To stop paying into my pension?

[Sleepdeprivationistorture]

Okay okay, I know to stop paying into my pension is on the face of it utterly unreasonable, but hear me out!

Dp and I are mid 20’s. We have a 9month old dd and I’m just about to go back to work after mat leave. Our plan once I go back to work is to save hard to buy a house.

We can save about £500 a month if we are are super disciplined. But we will need about £15,000 for even a 5% deposit in our area so this is going to take us at least 2-3 years. (I know in reality it isn’t that long, and we’re lucky to be in a position where we can save that, but to me it feels an eternity away!)

Between us we pay nearly £400 into our pensions each month. So my idea is that we could stop paying into our pensions for a couple of years and instead put that money straight into our savings, then once we have the house we’ll opt back in to the pensions and also still be saving a little alongside it. To me, a house would give us more security than a pension and not paying into our pensions would enable us to do that in almost half the time.

Is this a bad idea? Does anybody know if there are any repercussions with stopping pension payments for a couple of years? Mine is a private pension and dp’s is government if that makes any difference!

I’m interested in your responses OP as I’m in a similar position but buying by myself and am shocked and how much money my pension has accumulated over the last few years although I know this is also my work contributing.

Its worth remembering that if you put £400 into your pension per month by salary sacrifice, it would only be worth £360 (i think) if you stop contributing, as you won't get tax or national insurance relief on it. Youd also lose the contributions from your employers so you'd miss out on a lot of money in the long run.

Put your money into a Lifetime ISA. You’ll get extra money equivalent to basic tax relief on pensions but you’re allowed to use the money for a house deposit too.

Agree with both of the above. Your pension payments come out pre tax and your employer also contributes a percentage so really work out what you'd be missing out on. The LISA is a great idea too, Skipton do one but there are a couple of others.

I wouldnt do it if im honest.

The loss of tax relief on pension contributions and losing the employer contribution, which is effectively like taking a pay cut.

You will be able to stop and start as you want. Your DH may be more restricted in being able to leave and rejoin if it’s a government scheme. I’m assuming it is a defined benefit / final salary scheme? If so, if he did leave and rejoin in the future, he may not be allowed back in on the same terms and any new terms will be worse not better.

Putting £400 into pensions would be a lot less than £400 in take home pay approximately £250 if you are a normal tax rate earner.

Also be mindful that stopping pensions before applying for a mortgage could be seen as trying to fiddle the affordability ratios and can actually stop you being able to get a mortgage anyway.

The effect of compound interest is far greater than most people can wrap their heads around. I would be very wary of stopping my pension contributions. 2-3 years isn't a long time OP.

For what it is worth I work in the world of finance. Perhaps look at getting a 'free' initial meeting with an independant financial advisor.

Maybe look at reducing your pension a little so you don't lose out on employers contributions and terms don't change. Also yy it is good for tax relief. Have you got a first time buyers isa?

other posters have mentioned getting a LISA ( I take it neither of you have ever owned a property before) that is a good shout. You can each get one and put up to £333 a month in/ £4k a year (each) the government gives you your tax back on this money (20%) meaning for £400 saved the government top it up by £1k to £5k a financial year.

The LISA can then be used to either purchase your first property or to top up your pension. You have to be under 40 to open one though. I hold a S&S Lisa with HL and despite brexit it's doing pretty well. I wouldn't recomend S&S for short term or if you don't know what you are doing though. You can get cash Lisa's too where you just earn interest.

Don't do it. It's far harder, psychologically, to opt back in again. You get used to having that money.

I'm so glad I didn't opt out when I had the choice. Now that I'm actually collecting that pension, it's priceless. I don't know how people manage who don't have an occupational pension.

I know it's hard to see that far ahead, but seriously, don't do it.

