Pension Scheme - temp opt out?

[scoobysnaxx]

I am considering opting out of my pension scheme (NHS) for a few months just to up some cash flow during a difficult time. This would only be temporary (a few months)

has anyone done this?

Don't do it unless unavoidable. The amount lost will be many many times what you gain now.

Are there any other ways you can gain extra money?

Bank shifts, other work elsewhere, living very frugally for a few months, sell things, go through all the bank switching offers etc etc.

I would really advise against this, you will get used to the extra cash and not want to opt back in. Plus, the NHS scheme is a good one and a little paid in early on in your career will really mount up. Your employers contributions will also stop if yours do – as the previous poster said is there anything else you can do to earn some additional money ?

I would advise you against it unless you’re absolutely unable to house and feed yourself otherwise.

You also won't get back as much as you think, as you'll have to pay Tax & NI on the money too.

Future you will regret it.

Have you looked at all your outgoings? Done deals? Bank switched? Cashback offers? Do you use your Blue Light card and other NHS benefits? I buy e-gift cards through them fir discounts on everything i buy. Use all the loyalty schemes eg: nectar points & prices (plus price match Aldi).

Do you use MoneySavingExpert; Hotukdeals & the Trolley App?

I would definitely opt in again as soon as feasible. 3 months max. I understand the importance and value of the scheme.

I am a single parent and I am going to move house. Freeing up a few extra hundred for 3 months would be so valuable.

i would 10000% rejoin within a few months. It’s very temporary and an emergency while moving. Not a ‘I’d just like a little more for now’ thing. I need the money. Bank shifts aren’t an option.

Thid. Find another way to get money.

But you will lose several thousand pounds long-term for the sake of a few hundred now. It would be far cheaper to get a loan if you can get one on reasonable terms - could you join a Credit Union?

Can you please explain this to me. How would this lead to a loss of thousands?

You lose all the pension that builds up over the period you are out for. That pension would be paid from retirement for the rest of your life.

In return you will save on the contributions you don’t make. But you will not save the whole amount because you will pay extra tax and NI as you’ll be earning more taxable income.

Its really not a good idea

Say your pay is £2500 per month, so if you opt out for 3 months that’s £7500. The pension accrual rate is 1/54, so you would be losing around £139 of annual pension (£7500 divided by 54).

Doesn’t sound much, but if your pension is paid out for 20 years that’s £2778 of pension payments you would miss out on.

And that’s before you add in any of the inflation proofing that the benefits get.

I would avoid it if at all possible. You won't get as much money as you think because it will be taxed. And it's so hard to get back to contributing if you duck out - I have seen colleagues massively regret this

Plus to get that £2778, it costs you around 6% of the £7500, which is £450.

I would avoid it unless absolutely necessary. I did it myself when I was going through my divorce, due to the additional solicitors costs. If I hadn't have done so, I'd have struggled to feed myself and my child. I'd already cut back as much as I possibly could in all other areas, so there really wasn't any other option. I'm paying back into the pension scheme now, I rejoined as soon as I possibly could.

Do not do it! I know of someone who came out of the pension, had a stroke, went partially blind and couldn’t apply for full ill health retirement as they were then a deferred member.

Someone knocks at your door, offers you £10000 for £2500, you’re saying no thanks?

I would do/try everything else first before stopping pension contributions. Compounding means you lose so much more money than it first appears.

Honestly I’d reconsider - the long/er term effect is likely to outweigh your short term challenge. Can you share any more on your cash flow issue…perhaps you can get some advice here as to how to deal with it.

I am sorry to sound morbid, but if you were to die while you were opting out your beneficiaries would not receive the pensions benefits (such as spouses pension, dependent pension) which they would receive if you remained an active member. In a scheme such as the NHS these will be worth thousands of pounds per year.

Thanks guys, especially @BlackLambAndGreyFalconand @ChessieFL I needed to really understand the implications.
I don’t understand a lot about the pension scheme and in my ignorance thought that the biggest penalty would be more tax and ‘not paying in’ but I can now see the penalty is much bigger, long term and costly than I initially thought.

this is what I was trying to understand so thank you.

Will have to think of something else!

Have you checked that you would be allowed to opt back in to active membership on the same terms that currently apply to you? That will depend on the scheme rules. I don't know about the NHS Pension Scheme specifically, but not all pension schemes would allow a temporary opt-out.

Also if, God forbid, you die or something like that whilst you’ve opted out then your children are knackered because you’re not a paying in member.

Get a credit card

It is the ultimate last resort. Frankly, I think I'd file for bankruptcy first.

Small loan (that you can pay back early) or interest free credit card?

Sometimes if you are going through difficult circumstances (and depending if you are a Nurse etc) there can be grants or money available for costs like these through the union, a charity or the local council. Make an appointment with your local CAB, check the grants section on turn to us website and see if your intranet has a section on this (ours does).

I would really recommend that you don't. I'm heading towards the end of my career and looking at the NHS pension as a lifeline. As others have said, do any other option rather than opt out.

I can highly recommend following a Facebook page called Pen Gage. The lady that runs it is a wealth of knowledge & gives out lots of free information & does free webinars. Search her page re opting out - there will be lots of excellent advice.