Pension advice
Hi all,
My husband is a bank nurse at a private hospital and in need of some advice on whether its worth him joining their pension 'Nest' particularly as he is part time and with no guaranteed hours. He has earnt an average of £414 per month since Nov 2016 though it fluctuates month to month and this is the first time the pension has been triggered as he had a bigger earning month last month.
• Current:
Employer contribution = 2%
Employee contribution = 2.4%
Tax relief if paying tax = 0.6%
• From April 2019:
Employer contribution = 3%
Employee contribution = 4%
Tax relief if paying tax = 1%
• Contributions are based on earning at least £503 but not more than £3863.
• Charges:
1.8% on each new contribution into a members retirement pot.
Annual management charge (AMC) of 0.3% on the total value of a members fund each year.
No other charges for transfers etc
• can access from 55 years old onwards
• Nest is a defined contribution occupational pension scheme.
Questions:
1. Is it worth bothering with as earnings are so low, contributions would be small and irregular and would be below the amount needed to get tax relief?
2. He will reach 55 years old in 7 years time. He may retire from nursing between 50-55 years old. Is it worth taking the pension for this short period?
3. We have about £40k in Vanguard life strategy 60. What's the likelihood of the equivalent employee contribution amounts performing better in the VLS60 compared to the employee contribution plus employer contribution amounts being paid into Nest?
4. Anything else we should take into account or haven't thought of?
Many Thanks!
First thing to say is that it doesn't matter whether he pays tax or not. Even if you don't pay income tax, you get credited as if you were a basic rate payer by the government up to £3220 of contributions per tax year.
So if he pays in £100 to the pension, it gets credited up to £125 whether he's a taxpayer or not (and this is deliberately done by the government - not a tax dodge.)
Given that the employer is more than doubling your money up front, I'd be astonished if VLS60 did better than Nest. If you're putting in 3% and the employer matches it with 4%, you've instantly more than doubled your money, in return for tieing it up for minimum of 7 years. Unless he expects to be paying income tax when he's taking money out of the pension, or you need the money back before he's 55, it's a no-brainer to go for the pension IMO.
