Am I stupid to reduce pension contributions as I want free of debt

[finallyreadytobedebtfree]

I left a controlling and abusive relationship last year and although I am now much happier I walked away with debt of about £6k due to the financial abuse. I feel the debt is a constant reminder of the relationship and stopping me moving on.

I am finally in a place where I feel able to tackle this without getting overwhelmed.

I have set up minimum payments for all the debts and am using the snowball method to tackle the ones with the highest interest rates first, however even doing this, the debt won’t be cleared until 2024! 😕

I currently pay 7% of my wages into my pension. Work matches this.

I want to know if I would be unreasonable to reduce my pension contributions to 1% per month temporarily. I could then clear all the debts in 18 months, before increasing my contributions back up to 7% or maybe more.

I’m 36 and have been paying into my pension for 10 years. Work allow us to change the contribution rate as many times as we choose so long as we give a months notice.

Yabu - why would you even consider doing this?! The impact on your pension isn’t worth it

Yanbu - it’s only temporary and any impact is worth it for the peace of mind which is sometimes worth more than money.

YANBU. I would do it, 18mths compared to 3 years is a lot. Imagine the interest build up on the debt!

I’m a big fan of paying as much into your pension as possible, given the tax implications and matched employer contributions. But given your young age and the fact it would be for a short period of time, I absolutely would. I reduced my pension contributions when I was on mat leave (x2) and it made life far more pleasant.

As long as you will definitely ramp them back up again once the debt is clear.

Would you lose the matching contribution? If so, it might be worth picking a middle ground approach?

In theory, no, it's not stupid, but equally, that's a very good pension and these are prime years for adding to it.

I reduced my pension contributions when young and needing money too

I don’t regret it

You need money when you need money

Yes I would definitely do this, as long as you’ve worked out the sums correctly and the monthly difference would give you an adequate amount towards the debt then I would absolutely take a 18 month hiatus to clear it.
In theory you then have the equivalent of the “minimum payments” you are paying now as well to add to your contributions once it’s cleared. Which may go some way to making up that short break.

I recently took an extended career break and didn’t anything in for over a year. I’m not overly worried as I plan to up my contributions significantly when I am no longer paying childcare fees.

Not to 1%, no. Because I would suspect the pension match is making you more money than you are losing through your loans. So it’s better value to keep the pension up.
But 14% is lovely and high so IMO you have some wiggle room to reduce it a bit.

Thank you all for the quick responses.

Work match my contributions up to 7% so I guess it's the balance between what I'd loose out on in that respect and what interest the debts will accumulate remaining unpaid.

I'm hoping being youngish I can counteract that later on by going back to what I was paying and then once I have paid my mortgage off (aged 51) I would then hopefully still be working and plough what would have gone to the mortgage into my pension pot each month.

It's not ideal I know but I just hate having them hanging over me.

If you do it, please really try to get back paying in asap.

Good luck.

If you lose the work contribution of 7% then no. Go to a compound interest calculator, put that amount of money you would be giving up in and see what it would add up to in 35 years time. That is what you'll be giving up.

Also, go to somewhere like stepchange and get your debts consolidated and interest reduced.

I was in a similar situation to you but left with significantly more debt. I'm also on a good pension scheme but after agonizing for a while, I halted it to be able to pay off the debt quicker. It might come back to bite me in the future, but the priority for me was to be solvent as soon as possible. Good luck whatever decision you make

Given how long a shadow trauma can cast, I would probably make a similar decision in your shoes. 18 months now to improve your chances of making a good recovery from the abuse? To me that would be worth it.

Without wishing to be morbid, you don't even know if you'll live to retirement age, so to suffer now for the sake of 18 months... Yes, we need to be prepared for the future we might have one day, but we also need to remember to live the life we definitely have in the present!

Dave Ramsey in the USA would say to stop a 401k contribution. So that is similar to our Defined Contribution workplace pension scheme.
So if you are following his baby steps program to the letter, then yes you would stop your workplace pension contributions.

