Is it worth having a pension?
"Paying someone to look after your money always costs something - it doesn't matter whether you're inside a pension or not. Fees are highest for ""actively managed"" funds and lowest for passively managed funds or things where you choose the investments directly - but in the latter case you might pay out a lot in dealing fees. Typically pensions will have some small additional costs on top of that, but those are hugely outweighed by the tax advantages - payments into a pension are made from gross salary (subject to an annual limit), and growth inside the pension is tax free. You do pay income tax when you take the money out though - but by then your marginal tax rate may well have dropped. If you want to control your own investments within a pension you can do this, subject to choosing the right provider - you don't have to be invested in the stockmarket at all (my own pension isn't at the moment). I wrote an answer to another question a while ago which briefly summarises the options As far as an annuity goes, it's not as simple as the company taking the money you saved when you die. The point of an annuity is that you can't predict when you'll die. Simplifying massively, suppose the average life expectancy when you retire is 20 years and you have 100K saved, and ignore inflation and interest for now. Then on average you should have 5K/year available - but since you don't know when you'll die if you just spend your money at that rate you might run out after 20 years but still be alive needing money. Annuities provide a way of pooling that risk - in exchange for losing what's left if you die ""early"", you keep getting paid beyond what you put in if you die ""late"". Your suggestion of taking the dividends from an index tracker fund - or indeed the income from any other investment - is fine, but the income will be substantially less than an annuity bought with the same money because you won't be using up any capital, whereas an annuity implicitly does that. Depending on the type of investment, it might also be substantially more risky. Overall, you only need to secure the income you actually need/want to live on. Beyond that level, keeping your money outside the pension system makes some sense, though this might change with the new rules referred to in other answers that mean you don't have to buy an annuity if you have enough guaranteed income anyway. In any case, I strongly suggest you focus first on ensuring you have enough to live on in retirement before you worry about leaving an inheritance. As far as setting up a trust goes, you might be able to do that, but it would be quite expensive and the government tends to view trusts as tax avoidance schemes so you may well fall foul of future changes in the rules." It all depends on whether you can manage your money or not. Many people are incapable of doing so in a responsible way. Like any service, you get what you pay for -- active management costs money! On the face of it, it doesn't look like a very good deal - neither pension not annuity company are in it for the fun of it, so they'll take their cut from your money, and then invest it anyway. The rest depends on what they promise you - if they just promise you market returns then I don't see much sense to do it, you can do it yourself. If they promise you some pre-defined average return not depending on market conditions (and hope to get ahead by actually getting better return and pocket the difference) then it might make sense, if you are not a very proficient investor. This will get you a known benefit you can count on (at least if you get a company with good rating/insurance/etc.) without worrying about markets volatility and having to keep the discipline and calm when markets jump around. It may be hard, especially for somebody of advanced age.  Also, there's the part of government adding money - it depends on how much of it is added, is it enough to cover the extra fees?
"Are you not allowed the y5 option?   I'm no guru, but one thing that sticks out to me in that plan is the vesting period of 5yrs as opposed to 10, so the money is ""yours"" in half the time....so if after 5yrs, you find a better gig, you can roll those benefits into another account and manage them on your own (or just leave and draw on them when you are eligible)  Then again, knowing that many municipalities are in shit shape due to their pension benefit liabilities, they may be pushing to the longer vesting period to a) encourage you to stay employed there and/or b) allow them to keep the money should you leave before that 10yr period  Like I said, though- I'm def no guru, and that is only one aspect of these plans.  I'd personally reach out to a financial planner so they can game it all out for you and equip you with the info to make the best choice" "There are so many people who did not save throughout their work careers largely because they had a safe and secure pension to count on. Many of these people turned down other more lucrative opportunities and gave generously from whatever saving they had. They did this because they had a state pension that they could count on. Apart from a tiny SS amount, the ""untouchable"" and thought-to-be, guaranteed pension was the only retirement plan. Suddenly and with no time to save money to replace pension shortfalls, their earnings could be greatly reduced, or completely wiped out.   Tragic." Cutting 25% from pensions is a big deal. This is why I'm going to get out of the company pension. If the money isn't mine, what is it? Are they giving me more return on my interest than normal to make up for the fact they can decide to back out of the agreement at any point? No. I've often thought that would be a great idea for pensions here in the states, specifically municipal pensions. Like a particular town could invest a small portion of it's money into local businesses and real estate. That would benefit the local economy and incentivize pensioners and workers to patronize those businesses.  