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To pay or not to pay
Topic Started: Dec 22 2004, 04:19 PM (126 Views)
ds9074
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Admiral
I've had a letter through recently telling me I should pay £200 to the Government if I want this year to count towards my state pension. A pension I'm not eligable to draw for at least 40 years. Apparently the payment is voluntary but I need to have 44 years of payments in order to qualify for the pension so I'm advised to pay.

I'm not so sure I should. I'm not confident the pension will even exist (or at least be worth anything) by the time I'm 65. Its only about £70 a week now anyway. I think I would be better off putting the money into my own scheme if anything rather than giving it over to the state and maybe never seeing it again.

Any thoughts?

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Hoss
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Don't make me use my bare hands on you.
Do you have the option of a tax protected retirement account?

If so, the earlier you start saving, the better off you will be.

If a person who is 20 starts saving an amount per month and then stops when they are 30, they will make more money than a person who starts at 30 and saves until they retire. Compound interest is powerful.

In the USA, I have a 401k that my employer matches half my contributions into up to 7% of my income, I can then contribute up to 15% total but only the first 7% is matched. This is all pre-tax income. I can also do an IRA for a certain amount that is tax protected.

If you choose the right mutual fund mix, you can almost count on at least 12% per year on average but it will probably be more like 15% per year. The thing is that you have to put the money in and not touch it for years until you retire for this to work.

If you take the US stock market over its history (including the great depression and other bad times) it still does better than 10%. That is better than any bank will give you.

I really don't know how things are in your country with respect to all of this. I certainly would not rely on the government to take care of my retirement.
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ds9074
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Admiral
I do indeed have a pension plan where I pay no tax on the interest earned and the Government will pay in 22p for every pound I pay in. I would probably be better off in many ways paying the money into there.

The only advantage with paying the Government scheme is this. The money they want is to make this year qualify as one of my 44 years. I have already made some payments while I was working so if I dont pay the extra the money I already pay wont count for anything.

Its a case of pay £200 or £100 already paid will be worthless, yet the whole state pension scheme is scam anyway, I would probably be better off in my own scheme and I would rather I could opt out completely.

The crazy thing about the state scheme is that the money is NOT invested. So they miss out on all 40 years compound interest.
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Hoss
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Don't make me use my bare hands on you.
You should probably start saving money on the side in some form or another as well. I don't remember how old you said you were, but saving hard while your young means life will be easy when you get into your 30s, 40s and such.

I don't trust the government for my retirement.

I am not sure that I trust pension plans either.
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cptjeff
Captain of the Enterprise-J
Hmmm... I would say not to do it. the government is not an organization you can trust your money with. Instead, I would put 200 pounds a year in a bank, and then draw out of that in retirement. (interest!)
You would have all your money and more, due to that interest. Also, a savings account is acesable in case you need the money before then.
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