My Fiance and I are saving for our first house. We both have the option to join a pension scheme through work, but in order to join we must match our employers’ contributions and at the moment we feel the money is better used towards the house – what would you recommend?
Sean Gillease, business development manager, Sovereign Trust (Channel Islands) Ltd, replies:
This is probably the question I am asked most regularly and my answer is that there is never an easy time to start saving towards your pension, as there will always be other priorities to consider.
However, something that I can say with some certainty is that the longer you leave it, the more difficult it will be to save a meaningful amount.
I would recommend that you and your fiance speak with an independent financial adviser who will be able to assist you in creating an overall financial plan, which will include savings for immediate objectives such as your wedding, property purchase, holidays, etc, and also for the longer term.
The issue to consider, and I speak from personal experience, is that once you have purchased the house there are likely to be a number of follow-up expenses such as renovation and/or home improvements, which can further delay any anticipated savings into your pension. You will have the costs of the wedding to consider at some stage and potentially other significant factors not too far behind such as children, travelling and so on.
Therefore, I would always encourage people to save from as early as possible, even if it is a very small amount as the difference that can be made long term from saving for a longer period of time is absolutely huge.
Remember in your case, you and your wife will benefit from your employers matching the amount you save into your pensions and so in addition to the tax relief you receive, you will have the added benefit of what is essentially ‘free’ money from your employer which you are currently missing out on.
I suggest you search the phrase ‘compound interest’ as this helpfully shows the significant impact that longterm savings can have on the amount you can build up, in comparison with saving a higher amount for a shorter period – the results speak for themselves.
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