Don’t want to come across sounding rude
But you mention Dp
Are you properly protected just in case things go pear shaped
That would be my number one priority

Pension contributions come from gross salary and any other kinds of savings (including LISAs) come from net. That £400 you pay into your pension is going to be 20-45% less if you decide to save instead. So don’t do it. Instead, try to budget your net pay to rustle up the money between you.

Long term, this would be like standing in the street, setting fire to five pound notes. The contribs you make in your 20s will far outstrip the value of what you put in, in your 40s and 50s. And very possibly outstrip the increase in equity on any property you buy as well.

Think VERY HARD about stopping paying. Much better to reduce them and still retain your employers' contribs.

Retirement seems like a very long way away when you're in your 20s but it will creep up on you like it does to most people. Don't be me: I'll be practically destitute when I reach retirement age next year if I don't keep working

Reduce perhaps but don't stop. For many, many reasons. Compound interest, losing any employers contributions, pension scheme changing (often for the worst) and you being locked out.

Keep saving towards a pension, keep the discipline going.

£400 total isn't very much really. For security you need two things a home and a reasonably well funded retirement.

For comparison (and INCLUDING employers contributions) My DH and I are paying almost £1000 pcm into our pensions total.

Hellmistress is right. My pension pot is huge compared to my colleagues (even though I started on a smaller salary than them) because I started my big contributions when I was in my mid-twenties and have kept them going.

If you are not a higher rate taxpayer and are making personal contributions to a pension then you are only getting 20% tax relief, so I do think it would be reasonable to save that money for a house instead.

I don't know much about government pension but suspect it would be a bad deal to opt out.

I wouldn't. I suggest you both lower your contributions and cut back on other things.

If I was in a pension scheme where I could put a decent amount in, in my 20s I would have due to compound interest and the effect of investing over the long term. Instead I've had to bung lots of money in from my late 30s due to being in crap employer pension schemes.

Pensions are so important and ours seem to far outperform growth in the housing market so I wouldn’t, no. There’s no guarantee that we will even have state pension by the time we come to retire so I prioritise it first and pretend the contributions don’t exist. I believe I will thank myself later in life.

Be patient, work on reducing expenses, increasing income and the house will become a reality!

Definitely don't opt out if:-

1. You would lose any employer contribution (including any contribution that is a result of salary sacrifice, as you will be getting tax relief on the National Insurance as well.)
2. You are getting higher rate tax relief

id say yes but EVERYONE on here will tell you no

We did and regret it now, looking at our paltry pots and trying to increase then asap.

By not paying into a pension you are missing out on free money. My pension would be the last thing to go.

You say you'd start again once you've saved the deposit and bought a house, but then you might find you are struggling to pay the mortgage so you'll put it off a bit longer until you get a pay rise, then you decide to get married so you put it off until you've paid for the wedding, then you have another kid so you put it off until you're back working full time, and so it goes on.

The sooner you can get onto the housing ladder & stop paying a landlord's mortgage instead of your own, the sooner you can start the long process of eventually owning a house outright & never having to pay rent or mortgage again.

Cost it out.
Look at how much extra money you could save by taking a pension holiday. Work out how much more quickly that will get you to your deposit goal.
Then look at how much that would cost you in missing pension payments plus pension interest.

You could also decide to retain 1 pension - the government one is likely to be better? - but you must check that, & put all the savings from pausing the other into the house-buying fund.

Whatever you do, you are BOTH going to have to be super-disciplined:

1. to ONLY allocate the pension holiday money as savings, & never make an excuse to spend it elsewhere
2. to vow to get straight back on to pension payments as soon as you have bought a house & paid all the associated fees & costs.

Good luck!

I think many posters are overlooking the fact that paying rent is money down the drain. So no point clinging onto say £200 employer pension contributions if you’re wasting £1000 in rent!

Also, buying a property is a great way to build wealth. I’m not talking about some spectacular investments but just getting onto the property ladder and beginning to pay the house down (and eventually pay it off while making pension contributions too).

So I think it does make sense to save hard for 3 years for a deposit even at the expense of pension contributions.