Stopping pension contributions to get mortgage

[Yogipineapple123]

I have an amazing pension. I contribute 10% and my employer adds 15%.

However, I am seriously considering opting out for a year or two so I can afford to buy somewhere. My 10% is £300 per month.

I bring home £2200 after tax and pension.

£1050 goes on rent/bills. £100 on monthly direct debits. £120 on travel. £200 on savings. £600 food and discretionary spending.

I am going to buy via shared ownership, as my rent is money down the drain. It will cost me about £1100 per month. (I saved a deposit when my rent was cheaper.)

I am considering cancelling my pension as I am worried about surprise costs when I’m a homeowner. £300 per month to save into easy access savings would really make me feel more secure in case anything goes wrong or rates go up again.

I know this makes me poorer in the long term.

In my circumstances, is it still a bad idea?

Don’t stop your pension. Could you get a lodger instead?

Can't you reduce the amount you pay into your pension? Where I work you can pay what you choose... obviously the employer then pays less... but that way you'd continue to keep your pension pot ticking over.

Don’t stop your pension - you will really regret that, I would cut right back for a few months until you have a little pot of savings

Personally I wouldn't do it. There will always be some reason why it would be handy to have the extra money, so ask yourself whether you'd really be willing to go back to 'losing' it in a year or two - chances are you'll end up putting it off. Also, I know my employer always advised anyone thinking about doing this to consider that the pension scheme may change in the intervening time, so you could be coming back to worse terms than those you've currently got.

I will be buying a one bed flat otherwise I’d have a lodger in like a shot!

You won't increase your take home by £300 - that's the gross amount. You'd be taxed and NI'd on it, so maybe £200 a month would be added to your take home.

I'd really caution against it though. Do you do the tax free savings? It's not much a month but every bit helps, and do you have your savings in a LISA?

I wouldn’t raid your pension while your discretionary spends are that high.

As a PP has said, you’re essentially giving up £750/month into your pension for the sake of an extra £200/month take home.

Look at your discretionary spends - if it’s just you then you should be able to get your food spends down to £200/month without having to restrict yourself massively. Add on another £100/month for a few years as discretionary spend, and from what’s left, you’ve found your extra £300/month to chuck into savings.

Is your current deposit in a LISA to maximise the benefit?

I’d fuck my pension off in a heartbeat if I could. I need the money more now, plus governments can move the goalposts of when you can take it. It’s like 58 or some shit now. Reduce it for a few years if you can. On a side note shared ownership is a big fuck no

I'd cut back the discretionary spending before coming out of the pension scheme.
You have the 200 savings a month as well. I think you will be ok.

orangegato State retirement age currently late 60s (depends on when you were born) with plans to move it to 68.

I was tempted to pause my pension — until I did the maths

www.thetimes.co.uk/article/52a26626-9365-11ed-b849-7c425fb89a82?shareToken=5c6fa440cdf811cf485faf917f08fc62

I would reduce before stopping.

Also, in shared ownership unless you staircase/move on elsewhere you'll need to pay rent/service charge during retirement so will need more money at that point

No, that would be a terrible idea - at the very least, contribute the minimum amount you need to contribute to get the maximum amount your employer is willing to match - that's basically free money.

You also need to make sure it's invested appropriately, don't leave it in the default fund they will have put you in.

Find other ways to cut down on spending to free up more for savings, think twice about shared ownership, and look into things like the LISA to help boost your deposit savings.

When I bought my house my mortgage provider said it was only affordable if I stopped paying into my pension and asked if I was prepared to do that. I said, yes, absolutely, of course I will, and obviously never did! My point being that if they think it could be affordable without the pension they may give you the option to not pay it.

I wouldn’t I did this unintentionally in my mid 20s. My previous employer provided a good pension when I was starting out so all our money went on a house and fixer upper. I didn’t contribute at the time. Now in public sector so db pension but I lost years of compound interest by not contributing.

That is interesting, so your mortgage provider asked you to stop contributing but then didn’t check you actually did?

I suppose I can see if I can bring my discretionary spending down to £500 per month - but it always seems to be £600.

Do not stop your pension.

When you are young, every £1 is worth far more in a pension if invested well and for long enough. If you stop your pension you are giving away free money.

Don’t forget that every £300 you put in your pension the government gives you an extra £60 straight away in tax relief.

That might not sound much, but have you ever done a spreadsheet on pension contributions?

If an 18 year old puts £3,600 into a pension (£300 a month), the government adds £900 giving a total of £4,500.

Your company is then also giving you 15%, so another £450 a month (£5,400 per annum), which the government is also giving an extra £1,080 annual tax relief making a total of £4,500 + £7,480 = £11,980

That £12k is costing you £3,600.

If that 18 year old person does not add another penny, and if that £12K had been invested in an S&P500 tracker for 40 years, and if the S&P500 behaved on average like it has the last 60 years, then at age 58, that person would have about £500k in their pension.

Obviously that ignores inflation so in real-terms it would be about £120k, so about a ten-fold increase in real-terms value.

Therefore you need to keep adding your £ every year - which using the same scenario every year (and not increasing the amount put in as inflation and wages rise) would mean a pot of £5 million at age 58, which again doesn’t include inflation so would be about £1.5 million in real terms - which would buy a real terms pension of about £60k a year for 30 years.

My advice, pay as much as you can into your pension when young - but do buy your own home too. Your £200 a month into accessable savings should build up for the buffer you want for emergencies.