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.

Thank you all so much for taking them time to reply. The information is definitely giving me more to think about. It's maybe not as beneficial or simple as I'd made it in my head.

I think I need to sit tight (I've only just made the minimum payments this month) and see what step change come back with as there's lots of implications / calculations that I think need to be considered.

My grasp of figures and maths is shocking at times so I think having experienced professional help is probably a more sensible option.

Just want to say you're all lovely. I was so worried about posting as I feel rather ashamed by it all but you've all been so positive and helpful.

@hesterstanhope

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.

I've already cut back on absolutely everything. I recorded all my incoming and outgoings before even thinking about tackling the debts so I could make sure I knew what I could put towards them. Hopefully step change can go over this and see if they can spot anything I haven't.

Sadly everything in my house is second hand anyway as I never had the money during the relationship to spend so not much to sell.

The house is in a poor state but it's decorative not like things are falling apart so I can live with that.

I work full time in quite a challenging job so a second job as someone else mentioned would be too much and I think my mental health would suffer. I think I'd end up feeling even worse as I'd be resentful that again because of him I am having to do something I am unhappy with.

Remember to factor in tax - pension contributions come off your salary before the tax is calculated, so if you're a basic rate tax payer, you'll only get £80 for each £100 you don't put into your pension.

Because of the matched contributions from your employer, it's likely that the loss to your pension will outweigh the interest you're paying on the debt. 2024 is not that far away, so I'd keep your pension payments as they are.

If you set up a Debt Management Plan with StepChange, they will try and get all creditors to agree to freeze interest & charges in your debts. You can also ask your creditors to do this yourself, not all of them may agree but they should at least consider it to stop your debts from increasing.

It depends on the interest rates of your debt, but I would think that you are likely to be better off carrying on with the pension, because of the employer contribution. 2024 also isn't that far off.
The compound interest is surely a red herring because the same logic would apply to the debt.
So a pension on average makes 7% a year plus the 7% from the employer. So if your debt interest is more than 14%, it would be better to pay that off first.
On the other hand, reducing your pension for 18 months isn't a huge deal and if it makes you feel better to get rid of the debt, that is also worth something.
The best thing might be to move the debt to the lowest possible interest rate and carry on as you are.

Definitely don't stop or reduce pension. For every £200 going into it you're only paying £80. Think my maths is right. I appreciate clearing the debt seems like a priority but it is okay to take longer and your pension is so important. Move the debts to the best interest you can get and just chip away at them. You will get there.

Please, DON"T stop/reduce your pension. You are getting tax relief, employer's contribution, and compound interest over several decades that will make that a far greater sum than what you'll save on debt interest. There's also the danger your won't restart your pension until much later as you'll get used to the 'spare' money.

Believe me, I have a pension. It's only in the latter years of work that I appreciated what a huge benefit I had for (reluctantly) paying out for all those years. Contributions made in the early years are the ones that count.

If you want some serious advice from people who really know, go to the pensions threads of MSE; excellent canny people there.

I definitely wouldn’t reduce pension payments when the employer matches them. There’s usually a limit to what they’ll match so you’ll never get that money back. And, as others have pointed out, due to tax you won’t take home as much more as you’d think.

Don't mess with your pension. It might sound ok to do it now but any interruptions in your pension now will impact on your final pension.
Please try to find alternative means.

I'm glad you've decided against. When I was your age paying into my pension just seemed a waste of money when we were struggling to get from payday to payday. Now that my pension is all I have to live on, in am so grateful for every penny I and my employer paid into it.

You’ve done right. It would cost you twice as much.

£6k is not a huge amount although I know it may feel like it. You will get there, you’re doing great.

Life goes by so quickly. Your future self will really thank you for leaving your pension payment in place.
If I could go back in time the (rather boring) advice I would give my younger self would be to pay more into my pension.

@lidoshuffle

Please, DON"T stop/reduce your pension. You are getting tax relief, employer's contribution, and compound interest over several decades that will make that a far greater sum than what you'll save on debt interest. There's also the danger your won't restart your pension until much later as you'll get used to the 'spare' money.