Does anyone know if this is done anywhere? I like many of the answers, but here is a summary of reasons: Almost everyone will retire, and it is almost certain that government or company pensions schemes will not alone give you a lifestyle you would like in retirement. Money invested early is worth much more in retirement than money invested late, thanks to the miracle of compound interest. In some countries there are tax advantages to investing a little bit of money every year, compared with nothing for a few years and then a lump sum later. Much investment advice is given by investment consultants, who profit when you make investments. It's always in their interests to have you invest as early and as often as possible (that doesn't invalidate the first three reasons). Having said that, it isn't always in your best interests to invest in retirement funds very heavily at the start of your career. You might want to consider paying off any debts, or saving for a house, or even having a bit of fun while you are young enough to enjoy it. That back-packing trip to Nepal is going to be a lot easier when you are 23 than when you are 40 with kids. There is no benefit in life insurance as such (ie, death insurance.) There is a great deal of value in other types though: total and permanent disability insurance, trauma insurance (a lump sum for a major medical event), and income protection insurance (cover against a temporary but disabling medical condition).  If you don't have that, you should get it right now. This is about the most important insurance you can carry.  Being unable to work for the rest of your life has a far larger impact than having, say, your car stolen. ...  If, later on, you acquire dependents, and you feel you ought to have life insurance, then you will have a relationship with a life insurance company, and maybe they will let you upgrade from income/TPD to income/TPD/life without too much fuss or requalification.  Some do; whether yours would I don't know.  But at least you have a toe in the door with them, in a way that is infinitely more immediately useful than getting life insurance that you don't actually need. &gt; Why are you against making sure their pensions are funded?  Pension actuarial analyst here:  Pensions can give employee's benefits for time worked long before the plan came into existence.  Those 'liabilities' are paid off over 30-40 years.  It's absolutely normal.  In addition, pension plans may also pay off increases in benefits, such as an early retirement window, over that same 30-40 years.  Pension funds use assumptions on future investment earnings to 'guess' their contribution.  Sometimes, they don't earn as much as they expect the plan to earn.  Sometimes, they try to keep contributions low *as an alternative to scrapping the plan entirely*.  So putting this all together:  if pension plans are instantly and always 100% funded?  You don't get pension plans, with defined and guaranteed retirement benefits.  You get plans where the employee defers their own money into accounts, with no particular guarantees at all.  And that's why we are fine with unfunded pensions.  Oh, by the way, the PBGC charges higher fees to covered pension plans that have more unfunded liability!  So if a company doesn't want to pay contributions, they have to pay more elsewhere.  It all evens out. "I agree that real income growth has been flat twenty years, but you're wrong about Americans owning stocks.  Anyone who has a pension is directly involved in ""gambling"" on the stock market.    Check out /r/personalfinance -- there are lots of people who invest/save money, but don't earn a lot.   There are options that are as cheap as $25/pay...It gives you a way to invest when you are young.  I have paid into a mutual fund/etfs since 21...wish I had done it sooner!" IMO almost any sensible decision is better than parking money in a retirement account, when you are young. Some better choices: 1) Invest in yourself, your skills, your education. Grad school is one option within that. 2) Start a small business, build a customer base. 3) Travel, adventure, see the world. Meet and talk to lots of different people. Note that all my advice revolves around investing in YOURSELF, growing your skills and/or your experiences. This is worth FAR more to you than a few percent a year. Take big risks when you are young. You will need maybe $1m+ (valued at today's money) to retire comfortably. How will you get there? Most people can only achieve that by taking bigger risks, and investing in themselves. I bet you're retired on a pension? Or just stupid? What? I need to no. Just because you tack a term to it, doesn't make it invalid.  You should DIE when you are no longer productive. Look at the DEBT you're handing to the future, while your employers run away with the EQUITY! I'm also a UK, Ltd company contractor that has pondered the same topic. I afraid, however, that I don't understand the maths in the original question. Mortgage interest is flat for the term of the mortgage rather than compounded, so, ignoring the tapering at the end of the lifespan of the mortgage, I get the amount of interest to something like £9,300 (7500 x 0.05 x 25). Does this make the decision any easier for you? As you point out, the total cost of this overpayment from your company account is £12,500. Using the above figure, it would take over 13 years to recoup the £5,000 difference (at £375 interest a year).  