Pension - Returned Chq - Invest or Spend??

[Wee Kaz]

I recently left a company a few months ago and at the time contributed to their company pension scheme but as I was only there for a year I got my contributions back and couldn't transfer to my new company pension scheme so I got a cheque for 1K. I'm now with a new company and was wondering if I should spend the cheque on something worthwhile like the house (as it needs it) or transfer it in to my new pension scheme?

My question is, it is more beneificial to put the money to my new pension scheme now and wait till I retire to reep the benefits? i.e. would 1K added on to this scheme now really make a significant difference in 30 years time?
OR
If it's not really worth it should I invest it in the house by decorating which is my other line of thought and it's also a long term investment for my future/retirement??

[WendyS]

Why don't you stick it into an equity ISA with unit trusts and have all dividends reinvestedt.? As your retirement is 30 years away, an equity ISA should be a far better long term bet than a cash ISA and you won't pay any tax on it. You could also stick it into a personal pension and forget about it. However, it would be difficult for you to get at it in an emergency, so I'd opt for the ISA route. . It will build up over the years, and if you're made redundant in later life you may well be glad you tucked it away to one side.

If on the other hand your new pension scheme is a Final Salary Scheme, your final pension will be based on your number of years's service as a proportion of your salary and if you stay there for less than 2 years, you'll end up getting your own contributions back for a second time. So for that reason, an equity ISA still makes sense.

[Wee Kaz]

Thanks a lot Wendy, sounds like some good advice to me!

[KARL]

Once the money is spent it is gone. Once it is put in a pension fund you may get something back from it, but maybe nothing (as many have found out). If you save the money it permanently remains yours and your heirs' (unlike when you die - the fund swallows whatever is left, if it hasn't already ceased to exist). Investing in the equity market is a long-term option (in the short term you might need the money just when it has crashed) and historically has risen fairly continuously if you look at it decade by decade. Conventioanal savings (including ISAs) barely keep ahead of inflation in the long run. My advice is save or invest - take your pick after that.