Believe me, I have a pension. It's only in the latter years of work that I appreciated what a huge benefit I had for (reluctantly) paying out for all those years. Contributions made in the early years are the ones that count.

If you want some serious advice from people who really know, go to the pensions threads of MSE; excellent canny people there.

Thank you I'll have a look on there as I could do with educating myself a bit more on pensions in general.

I'm thinking it's definitely not going to be a good thing to do now after all the advice on here, so will work with step change to see what the other options are, perhaps seeing if I can reduce the interest any further etc.

A few years of being reminded of things while I'm paying it off is going to be nowhere near as bad as being reminded all throughout by retirement!

It's not a huge sum in the grand scheme of things and 2024 isn't a long time ahead though it may seem like it and you have that longing to tidy up and clear away instead of having it hanging over you.

But it would be good to find an alternative way rather than giving up the considerable benefits of your current pension contribution arrangements.

Do you have scope to increase your mortgage loan by £6000 at a lower interest rate than you would pay to clear the debts?

Make sure that if you do go down the debt management plan that you are not paying a debt management company, these companies have no more power than you to agree debt management plans and once on most creditors freeze interest whether you diy or via a Company. You can do an income and expenditure to really work out what you have to play with and it may be better to get a loan or low interest card to.move it to. Eg £6k on a 5 year loan is probably around £130 a month. So def do your figures as, whilst debt management plans are good in the right circumstances your credit file is still affected. You need the path of least cost and harm.

@finallyreadytobedebtfree

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 work matches up to 7% that is a 100% gain in your money off the bat. I get wanting to reduce debt quickly, but think your plan is short sighted. I would leave pension as is and pick up extra work, sell on eBay, or find places to cut to accelerate debt reduction.

£600 a month for ten months - can you cut right back on outgoings to get at least £500 per month squirrelled away?

I wouldn't mess with the pension btw I'd rather check all outgoings and cut back wherever I could

Easier said than done but given we're in lockdown we're not spending as much anyhow so now could be perfect time to bolster up a savings pot to clear the £6k

OP, as well as the pension threads on MSE (which can be a bit goggle inducing at the expertise, but don't be put off form asking simple questions), have a look at the 'Debt Free Wannabe' threads.

Again, very useful advice from people who know and who will go over your budgets and offer practical ways forward.

YABU.

At 36 reducing your pension is completely the wrong thing to do. Please don’t do it, keep paying in to your pension. It’s vital, especially for women, especially if you’re single. Pension payments go out before tax, so it isn’t as big a hit as you think.

Well done on leaving your abusive relationship, and well done on getting your debts down. Just keep paying them off, and you’ll get there. 2024 isn’t that far away. Ring Step Change debt charity if you need more help/advice.

Do not ever reduce your pension contributions. Ever.

Contact the charity Surviving Economic Abuse. I believe that they can put your case to the creditors and ask them to write off your debt. Financial institutions have apparently committed to treating victims of financial abuse better but there is a long way to go. I would see if this charity can help you before stopping your pension contributions.

I stopped paying into my private pension in my 20s because I had a lot of debt to clear (no workplace pension). I now wish I had kept up with even reduced contributions. I have just started again and can pay enough in now to have a reasonable income in retirement but I really wish I hadn't lost out on all those early years. I was right to do it as at one point I was actually going further into debt to service the pension but it is a shame I let myself get into that position (very different from your position as mine was self inflicted and yours really isn't).

Yanbu
The faster you clear the beast best the better you will feel
Try and always act like it’s the last week before payday !
Well done on getting out , it’s never easy

And , having RTWT - agree to as a first step review every single outgoing and check if they can be revised before doing anything
I’ve saved £100 a month that way

This is what I would be looking at:

1. this is not my debt: how can I get lender to write it off or him to pay what he owes?
2. can I roll this debt into my mortgage - 6k over 10-20 years at better rates less painful than credit card debt
3. I need to look for a job and get a 3-5k pay rise from the move
4. Could I take a lodger in my home for a year (7.5k allowed per year, tax free)