You will lose the 7% employer contribution.
You will lose the tax relief on your contribution.
You will pay more tax on your income if your pension is in a salary sacrifice scheme.

However you are focusing on one thing... putting as much money as possible towards debt, so it is paid off as quickly as possible. That could be saving you interest.

When you are debt free and restart your pension, under the Dave Plan you would do 15% to retirement (so could be a combination of pension, Lifetime ISA and S&S ISA) and you would get your employer contribution and tax relief on your pension contribution. So you catch up on what you lost from not doing the pension and as you are now doing 15% for a long time to come.

The market will move during that time period and no one can say what it will do. So you could miss on a big gain or miss a big drop.

@Confusedcabbage

If you lose the work contribution of 7% then no. Go to a compound interest calculator, put that amount of money you would be giving up in and see what it would add up to in 35 years time. That is what you'll be giving up.

Thank you for that. It's really helpful

I have also contacted step change, so will see what they say but they haven't come back to me yet. I think I need to be a bit more patient and not rush into making a decision until I have all the facts and figures and can properly weigh up the pros and cons. I think at the moment I'm thinking with my emotions rather than being practical.

No, you’ll lose 12% pension contribution and it’s in the earlier part of your career. And it is tax free too. Make sure you move your debt around to be interest free though, or as low as possible.

There needs to be a minimum of 8% going into your pension pot (legal requirement now), usually 3% employer (legal minimum for them to contribute), 4% employee and 1% gov tax back.

So you'll need to check with your employer what the minimum is you can go to. It can work if your employer agrees to continue the 7% while you put in 1% but if its a matched scheme I'm not sure how likely that is? Worth asking though as it's short term.

What about a second job? Do you have a skill which you could turn into a side hustle?

Have you asked payroll/HR what your take home pay would be if you stopped/reduced the pension contribution? You can calculate yourself if you know how. Make sure you know how much it changes your take home pay.
Then allocate that money to debt pay off plus what you already have for that, plug the figure in to Debt Payoff Planner App (or whatever you are using) and get the snowball/avalanche debt free dates.
Is your 18 months realistic, is pushing as much money to debts but not changing the pension contributions really double the time period to be debt free?
Then run with a different reduction in pension, such as 5% from you.
See if you can find something that you feel is right for you.

You will lose the 7% from your employer so no I would not reduce to 1%. Have you looked at all other ways of saving money first? If you have a bad credit record and are struggling to maintain minimums and the interest rates are high then it might be best to do a DMP.

Think about the lost match on employer contributions and compound interest over time. Can you transfer the debt to a 0% APR and have it in one place, kinda hidden from view, but not a constant reminder? A bit like a student loan - you know it's there but it's not a big thing.

Good luck!

No, don’t mess with your pension

No it is not advisable to reduce your pension contributions. Try to find another way of cutting back.

@Clydie89

There needs to be a minimum of 8% going into your pension pot (legal requirement now), usually 3% employer (legal minimum for them to contribute), 4% employee and 1% gov tax back.

So you'll need to check with your employer what the minimum is you can go to. It can work if your employer agrees to continue the 7% while you put in 1% but if its a matched scheme I'm not sure how likely that is? Worth asking though as it's short term.

You can opt out of auto-enrolment.

Can you focus on reducing costs (can actually be a fun challenge in the short term) or making more money?
I’d reduce the contributions slightly at first and set to selling anything I didn’t need. If you’re patient sales from ebay and Facebook marketplace can add upto quite a sum.
Make a list of everything that you really want and need and then start by looking up the value of everything else on the ebay sold pages.

No. Don't reduce your pension payment. You'll get used to the money and after paying off your debt you'll say

"Just for a day trip as a treat"
"Just for a holiday"
"Just until after Christmas"
"Just for a new car"
"Just for some home improvements"

There will always be some really justifiable spend for that money.

Leave it in the pension. Keep the employer match.

The earlier you contribute the lower the percentage of your salary has to be.

2024 isn't that far away.

Keep paying into your pension!!!