To opt out of pensions

[pensionoptions]

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?

If you really have exhausted all other options, if it's the difference between keeping food on the table etc AND it's a short term fix until some other way of increasing your income can be found then it's worth considering.

But it really should be a last resort.

I don't think renting out house out would save us money. Surely we'd have to pay tax on the rental income.

We had a lodger until we had children. To have one again we'd need to move the children into a room together, which isn't a huge deal. But I'm not sure what lodger would want to be in a house with 2 children under 3 that doesn't sleep through the night. All I'd worry about having a stranger around my children.

Sorry to shoot down your solution, but this would definitely be our last resort after cutting out pension.

This is not about someone not able to make good choices with money.

I disagree.

Anyone who is even considering opting out of a good pension scheme rather than temporarily cutting back on luxuries is fundamentally not making good financial choices.

The childcare squeeze is temporary, and just requires a bit of belt tightening in this instance (because they have good salaries coming in). This few years of frugality is far less time than the OP is likely to spend in retirement.

Pensions imo are short term pain for long term gain. Always seems like a good idea to reduce payments or opt out to free up some money, until you reach your 50s and realise you either can't retire or will be extremely strapped for cash in your retirement.

Pension contributions from your dh work pension is free money, plus tax relief, if you're paying into a private pension you also get tax relief and the gov will pay in additional money for you.

If you can't pay your bills then I'd say you need to reduce or stop pension contributions, but if it's for a bit of extra cash then no, keep paying

Thank you for the math. He does have student loans, so these figures are really helpful.

I think I'd struggle to make an extra £230 post tax. But I think we could split it 50/50 earn extra and save.

Do you use the tax free child care scheme to pay for nursery as if not that’s definitely worth doing

Honestly you can save that on your food bill I bet there are lots of other things you can save on that you don’t realise.

I don’t judge T all getting marinades meat or microwave meals - but in this case those things clearly will need to stop

Many years ago, I /we were in your position. Expensive childcare, mortgage interest rates through the roof ( pun intended) and we were struggling. Both DH and I worked in local government, and I think that the delightful Mrs T had decided that local government workers could opt out of the scheme . Some of my colleagues decided that they would rather have the money in their pocket at the time , DH and I struggled on until our children were at school, and we didn't have such huge childcare costs. We cut our outgoings to the bone. The result is that years later we both retired with a final salary scheme pension ( I know the rules changed but ours were calculated at old rules) and we were comfortably off in retirement. Sadly, my DH died earlier this year, but I now have a surviving spouses pension from his workplace as well as my own. Those who opted out are now struggling.
I think you know what point I am making. I really would go without any luxury to keep a pension ,particularly a pension where the employer pays a substantial contribution as well , if you have death in service benefits then it is an even better bet.

Well I'd personally do everything you can to avoid it coming to that. Otherwise you'll be regretting it when your late 50's and retirement isn't that far off any more

Honestly I don't think we are managing our money that badly. We're just being screwed over by housing and childcare costs.

After deductions take home is:

£2075 DH
£1940 me
£160 child benefit
= £4175 a month

This month our outgoings are:

£1350 mortgage (on a 3 bed semi)
£1530 nursery (after tax free childcare)
£400 train ticket
£200 council tax
£225 energy
£30 water
£50 bt (internet, tv, and 2 sim only phones)
= £3785

So this month we have £390 a month spare to cover food, clothes, petrol, car upkeep, tv licence, etc.

Our mortgage was the max we could borrow at the time, when we were both working full time. Still ever so slightly cheaper than rent would be though.

If DHs pension wasn't so good, it would definitely make more sense for me to be the one working full time. Then him find another part time job locally without commuting costs.

Sorry everyone, I forgot to factor in the tax free childcare. So actually after childcare I'm bringing home around £30 a day.

I feel like I must have those figures wrong, but I suppose that £390 doesn't go far when you have 4 mouths to feed and kids that grow out of clothes so quickly.

I don’t think your mismanaging your money either. But needs must!

I agree with an earlier poster who said look into the cost of local childminders rather than sticking with the nursery. Preferably one who (in the fullness of time) would do pick-ups from school.
Also make the luscious exotic fruit a treat or use the frozen variety and add to yoghurt. Loads of brilliant frugal tips elsewhere on MN.
But you would definitely regret coming out of DH's work scheme - as someone else said, it really is short term pain, long term gain.

Thank you.

Suppose I'll just have to bite the bullet and do everything I can to cut back cost. Starting with the food bill. No more microwaveable rice pouches, marinated meats, and ready meals.

I'm just bitter that I'll be me that has to give up the tiny amount of spare time I get to meal plan and prep cheaper meals.

I'll try to get back to batch cooking and freezing to ease the strain a little bit. Maybe use the slow cooker so I can prep if I have a quiet moment in the day rather than cooking eating into my working time in the evenings.

I think your dh needs to share the burden of the interest labour! Kind regards

Oh god. Kind regards 😂 I am having a coffee break from work 😂

This is a terrible idea.
You are basically giving back part of DH salary (employer pension contributions) and the tax on his contributions.

You should also be extremely worried that you are not paying into a pension of your own.

By the time we want to retire the state pension age will have gone up (70? Older?) And the amount of the pension will be minimal. Everyone needs to look after themselves.

The mortgage payments are quite a meaty item.

You say £1350 pcm on a mortgage, if that's a repayment mortgage, say payable over 25 years, then by moving to interest only you might be able to get it down to, say, more like £550 pcm. even moving to say 35 years might shave off say £300 pcm.

The key rules of money management [aside from the obvious Micawber principle/maximising incomings/minimising outgoings as far as possible] are to, as far as you can, avoid tax, chase handouts, pay as little/receive as much interest as possible.

We are in the SE and our (excellent) childminder comes in at around £54 a day which tax free childcare brings down to around £43 a day. If you can reduce your childcare costs that will make a big difference so definitely worth looking into.

Batch cook a big pot of rice and freeze them flat in IKEA freezer bags. Boom. You've made your own microwavable rice bags as they take exactly the same time to heat up but for a fraction of the price.

How much is in each of your pensions and how old are both of you? This is an important factor

Sorry, the point I missed out - employer pension contributions are a huge handout, it'd be bonkers to let them slip.

Another one in the camp of please do not cancel payments into the pension. Honestly you will kick yourselves at some point in the future. The earlier the money is invested, the better. Compound returns!

Lots of pensions also have life cover included, make sure you aren’t giving up this valuable cover.

To get a good idea how much his take home pay will increase if he opts out, I suggest you visit The Salary Calculator website. You can input student loan info etc, you might discover you are giving up a considerable payment into a pension for very little extra take home pay.

Good luck with balancing the books, it will get easier once the children go to school.

I've just popped your figures into a universal credit calculator and it looks like you might be able to claim some of the childcare back which will help.

Do this and over cook every meal for a week or so and freeze. You'll then have a good supply of ready meals for whenever you need them. I can't remember the last time we made a meal for just one time only - even the roasts last to the next day and DH has everything zapped in the microwave on a Monday.

OP I agree that it's frustrating that you'll need to be the one giving up time to batch cook but remember you don't need child care for this time and can fit it in a and when you can - a couple of hours of week will make a big difference to your food bill.

Re fruit - so you buy a selection most weeks? We tend to just buy whatever fruit is on offer at any time, so we might have blueberries one week, the next it's a watermelon, etc.

I don't disagree that it's unfair you're being stuck doing even more between your DH working hours and the 'woman's work' thing, but I'd be sticking with the pension contributions as I bet his employer only puts in 12% if DH does.

Once your childcare costs drop you can pick up the luxuries again.