Should I overpay into my pension?

M

mrstayto

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Last year, at age 36, I finally started my defined contribution pension. I contribute 4%, my employer contributes 8%.

I am very stressed that it is not going to grow quickly enough. I know I can contribute up to the 20% tax threshold (which I will do going forward).

My question - would it be ridiculous to contribute more than this? I could afford to contribute 25-30% for a year or two to try and get a decent base amount in there, so that it can start compounding. Should I do this? I know I'll only get tax relief up to 20%, but would this be a reasonable price to pay to make up for starting a pension so late?

Thanks in advance!
 
mrstayto said:
I am very stressed that it is not going to grow quickly enough. I know I can contribute up to the 20% tax threshold (which I will do going forward).
Click to expand...

That is the right strategy for the moment.

You should save the balance outside a pension fund e.g. Do you have a mortgage? If so, pay off the mortgage instead of contributing to a pension fund for only 20% tax relief.

At some stage in the next thirty years, it's likely that you will have unused potential to contribute at the higher rate.

In other words, let's say you contribute €3,000 today at 20% relief instead of paying the net amount off your pension. Then in 10 years, with children and other expenses you have €20,000 worth of income at 40% tax rate, but you can't afford to contribute €20,000 to the pension. You will be kicking yourself that you didn't save your money until you got the 40% tax relief.

Brendan
 
Brendan Burgess said:
That is the right strategy for the moment.

You should save the balance outside a pension fund e.g. Do you have a mortgage? If so, pay off the mortgage instead of contributing to a pension fund for only 20% tax relief.

At some stage in the next thirty years, it's likely that you will have unused potential to contribute at the higher rate.

In other words, let's say you contribute €3,000 today at 20% relief instead of paying the net amount off your pension. Then in 10 years, with children and other expenses you have €20,000 worth of income at 40% tax rate, but you can't afford to contribute €20,000 to the pension. You will be kicking yourself that you didn't save your money until you got the 40% tax relief.

Brendan
Click to expand...
I really appreciate the response on this, thank you!

To clarify, I pay tax at the higher rate. But since I am 37, I think can only get tax relief on contributions up to 20% of salary (which increases to 25% when I'm 40).

So, am I correct in saying your view is:
1. Pay 20% of salary into pension; and
2. Pay any extra funds off against my mortgage.

Thank you!
 
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