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Pension vs debt? Advice needed please

Discussion in 'Personal' started by anon3946, Jul 5, 2012.

  1. Hello, was wondering if some clever bods might be able to advise me.
    I have stupid amounts of debt to get under control and paid off, which has been tough to handle during my PGCE. I'm about to start my NQT year and am 24 years old. It has been suggested by a friend in finance but with very little knowledge about working in education that I forgo pension contributions for this year only to use that money to pay off more debt. He argues that the debt should be a priority, especially as I'm so very far away from needing a pension.
    However, was wondering if I could get the opinion of people within education as to how good/bad an idea this is.
     
  2. Hello, was wondering if some clever bods might be able to advise me.
    I have stupid amounts of debt to get under control and paid off, which has been tough to handle during my PGCE. I'm about to start my NQT year and am 24 years old. It has been suggested by a friend in finance but with very little knowledge about working in education that I forgo pension contributions for this year only to use that money to pay off more debt. He argues that the debt should be a priority, especially as I'm so very far away from needing a pension.
    However, was wondering if I could get the opinion of people within education as to how good/bad an idea this is.
     
  3. voodoo child

    voodoo child New commenter

    I don't think you are allowed to opt out now. Even if you were it would be a very bad idea since the pension is your contributions which are tax deductlble (taken off before you pay tax) and also the employers contribution which is 14%. The teachers pension is still one of the best around and you will want to have as much as possible in it. I'd take a second job - tutoring for example and pay off your debts with that and stringent economising. I'm sure lots of people on here can give you tips on that such as having a pay as you go phone and taking sandwiches for lunch.
     
  4. Anonymous

    Anonymous New commenter

    Nope. Don't do it.
     
  5. voodoo child

    voodoo child New commenter

    And I forgot to add go to Citizens Advice who will sort out payment schedules for your debt and give you very sensible free advice.
     
  6. Thanks- yes, I've signed up to a tutoring agency and am looking at how to cut costs; just thought I'd check, as it's been suggested
     
  7. magic surf bus

    magic surf bus Star commenter

    Your pension will provide you with a lump sum and an annual income for the rest of your life from retirement. Paying off your debt earlier than planned will simply save you a certain amount of interest in the short term. You'll gain more long term by continuing with regular pension payments, even though the debt might seem a headache now. There are better ways to tackle debt than by sacrificing your pension.
     
  8. voodoo child

    voodoo child New commenter

    Good - a much better plan. I've been buying back missing years of pension (not now available) and I am so pleased now that I am on the verge of retirement that my pension will be much more substantial. I have an old car and have not had the clothes and holidays that some of my colleagues have had but knowing that I can manage OK in old age is very reassuring.
     
  9. Richie Millions

    Richie Millions New commenter

    We all imagine it will never happen us and with higher contribution rates and later starting dates it can be tempting. The advice given by others is sound and wise advice. Retirement will happen, it will happen much sooner than you think and quality of life rather than mere existence will seem very very important. The TPS is still a very good one and better than most. Stick with it.
     
  10. jubilee

    jubilee Star commenter

    Everyone is automatically opted-in to the pension (previously part-timers were not) and each employee has to fill in a form to Opt-Out.
    As previously stated, pension payments are tax deductible, so you only pay tax on the amounts left after paying into the pension.
    Opt-Out and your tax bill goes up. For every £100 not in the pension, you will pay an extra £20 in tax.
    When in the pension, you pay a reduced, Contracted-Out National Insurance rate as you are making provision for a retirement pension and thus do not need to pay into the State second Pension.
    If you Opt-Out, your NI rate increases by almost 2%, and the increase is applied to all your monthly earnings over about £400.
    Obviously, you will have more take-home pay if you Opt-Out but nowhere near as much as the TPS deduction from pay.
    If you later decided to boost your deficient pension, you don't get an employer's contribution to increase your eventual pension payout. You have to fund it all yourself.
    You should really 'forget' about SLC debt as that is only repayable as a percentage of salary over £15k per year. Do not pay extra for that debt. You should not have any SLC deductions from pay until April 2013 as , on M1, you can't earn £15k between Sept 2012 and the 5th April 2013. If any deductions appear, ring them up for a Stop Notice to be sent to the tax people (Inland Revenue collect the SLC repayments and pass them on to the Loans company once per year).
    For other debts, prioritise credit card debt and overdrafts for which you are being charged.
    Always pay off the debts with the highest interest rate first.
    Look into transferring credit card debt to a 0% deal (a fee of 3% is usually applied). You may need to wait until you are in work to get accepted for a new card.
    Once the new credit card is loaded with the debt, do not use it for further purchases as they will charge you a high interest rate. The 0% is only for the transfer. Your minimum repayments will go towards the 0% debt and the new purchases will be building up a new debt with a high interest rate.
    Pay the minimum off 0% cards each month and put any surplus money you may have into a savings account for the eventual paying-off of the debt once the 0% deal ends. You thus get interest on spare money.
    If you have a spare room, you can take in a lodger and make up to £4250 per tax year, tax -free, under the Government's Rent-A-Room Scheme. It can be your own home or a rental property (ask the owner's permission). Inform your insurance company if you have a lodger and your mortgage lender if applicable.
    Take supplies for lunch into school. I used to keep tinned goods and some breakfast stuff and potatoes in schools where I was working long-term. I cood make something on toast or a filled baked potato as all staffrooms have toasters and microwaves. I'd also take a portion of the previous night's casserole or pasta meal and re-heat it. Colleagues would be spending £10+ per week on lunches.
    I have recently retired (lack of supply work) and my pension is derisory because so much of my teaching between 2000 and 2007 was with private agencies. I was paid to scale in those days but couldn't pay into the pension. I made up some ground from 2007 with LA work but I'd have received at least an extra £6k or more in lump sum and at least another £250 per month had my work in those 7 years been pensionable.
     
  11. jubilee

    jubilee Star commenter

    If your job is not starting until 1st September you probably have an entitlement to JSA from the official end date of your PGCE.
    You can claim JSA whilst looking for temporary full-time work for the period up to 31st August. The personal Allowanc efor those aged 24 and under is just below £60 per week.
    If you have no working partner and you rent your home, you would also be eligible to claim Housing benefit and Council Tax relief and to get free NHS services, including dental and prescriptions.
    It might be possible for Housing benefit to continue for up to 4 weeks after the claimant starts working, where their pay (and hence their inability to pay weekly rent) is monthly,in arrears.
     

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