Q. My employer has just told me that they intend to auto-enrol me into a company pension scheme? Should I join? I am 54 so it hardly seems worth it as the total contribution is only going to be £40 per month?
A. In the past, this was often a difficult question to answer, as a small pension with little other savings could actually have a negative effect on means tested benefits such as pensions credit, or council tax benefit in retirement. However the changes made firstly to the state pension, which is to be at a single level, higher than the current basic state pension and pensions credit amount, and secondly giving flexibility over the withdrawal of benefits from personal pensions, mean it is very likely to be in your interests to join. The default position is that you will be auto-enrolled unless you actively opt out. Also, the contributions will increase over time. If you are not in the scheme, you will be missing out on employer contributions, and your employer cannot pay these to you in other ways, as they are not permitted to incentivise people to opt out.
Q. A number of years ago I took out an interest only mortgage as this suited my circumstances at the time. I can now afford to pay more each month and I contacted my lender who offered to convert me onto a repayment mortgage but as I now have only 11 years left on the mortgage the monthly repayment was more than I wanted to pay. Can you suggest any alternatives? I would add that I am planning to downsize probably in about 10 or 11 years time when I retire.
A. You could quite simply increase your monthly mortgage direct debit payment to a level that is affordable which would help to reduce both the capital that you owe and future interest payments. You should check with your lender first to ensure that there are no penalties for doing this. As you would be paying less than your lender has suggested that you should pay for a repayment mortgage you would still have some mortgage left in 11 years.
Alternatively you could set up a funding vehicle. In other words, a savings scheme that you build up separately to the mortgage, with the intention of using this fund in say 11 years time to repay some or all of the mortgage. You could for example make monthly payments into a Stocks & Shares ISA. Currently the maximum you are allowed to pay is £11,880 per annum although this increases to a maximum of £15,000 per annum from 1 July when it will become known as a NEW ISA (NISA). Within these limits you can pay in amounts to suit your pocket either monthly, annually or with ad-hoc lump sums. This means that you are in control of what you pay. The fund that you build up would not be guaranteed to be sufficient to cover your outstanding mortgage as it would depend on how much you put in and the growth rate achieved.
Although I have given 2 examples that you could use both of which are flexible, which is what you have indicated that you need, there are other options as well. Before doing anything I would suggest that you talk to an Independent Financial Adviser and once they have a greater understanding of your circumstances they will be able to help you decide the best action to take.
If you have a question you would like Trevor to answer, please email it to: yourmoney@rwpfg.co.uk or post it to Your Money, Rutherford Wilkinson Ltd, Northumbria House, 21-23 Brenkley Way, Blezard Business Park, Newcastle upon Tyne, NE13 6DS.
0191 217 3340
