Workplace pension. Opt out or not that’s the question?

[Londoner90]

So I have been paying workplace pension but I have been thinking about opting out and just have the cash now...
Any opinions on do it or not? I have always paid it, I believe I have been paying the minimum only but I’m thinking that what if I don’t make it to retirement 😂 yes a bit morbid but what if I am saving for something that will never come ...
I guess I can always opt back in, or can I ?

Can anyone help with this please?

There is also the civil service pension which is the gold-plated variety.

Less so these days, sadly.

The more time your money is in the pension, the more it has a chance to grow. If the stock market only rose by 1% per year, at 28 your £1 has 40 years to grow to state pension age. At 48 it would only have 20 years to grow. Earlier age contributions can be more important than later ones. With the state of government finances at the moment you can't assume that there will be much state pension by your retirement age.

Never ever ever ever ever opt out of a pension.

It is free money- tax relief and employers contribution. Plus, if it’s a defined contribution scheme your tax bill each month goes down as your pension goes out before tax is calculated. It’s worth far more if you take the money as pension rather than as cash now.

State pension is only about £7k a year and may be worth a lot less in 20/30 years time. You’d be mad to give up employers pension now.

Financial advisors cost money and some of them really aren't very good at all.

Do not opt out. Your contributions are grossed up 20% plus your employer contributes too. Where on gods green earth will you find a similar return to that right now?

OP, can you explain what sort of pension you have and whether the employer matches your contributions? Are you a basic or higher rate tax payer?

There is no greater up front investment vehicle than a pension. Tax relief, employer contributions, potential NI relief plus the fact that if you are on UC or tax credits, your pension contributions are disregarded (I.e your universal credit goes up).

Pension contributions are practically free for people on UC, and highly tax efficient for higher earners. You would be vvb silly not to max it.

Occupational pension schemes are probably the best pension you'll find. No other type comes close. Stick with it if you possibly can.

You don't have an occupational pension scheme you ha e group pension plan, but still opt in.

*a workplace pension plan, group pension plan! 🙄

@Feminist10101

Statistics on life expectancy say that you will make it. In any case, you’ll only have to make it to 57 (ish, I won’t go into the details!) to start withdrawing it.

Only with a massive reduction.

Not necessarily @Feminist10101

OP hasn’t told us whether she has a DB or DC pension. I’m leaning towards it being DC, as I really hope she’d understand enough of the value of her pension if it was DB, not to even start this thread!!

Accessing at 57 (currently 55) is available to DC pensions. DB pensions are according to scheme rules, so may not be accessible.

It is only DB pensions where you’d have a reduction in annual payment if taken early.
In a DC pension, the money is exactly what it is.

OP, can you explain what sort of pension you have and whether the employer matches your contributions? Are you a basic or higher rate tax payer?

It's a workplace pension plan as stated in the title, what's the relevance of her income tax band out of interest?

OP hasn’t told us whether she has a DB or DC pension. I’m leaning towards it being DC, as I really hope she’d understand enough of the value of her pension if it was DB, not to even start this thread!!

It's a workplace pension plan as she's stated, it's clearly a DC scheme!

A lot of lay financial advisers on here tonight.

Financial advisors cost money and some of them really aren't very good at all.

But significantly better than the utter trash advice given on MN!

OP doesn't need an adviser to tell her to opt in or out, she just needs to know wether she can afford it.

@keepgoingorstop

OP, can you explain what sort of pension you have and whether the employer matches your contributions? Are you a basic or higher rate tax payer?

It's a workplace pension plan as stated in the title, what's the relevance of her income tax band out of interest?

“Workplace pension” isn’t a clear description @keepgoingorstop

OP may simply mean - provided via my employer, rather than a private pension arranged by me. In which case, it could be DB or DC, which will very much affect the impact of opting out.

Income tax band makes a difference, because of the tax relief.

Many people paying 40% tax now, can expect to be paying 20% in retirement, as their pension is lower than salary. So they get 40% relief going in - and only 20% tax coming out. Big win. If you’re getting 20% relief going in, but go on to pay 20% coming out, the benefit of a pension is less. Still generally better than anything else! But a 40% tax payer is even more likely to make a bad decision in reducing payments.

@Londoner90 contact an adviser to say what exactly?

They can't tell you how long you'll live, can they?

Can you afford the contributions yes or no? If you can then carry on. If not stop.

It's really very simple!

If you die before taking benefits from the pension, your beneficiaries will receive it IHT free!

