Q. I am a female dentist working part time in a practice which is mostly private. Now in my 30s, I feel that I should get my pension planning sorted out. My children are still young, and I will be going back to work full time in 3 years. I will then earn around £80,000 pa working 4 days per week, while at the moment I work 2 days per week earning £40,000 pa.
I can afford to invest £500 per month, and understand that I will get tax relief on this. I intend to increase this a lot when I work more.
Does it pay to stop procrastinating and just start a plan, or should I wait until I increase work when I can put a lot more in?
A. You could expect an adviser to say ‘yes, get cracking now’, as the longer you leave it the worse it gets. But with the information you have given, it is worth boxing clever here.
Presuming you want to start a disciplined approach to saving for your retirement right now for the £500 per month, then it may well pay you to not invest in a pension, but put your money into, say, an Individual Savings Account. The reason for this is that at present you are a basic rate tax payer, and will therefore be eligible for tax relief at 20%. But if you wait, say, 4 years, you should then be a higher rate tax payer eligible for tax relief at 40%.
So instead of the £500 per month investment in a pension costing you in real terms £400, it would then be £300. That is quite a difference, and by starting now in a tax efficient ISA (although there is no up front no tax relief) you can then invest this as a lump sum into your pension plan when you qualify for tax relief at 40%.
Of course, you need to ensure whatever investment route you choose now or in the future is in line with the risks you wish to take etc.