I used to be of the same opinion that the mortgage should be paid off at all costs first. But now I'm coming round to the American way of thinking; £12,500 invested in a pension with a 5% yield will easily outstrip the interest saved by making the over payment - 12500 x 1.05 ^ 25 = £43,300 - over 250% better off (£43,300 / (£9,300 + £7,500)). I now make no mortgage overpayments at all and instead pay all the money into my pension. This (amongst other things) keeps me below the upper earnings tax threshold, so I'm only paying corporation tax for the money I'm drawing as dividends. There's a massive caveat to this though; I'm 49. I should be able to draw the tax free element of my pension pot in six years time and pay my mortgage off and it's quite unlikely that the government will be changing pensions policy in that time (but drawing 25% tax free has been a feature of pensions for quite some time). I can then chose to keep working or retire. If my pension is still doing well (9% ish pa at the moment), I could chose to not pay my mortgage off at all. In the next twenty or so years, however, all this could change. In your position I would do a bit of both. Make a regular overpayment to pay down your mortgage (even a small amount that you'll barely notice will make quite a difference to the end date of your mortgage - £100 a month will take years off). I didn't start paying properly into my pension until fairly recently and so If you're not already, I'd also make quite substantial, regular payments into one now, directly from your company, 15-17.5% of your gross drawings. Leaving it until later will only make it more painful. Then when you get to retirement age, no matter what, you'll have a decent pension pot. An actuary I worked with pointed out that if you pay something into a pension, when you retire you should have some sort of pot; if you pay nothing, you are absolutely guaranteed to have nothing. And finally, if you haven't already, fix your mortgage. We're three years into a five year fix. The variable rate we were going to be transferred to was 3.99%. We fixed, not because of wanting any sense of security, but because the fixed rate was 2.59% with no fee. There are much better rates than that about now. Rates are starting to rise, so it's a good time. Did I make the right choice? Only you can determine that. Financial security and stability are not worthless, but they do not have infinite value either. Any time you go out for a walk you're trading a small amount of financial independence for personal satisfaction, since you could be struck by a car and become disabled. That's a silly example, and you're risking much more financial security by changing jobs than by going for a walk, but it illustrates that sometimes risk is worth it. Would changing jobs be worth the risk that you could end up unemployed? Only you can determine that. Best job you could get was working for the government.  Pension isn't as good now, but they still have one. And your healthcare is covered.  Sacrifice some money while working to pay into those things.  Won't be rich, but you'll be far from poor.  And can live a satisfying life even if you are sole income for household.  If you have a spouse that works, you are fucking set. Pensions in the UK are a real free-for-all. A few years ago, the government introduced stakeholder pensions to try and simplify things, but if anything it's just made things more complex. To give you an idea, everyone has access to a Basic state retirement pension, but there's also SERPS (state earnings related pension scheme) and the State second pension provided by the government. Then in the private sector there are the aforementioned Stakeholder pensions, Self Invested Personal Pensions, Final salary occupational pension schemes and Money purchase occupational pension schemes. For a good summary, take a look at this excellent Times article and for more details, have a look at the Pensions in the United Kingdom Wikipedia page or browse around the Which? retirement section or the moneysavingsexpert pensions pages. The main things to look out for are whether your company offers a defined benefits scheme, or a money purchase scheme where they offer pay additional contributions or offer to match your additional contributions. Either of these are likely to be better than just buying a money purchase scheme pension privately. "You have a large number of possible choices to make, and a lot of it does depend upon what interests you when you are older. The first thing to note is the difference between ISAs and pension-contribution schemes tax wise, which is of course the taxation point. When you contribute to your pensions scheme, it is done before taxation, which is why when you draw from your pension scheme you have to pay income tax. Conversely, your ISA is something you contribute to after you have already paid income tax - so besides the 10% tax on dividends if you hold any assets which may them, it is tax free when you draw on it regardless of how much you have accrued over the years.  Now, when it comes to the question ""what is the best way to save"", the answer is almost certainly going to be filling your pension to the point where you're going to retire just on the edge of the limit, and then putting the rest into ISAs. This way you will not be paying the higher rates of tax associated with breaking the lifetime limit, but also get maximum contributions into your various schemes. There is an exception to this of course, which is the return on investment. If you do not have access to a SIPP (Self Invested Personal Pension), you may be able to receive a far higher return on investment when using a Stocks & Shares ISA, in which case the fact that you have to pay taxes prior to funding it may not make a significant difference. The other issue you have, as others have mentioned is rent.  While now you may be enjoying London, it is in my opinion quite likely that will change when you get older, London has a very high-cost of living, even compared to the home counties, and many of its benefits are not relevant to someone who is retired. When you retire, it is quite possible that you will see it fit to take a large sum out of your various savings, and purchase a house, which means that regardless of how much you are drawing out you will be able to have somewhere to live. Renting is fine when you are working, but when you have a certain amount of (admittedly growing) funds that have to last you indefinitely, who knows if it will last you."