

Does any one have any advice?

[paradigm]

Taking a year out of your pension contributions will have very little affect. However my pension scheme recently closed it's doors to new members in the final salary scheme, only money purchase is now available, so had I left for a year I would have been well buggered !

[gotidude]

Although your only in your 2nd year of work I (personally) would carry on paying into the pension pot. The idea to service some debt early might be temping, but rather than that why not try to put all future pay increases into a pot to help service the debt - yes this will take longer but if you opt out you may be tempted to stay out permanently. If you are looking for a bit of extra money, try the likes of valued opinions - surveys where you get paid in vouchers or mystery shopping (others on here know a lot more about this!).

Especially dangerous if your final salary scheme closed early without prior notice (I managed to get into one in my last job by 2 weeks!) and a lot of them have closed or are closing (although as your in the public sector...who knows when they will close it!)

PS - I am not a finance guru!

[bennsmithy]

My most immediate concern is that if something where to go wrong with my car tommorow (for example) I would have to pay out of my monthly wages (circa £1200) and this could leave me with very little for day to day essentials)

I was hoping to contribute my pension contributions of £100 a month, plus another £100 for 12 months with the aim of having savings of 3 x Salary (approximately) which is a good level in case of financial difficulties.

I should also mention that I (currently, at least) doubt I will be in the teaching profession for more than 5/6 more years.

[cjanderson]

whts the minimum you can pay into the pension, could you still do that? or is it 6% or nothing? what would you lose by not doing 1 year at 6%, could that be made up? woudl you lose the employers contribution?

when will you get a pay rise to get you up to have spair money for both pension and savings? if you have no spair money, i'd go savings first, then pension. specially as its not portable like a private pension would be.

[pyrogena]

I haven't paid into my pension for 4 years now. I am not a financial expert (obviously). So far it's been growing all by itself, albeit very slowly. I imagine after this year it will be nearly zero given the crap markets out there!

However, like you, I did it to build up my savings and also because I wasn't earning for much of those 4 years. Plan to start paying in again soonish.

For what it's worth I asked an IFA about this and at the time he said, if you have spare cash wack it into savings. Obviously this was 4 years ago so things may have changed since then. If I was in your position now though, I'd do the same - build up your savings for a year and then go back to the pension. Especially as you say you have no savings and are worried about what you'd do in a cash emergency.

[pigpicker]

I'm in a right pension mess.

I've got one which I started in 2000 and then closed when I got onto the final salary scheme at work. Then I opened up ANOTHER pension through the contributory stakeholder scheme at work.

Last year we got taken over by another company who have (this month) terminated the final salary scheme and will look to close the existing stakeholder scheme and replace it with their own stakeholder scheme which is not as good. :mad:

So at the moment I have 3 closed pensions schemes all with varying transfer values. I am now in the process of getting all the current transfer values together and then I'll be tootling off to a financial advisor to see what they have to say but has anyone here got any ideas for me to consider re: investing for the future?
(sorry to hijack thread:))

[bennsmithy]

The effect of not paying in would be that I would loose my entitlement to 1/80th of my final average salary per year.

There is no way of reducing pension contributions - its 6% or nothing.

Im erring towards the pausing of the pension, but wanna make sure I have all the advice first before I go in tommorow!

[Mattie F]

You'll have to see what the scheme rules say - do they allow you to suspend contributions or would this mean you effectively having to leave the scheme and then rejoin.

Be warned though - with a lot of company schemes, if you leave within 2 years then you get a return of what you've paid in less something like 30% tax and you lose any associated benefits i.e. it's as if you never joined the scheme. Any employer contribution is simply lost.

So - check the scheme rules carefully and please don't be tempted by getting some money back less a fair whack of tax.

[bennsmithy]

They allow you to suspend contributions, and I would not be after withdrawing my money (that would mean I couldn't rejoin)