What's the actual problem with feee money by way of an employers contribution? Tax relief at source? Ignore the people spouting on about NI savings, it's a workplace pension and I'm damn sure it's not paid via salary sacrifice, is it?

@keepgoingorstop

Financial advisors cost money and some of them really aren't very good at all.

But significantly better than the utter trash advice given on MN!

OP doesn't need an adviser to tell her to opt in or out, she just needs to know wether she can afford it.

I agree that a lot of advice on MN is wrong.

I disagree with the usefulness of an IFA though. Many of us can crunch the numbers ourselves, but many can’t. What’s better... contributing to a pension, or overpaying a mortgage? That takes some calculations that are confusing to many people. (and you need a crystal ball too! But even assuming a fixed interest rate and a fixed return from shares, not everyone can make that calculation.

Do you have kids? My dad died at 64 and was completely skint. It was sad that he never got to enjoy his retirement money but it was given to me and my brother, not that we deserve it, but at least it's gone somewhere. I keep trying to give bits to charities my dad liked and I'm sure he'd be glad we could take the kids out for days out etc so I look at it that way.

@Cocomarine yes it is, what level FCA exams do you have?

So if IP is a 20% tax payer, you'd say don't pay in? So she gets tax relief, employers contributions but if she's not a 40% tax payer, you'd say opt out?

Again, why is her tax rate relevant?

Jeez!

I disagree with the usefulness of an IFA though. Many of us can crunch the numbers ourselves, but many can’t. What’s better... contributing to a pension, or overpaying a mortgage? That takes some calculations that are confusing to many people. (and you need a crystal ball too! But even assuming a fixed interest rate and a fixed return from shares, not everyone can make that calculation.

Carry on! But don't give others trash advice and ask what tax rate they pay? It's irrelevant!

Also shares with a fixed interest rate? Do tell me about these little gems?

They can't tell you how long you'll live, can they?

Of course they can’t tell one individual when they’ll die. But actually, they can explain to someone who says, “I might not ever make it to retirement” what the statistical likelihood of someone of their age making it to 67 is, and how long on average people of their age currently are expected to live. It’s not as simple as average life expectancy, as it has to be adjusted for their cohort.

People might change their decision if it’s based on a erroneously low estimation of how likely they are to ever draw the pension.

You don’t need an IFA for that... but for some people, who wouldn’t think about that, the IFA could add value.

Are you even paying in much per month? If not, then I can't see how it'll help buying a home. It's better to let it build up with your employers contributions on top.

Agree with others. Stay opted in. It all adds up.

You don’t need an IFA for that... but for some people, who wouldn’t think about that, the IFA could add value.

Or just consult you @Cocomarine and get some of those fixed interest shares, they sound fab!

@keepgoingorstop

I disagree with the usefulness of an IFA though. Many of us can crunch the numbers ourselves, but many can’t. What’s better... contributing to a pension, or overpaying a mortgage? That takes some calculations that are confusing to many people. (and you need a crystal ball too! But even assuming a fixed interest rate and a fixed return from shares, not everyone can make that calculation.

Carry on! But don't give others trash advice and ask what tax rate they pay? It's irrelevant!

Also shares with a fixed interest rate? Do tell me about these little gems?

I don’t think you’re reading my posts properly @keepgoingorstop

I haven’t said that there are shares with fixed interest rates.

I’ve said that even if you assume a fixed mortgage interest rate, and a fixed return from shares, many people do not have the confidence to calculate which is the better option. For example: £100 overpaying a mortgage at 1.65% for 20 years, vs £100 in your pension with a 3.8% stock market return. What’s the difference?

Now if many people couldn’t calculate with ASSUMED fixed numbers - how are they going to do it in a world where interest rates and market returns are not fixed? An IFA can help with at least modelling scenarios.

FWIW, I saw an IFA once and found it of no value at all 🤷🏻‍♀️ But I think they can help, depending what you need to know.

@Feminist10101

Statistics on life expectancy say that you will make it. In any case, you’ll only have to make it to 57 (ish, I won’t go into the details!) to start withdrawing it.

Only with a massive reduction.

This isn't true.

Firstly, you can draw pension legally from age 55, not 57. (DB schemes may have different rules but DC ones do not)

Secondly, the vast majority of schemes now are DC so there is no reduction for what age you draw them, you are just drawing from the pot that exists. Obviously the longer you save into it, the bigger the pot and the further it goes or the higher the income. But it's wrong to say there is a "reduction" for drawing it at 55.

I plan to have £500k in mine by age 55 and will then draw an income. No reduction, no-one takes a bit off me.