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?

So not to ask the obvious question, (maybe someone already did and I missed it). When was the last time you raised your rates?

You either need to cut costs or earn more. A lot of self employed/Freelance people fail to keep up with inflation when it comes to setting rates. Do the math, you might lose some business, but that can be offset by the increased revenue for the ones you do keep.

Cut back on spending in the short term while you have childcare costs. Do not opt out of the pension, it just saves the employer money. Would your DH accept a salary of 12% lower than his colleagues for doing the same job?
Also check if the pension scheme provides death in service benefits or any other extras, if you opt out you don't get those anymore.
Apart from the difficulty pp mentioned of finding the extra money to contribute in future if he does want to opt back in, if the employer changes the scheme at any point in future he may find himself only able to join a less generous scheme later on.

I am totally in the minority here, but I speak as someone who has ALWAYS opted out of every pension scheme I was ever offered, in every job I have taken. Even the recent government one for those without a workplace pension.

I've always needed every penny I've earned and couldn't afford to be putting money away for the future, nor did I wish to join schemes which I wasn't particularly happy with.

However, I have accepted that come 66 years I will be living on a state pension only. I have a lifestyle which suits this, I won't have a car and will happily spend my time walking in the country lanes, reading, painting, writing and taking the weekly 'bus to Tesco!! I'm not far off retirement now and work in a low paid job which leaves me a similar amount per month, so I know I can do it.

If this is what you want for your older years, fine. If you are wanting a different type of retirement it might be worth keeping the pension arrangements you have.

What seems to be missing from the sums is what the actual deal is with his employers pension (mine pays 15%, I only have to put in 3%, though I put more) and how big your pension pots currently are, plus your ages.

I mean, if you've got a million and a half each it's a different question to if you've got £2,500 and he's got £40,000!

More than other people your age isn't a good barometer.

I'm aiming for £500k in mine by age 55 and I do regular tracking and projections. That would probably bring a pension of £15k, excluding drawdown (i.e. maintaining the capital, though I dint need to maintain it). If you were to aim for that, what do your projections look like?

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

Are you being realistic here? Christmas, birthdays, haircuts, prescriptions, dentist, insurances, household repairs, optician...a

Look for an online Statement of Affairs calculator and do a realistic budget before making any decisions. You need to include everything, even the things you only pay for annually.

Honestly, I don't know. This situation is all pretty new to us. So I've not come across a month where any of those things have come up.

We had excess in our account before child number 2. This dwindled down while I'll was on maternity, which was always the intention. Then I returned to work 6 weeks ago after 6 months off, and the reality of it all has hit hard. I've never seen our account balance so low.

Mine is around £25k and his is around £100k.

We're mid 30s, so another 25-30years of contributions to make.

I thought that was really good, but now you've got me worrying that it's not.

Pension contributions notwithstanding, your DH’s take home seems fairly low if he’s also incurring the £400 pcm travel costs. Have you done the sums on whether he should try to work a 4-day week (& you pick up more work that day), has he asked for flexible working because of childcare e.g. condensed hours 5 days over 4 etc? Could he WFH more to save on commute costs? Has he asked for a pay rise lately?

Put it all on the table and see what you can do. Don’t dismiss any ideas as unworkable.

Your childcare bill + mortgage is the killer, obviously.

You need to do a projection- how many months of shortfall until your childcare bill drops?

When did you last remortgage, when will you need to again?

Can you cut your childcare costs at all via nanny share, childminder, school-attached nursery when DC1 is eligible etc.

It’s tough.

Also, where are you shopping? Can you look at cheaper places for fruit etc? I get berries for my DC every week but get the "wonky" ones from Aldi and then divide into little pots for lunch boxes. Could you do a little fruit salad so you mix up her favourites with some cheaper stuff? Add some Greek yogurt to make it filling?

Go at your food bill before the pension. Your kids are little, they'll soon adapt!

Aldi do frozen fruit (raspberries, strawberries not the forest fruits too tart to eat!) I add them to porridge or wheetabix when heating the milk.

Try and make meals a day ahead of yourself so you can have them as soon as you get in and then do prepping for following day once kids are asleep.

Is there any scope to extend your mortgage term? May not be possible on current deal but worth checking. It will obviously cost you more in interest but given you have a short term issue as a result of childcare you could overpay in a year or so to make it back up.

Given there is an end in sight I would tighten everything I could now to just try and get through to some free childcare which will make a massive difference

Swap your broadband from BT. They're really expensive. Cancel the TV. You'll probably be to knackered to actually watch anything to the end.
We went to Plusnet (which is still BT) but EE (also still BT) have offers on too.
Stop the trips to the NT places. Ask MIL to cancel it or buy something else that doesn't incur travel costs instead of renewing it. Maybe - if it's a family gift thing - see if she'll treat you to an annual trip to the zoo instead?
We've 2 older low mileage cars, running costs for each one (exc petrol) is c£500-600pa (MOT, Tax, Insurance, basic service/odd tyre, Greenflag covering both).
House insurance - is yours included with your Mortgage? Shop around and see if you can get a good deal elsewhere.
TV license is £159pa too.
Prescriptions are £9.35 per item.

