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?

How far are you off retiring and is there a chance of recovering that pot at some point at the line? Really depends, if you're nearing retirement or it's like 30 odd years off

Yeah, that's not super high Im afaid. I'm about 5 years older than you and DH and I have combined pensions of c. £250k in defined contribution pots, plus a defined benefit pot valued at c. £390k. We're not super high earners either.

Definitely pursue any other option you can. Extending your mortgage could be a good call.

Nursery childcare around me is £70 a day you might be lucky and find the odd £60 but they are not as good. The government give you £2000 a year/ £500 every 3 months.
Childminders are hard to come by and often don't work after 5pm or don't work all week!
Childcare is a nightmare in the county.
Many people work for very little while the child/ children are smaller but then the short school days start and holidays so you never win!

We are in a very similar situation OP, two DDs and DH and I are mid 30s. DH has £90k in his pension and I have £40k. It may be more than many people our age but it absolutely is not enough, look at some of the pension calculators to show you what you could get in retirement. I had a nasty shock when I first looked!

So I would do absolutely everything else before I cut any pension contributions. When you get some free hours from nursery that will help, don't just absorb the extra money.... divert it straight to building back the savings pot if you're used to living without that money each month. This is what DH and I did when our nursery bills reduced and it has helped.

In reality OP these years of extortionate childcare costs are very temporary and go by quicker than you think they will. If I had to live on beans on toast for most meals for a little while then I'd do that before touching the pension.

Whether it's "enough" depends on what you need/want in retirement.

I work on a notional 3% investment return, so to draw that 3% with no erosion of capital (you can drawdown capital too, I plan to use that for new car, holiday, bigger expenses, but obviously as you drawdown your income will reduce) on £125k you'd get just over £3k pa. If you work on today's figures the state pension is c£9k for a single person, not quite double that for a couple, but say that means you'd be living on c£20k. Not really doable is it, even without a mortgage.

The usual figure to aim for is around £600k now I'm afraid. Per person, but not exactly double that for a couple.

You need to do some projections.

And you need to maintain that payment in.

As a pp said, look at your husband's job, commute and take home carefully. Him changing jobs might be the best investment you make right now!

Also, though, most people I know were really broke for the first five years of their kids' lives, so don't beat yourselves up!

Definitely not.

Don’t do it. His pension probably has a death in service benefit which means if he dies you get eg twice/three times his annual salary plus a pension each month. If he did stop paying into the pension (don’t!) you would need to spend some money on life assurance to replace this.

As you aren’t currently paying into a pension you need life assurance too (if you haven’t already) in case you die first. (Sorry to be so morbid, but it happens, and then the surviving spouse struggles to raise the kids with no income)

Our pension scheme has a “50:50” option where you pay in half of your normal contributions for half of the normal benefits. It’s not ideal but less bad than stopping totally. Could your DH enquire if his scheme has something similar?

Very shortsighted to do this. Don't!

Any interest rate under 12% would be better, never mind the compounding. I would not pass up the pension in light of the match and you not contributing.

Citing £600k per person as the figure to aim for is unrealistic and disincentivising . You don't need anything like that in order to have a reasonable retirement.

If you’re self employed are you paying yourself in the most tax efficient way? Obviously if you are subject to IR35 you may not have much choice but running a limited company is not that complicated and may be more efficient!!

@CaptainofmyownShip unfortunately that is the reality. Even to replicate the average wage will need a substantial sum saved - and the challenge will be for the half of the population earning over the average wage who will have to accept a notably reduced lifestyle in retirement if they don’t have substantial amounts in their pension.

indeed there is a whole issue around the correlation between happiness and money etc etc

but for the main part most people want to have the same level of lifestyle in retirement.

there is a big issue in the uk about denying the reality of the sounds needed to find retirement- not to even mention decedent care for those that get to that stage.

Well, I wouldn't want to disincentivise anyone by telling the truth, heaven forbid.

But, you don't have to take my word for it, there's about a gazillion pension advice websites which show how much you need.

£600k only gives you an income of £18k. That's just reality. And most people probably want more than that.

But the key is to look at what you want to live on, when you're going to want to draw it, and how much you need to achieve that. There are plenty of online calculators to help with this.

She has literally done the maths for you and spelled out the numbers. Which bits do you disagree with? The value of the state pension? The projected investment return? The irrefutable fact that as you draw down on capital, there is less of it to produce a return?

@IfIGoThereWillBeTrouble whilst I agree generally with you about looking for all the implications, “His pension probably has a death in service benefit which” is unlikely given OP has confirmed it’s a DC scheme.

True, these days most places have separate life cover for employees, not linked to pension, so even if you opt out of the pension you're still covered.

It's nuts to give up on pensions. They are effectively deferred salary collected for years after you retire. The tax relief and employers contribution are significant components which would be lost. Reliance on the state pension alone would be foolish and the road to a poverty stricken old age.

Eh? Why are you leaving yourself so vulnerable in the event of a divorce? Which happens to 50 percent of ppl

Weird. Madness.

You never know if/when your relationship circumstances may change. Pay into your pension and do not rely on your DH's contributions.

@CaptainofmyownShip if you think £600k is a disincentivising figure to aim, do the maths to work out how future retirement will cost!

That amount would actually be a fairly meagre existence and the absolute minimum if you plan to live well and to a ripe old age.

Really? Most places offer life insurance cover for employees? I really don’t think that they do.

Crikey, what a thing to get bent out of shape over.

Let me rephrase.

These days, most places that have life cover have it separate to the pension.

Better?

Death in service benefits are still part of pension in the public sector.

I work in the public sector and ours is most definitely separate to the pension. I know this because I work with the provider of both the pension and the life cover and they are different firms and every employee is on the life cover, irrelevant to whether they've joined the pension or not.

But then, we don't get the DB pension, we get DC, which is what the pension being discussed here is.

Future You will curse Current You for making them be poorer in retirement. Don't do it!