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AIBU?

Share your dilemmas and get honest opinions from other Mumsnetters.

Original poster

To opt out of pensions

165 replies

pensionoptions · 09/08/2022 13:10

Sorry, posting here for traffic. And name changing cos of figures.

AIBU to consider opting out from pension contributions to free up a bit more money each month?

Disclaimer: I'm good with money, we are careful with what we spend. But I'm not that clued up on taxes, savings, etc.

Things have just got so expensive, we need to free up a bit more money each month.

I'm self employed and haven't contributed to my pension in 2-3years, cos I just can't afford to.

My DH works for a large corporate and contributes 12%, in return his employers also put in 12%. This is around £400 a month pre tax off his salary.

I think if he was to opt out he'd get a extra £300ish a month into the bank. However he'd be loosing £800 a month into his pension.

He thinks it's a good idea. I'm less convinced. But honestly don't know where else we can get £300 a month from. Maybe getting into debt or freeing up some equity from the mortgage be a better option?

OP posts:
Sirzy · 09/08/2022 13:13

Can he reduce his contribution?

what’s your plan for retirement?

abovedecknotbelow · 09/08/2022 13:13

I would do everything to not give up the pension. 24% is a pretty chunky contribution.

Any option to increase your or his salary?

saveforthat · 09/08/2022 13:15

Employers pension contributions are free money. So is tax relief to a certain extent although you pay tax when you draw the benefits. How old are you?

44PumpLane · 09/08/2022 13:15

Agree with abovedeck, do anything you can to avoid giving up the pension contributions.

Matched to 12% is generous and you really should they and take advantage of it.

Gazelda · 09/08/2022 13:16

What would you use the £300pcm on? If it's to pay the electricity bill or buy food then I'd maybe consider it.
If it's so you can afford Christmas gifts, monthly takeaway etc then no, I wouldn't.
My pension is sacrosanct to me, I'd go without a,most anything rather than take advantage of the tax benefits of pension savings, not to mention extra pay from employer in the form of pension contribution.

babyfrenchie · 09/08/2022 13:16

Do not do this!!! Can you find a part time job to make up for the shortfall?

BitterAndOnlySlightlyTwisted · 09/08/2022 13:17

I wouldn’t. The loss of all that free money from the employer would be very short-sighted in my opinion. Given that you’ve stopped contributing to your own pension is a compelling reason not to cease contributing to his.

I’d be concentrating on what cutbacks could be made elsewhere, even if that meant real hardship

overnightangel · 09/08/2022 13:17

If you opt out of a pension where your employer contributes 12% you’re an absolute fool

CounterTop · 09/08/2022 13:18

He would be nuts to give up such a great pension. By the time you allow for the tax benefits and his employer’s contribution, he’s getting a return of over 100%.

Livpool · 09/08/2022 13:18

I work in the pension industry and would never advise anyone to opt out of a pension scheme.

Also - you won't get back as month as your hunk each month as you will pay more tax

RagingWoke · 09/08/2022 13:18

Long term I don't think opting out of pension is a good idea. With an ageing population and unknown inflation that income will be needed when the time comes. I'm not an expert but have sought advice previously.

However, going into debt now for energy bills is obviously less than ideal. Depending on age is it feasible to reduce pension contributions temporarily and then increase again when you can? Eg if he's a way off retiring and has promotion/progression opportunities where he could up contributions to build up the pension again it could be negated although personally I wouldn't opt out entirely.

CounterTop · 09/08/2022 13:19

And I know it’s not nice to hear, but if your self-employment can’t sustain you, maybe you need to ask yourself if it’s a viable business.

saveforthat · 09/08/2022 13:19

Although you really should be contributing to yours as well It seems a bit onesided.

MintJulia · 09/08/2022 13:23

If 12% = £400, that implies your DS is a 40% tax payer.

If he stops his contribution completely, he will lose £400 a month from his employer and £160 tax relief from the govt.

So you would lose £560 a month long term, and only get an extra £240 in his salary cheque.

Common sense says this has to be a very last option by most people's standards. Are there no other economies you could make?

ilovesooty · 09/08/2022 13:23

No way should he consider opting out of the workplace pension.

Original poster
pensionoptions · 09/08/2022 13:25

I work 4 days, spread over 3 full days that I have childcare for and some time on the evenings/weekends.

But still after childcare, tax, student finance only bring home about £15-20 a day. Even an extra day every week wouldn't bring £100 a month in.

My DH wouldn't have the time to take on extra work, with his commute he's out the house 7am-7pm, 5 days a week. I imagine it's also against his contract.

Pension wise the plan is that I'll start putting money in once's we stop paying massive childcare bills in a couple of years. In retirement everything will come in and out of the same account as we do now with our salaries.

OP posts:
Testina · 09/08/2022 13:28

Defined Benefit (Final Salary or CARE) schemes still have contribution rates. So can you confirm that this is definitely Defined Contribution? Because it’s a no to opting out of either to me, but it’s a never in your bloody life, extend your mortgage instead type no if it’s a DB scheme!

I’d make this an absolute last resort and do the sums on extending your mortgage instead first.

Is the 12% a match, so your husband has to pay the full 12% to get it?

balalake · 09/08/2022 13:31

Don't do anything without proper professional advice.

NoSquirrels · 09/08/2022 13:33

Is your business actually viable at a 4-day level? Would you be better off working less hours until you’re free of childcare payments?

Original poster
pensionoptions · 09/08/2022 13:33

saveforthat · 09/08/2022 13:15

Employers pension contributions are free money. So is tax relief to a certain extent although you pay tax when you draw the benefits. How old are you?

Early to mid 30s.

Two children.

We get our free hours for one of them in April/May next year which after top up will save us around £200-300 a month. Although I can see nursery putting there fees up again before then.

OP posts:
NoSquirrels · 09/08/2022 13:34

In retirement everything will come in and out of the same account as we do now with our salaries.

You can afford to stop paying into his pension.

For each month/year you lose, you’ll have to pay back much more in future. Compound interest is the key.

wibblewobbleball · 09/08/2022 13:34

I did exactly this when DH suddenly lost his income with no warning as we needed the cash. What I will say is that I am now finding it next to impossible to rejoin the pension scheme as it's hard to then cut that figure out of your budget again. I wouldn't recommend it.

Iamthewombat · 09/08/2022 13:34

Don’t! As others have pointed out, you would be barking to do this.

NoSquirrels · 09/08/2022 13:35

NoSquirrels · 09/08/2022 13:34

In retirement everything will come in and out of the same account as we do now with our salaries.

You can afford to stop paying into his pension.

For each month/year you lose, you’ll have to pay back much more in future. Compound interest is the key.

Argh!

You CAN’T afford to stop paying into his pension.

Onandupw · 09/08/2022 13:35

INSANE thing to do unless you are literally homeless and can’t eat.

the long term gains of the pension contributions will be significant and the short term benefits just can’t be worth it unless as said you would otherwise literally be homeless