I think you've "lost" quite a few things - and it's easy to do.
Set up a spreadsheet for everything - even takeaway coffees/lunch - that will give you a more accurate figure.

I think if your DH can get compressed hrs, that would help massively. Anything to avoid scrapping his pension - speaking as someone whose DH has just hit 60 and got his - it's not going as far as it would have a year ago, obvs..

Paying £400 pcm (£4800 pa!) to commute to a job with a large corporate in the SE which then only pays £40k pa sounds bonkers even if the pension is good. It’s an employees market at the moment - has he looked at moving on to improve his overall reward package?

I was also going to suggest upping your consultancy fees.

If you’re billing an average of 12 days a month, even adding £25 net to your daily rate will mean an extra £300/month.

I get where you're coming from, OP. But I agree with this.

Absolutely bonkers unless it is honestly to put food the table for your hungry kids!

Can you see yourself having the discipline to start contributing again? You will get used to that extra couple of hundred.

if you were also paying into a pension I’d say then it maybe viable for the short term, but considering you aren’t I really don’t think it’s advisable.

Go back over a year of bank statements. Any plans you make will be no good if the information you use is inaccurate.

my childcare fees

Why "my"? Should come out of the whole pot

Get a longer mortgage etc
Dont cut pension contribs

The compound interest you lose will never be earned back.
If you are only bringing in £20 a day after bills, is your H paying half the childcare?
If its the last resort, see if you can reduce his pension payments rather than cancelling them. As pp have said, it can be hard to rejoin.

I think it's a silly idea to give up the pension but having said that £390 for everything, including food is, imo, a very small amount. Ready meals, children's activities and days out don't compute from that amount.

Either you have to earn more or reduce your outgoings. Agree with potential suggestions of flexible working and potentially a Saturday job or couple of hospitality shifts to tide you over this lean period.

Like others I'm coming up to retirement. Pensions are very very important.

We also had 2 children under 2. You just have to accept that while they are little, you can't do a lot else other than cover bills. The good thing is that small children don't need lots spending on them, so I'd suggest cutting the days out (picnic in the park perfectly fine) and fancy food. The impact of doing that for 2 or 3 year is going to be less than DH opting out of his pension.

As a pp said, I would look at your mortgage and would definitely not reduce pension contributions given the level of employer contributions.

I work for a financial services company and your mortgage provider should be able to help, whether that's by reduced payments for a period, change from repayment mortgage to interest only for a period or a term extension. As your mortgage is such a large chunk of your income, this is the obvious place to look to make a significant cashflow change in the short term.

If you know your mortgage balance, rate and remaining term it's fairly easy to estimate what the impact of the above changes would be to your monthly repayment.

Why is his take home only £2075?

if £400 a month is 12% the he’s earning £40,000.

using a basic calculator he should be bringing home £2247 or £2192 depending on his SL.

This is a good point - it's over 10% of his salary! Either changing job to reduce the commute, or moving house, could be a good idea to address this.

I do seriously wonder if you should look at extending the term of your mortgage. Even if you just fixed on a 35 year term for 2 years until the childcare fees are down it might make things more manageable.

Currently as you well know, your fixed costs are so high that they dwarf most potential savings.

£1350+1530 = £2880

So afte just mortgage and childcare you have £1,300 to spend on all your other bills plus food and other living expenses.

Things like your BT bill sound fairly reasonable if you're also paying for 2 mobiles on it. Energy is expensive given October's price rise hasn't happened yet - worth looking at your usage maybe?

Does your husband have to commute in every day? £400 a month seems a big commuting cost on his salary? It feels like this is the straw that breaks the camel's back of this budget. I assume there are no options that are any cheaper - like cycling or driving to a different station or cycling across London or really pushing for 3-4 days a week from home? If it's not a job that can be done from home is it a transferable job? It would need to have a London weighting of £8k per year compared to a job with 0 commute costs - he could take a job he could cycle to for £32k a year (plus equivalent pension contributions so might have to up that a bit) and you wouldn't be any worse off. Jobs on £40k can be relatively hard to come by, but £32k is a lot more doable.

Maths below:

On a graduate paying tax, ni and student loans, the effective tax rate from 25k is now 42.25% so for anything you earn over that you lose 42.25p in the pound. So if you have to spend £400 a month after tax to get to your job this is 400*12/0.5775 = £8,300 per year pre tax cost. That shows you the pre tax pay cut you could take if you were able to remove that post tax cost without being worse off. It needs adjusting for pensions etc but it's a useful guide to remind you just HOW expensive that commute is when it's something you could potentially exchange out for a cheaper version.

That is a superb pension and you need to make that the absolute last resort.