Thinking of cancelling pension
Discussion
Okay this either going to go well or really badly with people telling me how stupid I am but bear with me I've not committed to anything and am just considering the following:
So the company I work with at the moment has recently had to restructure the payments and payouts because they were losing too much money. Okay so I don't know the exact details but basically you have to pay more for longer to get what you would have got before. In other words the scheme has 3 levels: Platinum, Gold and Silver. All 3 schemes remain the same in payments but Platinum payers will only get a payout the size as the old Gold Scheme, Gold payers will only get a payout the same as the old Silver scheme and Silver payers will get a reduced payout also. Basically we have to pay the same to get a lower level scheme. Also they have capped the lump sum option you could take when you retire to £30,000.
Okay fair enough but all this had made me question whether at such a young age (23) I really need to be paying into a pension at all. Okay I know the earlier you start the better but I'd like to save up and do a few things in my youth instead of just working all my life to retire.
So here's what I'm thinking. I currently pay £19 a week for my pension. So what I was thinking of doing is cancelling my pension and instead putting the £19 a week along with an additional £11 into a savings account.
This way I could save £1560 a year. With that in a few years I could take the kids to Florida (which I'd love to do), or buy a TVR Cerbera, or if we're still renting, the money saved could be used on a deposit for a house.
I've promised myself that if I did cancel my pension I would re-start is again when I reach 30 and pay for the most expensive scheme to make up for the years I've lost.
So what do people think, should I cancel my pension until I'm 30 and live a bit or just wait for another 40 odd years until I retire before having fun?
So the company I work with at the moment has recently had to restructure the payments and payouts because they were losing too much money. Okay so I don't know the exact details but basically you have to pay more for longer to get what you would have got before. In other words the scheme has 3 levels: Platinum, Gold and Silver. All 3 schemes remain the same in payments but Platinum payers will only get a payout the size as the old Gold Scheme, Gold payers will only get a payout the same as the old Silver scheme and Silver payers will get a reduced payout also. Basically we have to pay the same to get a lower level scheme. Also they have capped the lump sum option you could take when you retire to £30,000.
Okay fair enough but all this had made me question whether at such a young age (23) I really need to be paying into a pension at all. Okay I know the earlier you start the better but I'd like to save up and do a few things in my youth instead of just working all my life to retire.
So here's what I'm thinking. I currently pay £19 a week for my pension. So what I was thinking of doing is cancelling my pension and instead putting the £19 a week along with an additional £11 into a savings account.
This way I could save £1560 a year. With that in a few years I could take the kids to Florida (which I'd love to do), or buy a TVR Cerbera, or if we're still renting, the money saved could be used on a deposit for a house.
I've promised myself that if I did cancel my pension I would re-start is again when I reach 30 and pay for the most expensive scheme to make up for the years I've lost.
So what do people think, should I cancel my pension until I'm 30 and live a bit or just wait for another 40 odd years until I retire before having fun?
Edited by DanielC4GP on Wednesday 1st February 13:55
Nobody knows the future and while pensions appear to be getting worse, it is better to have one than not.
If UK follows the ways of the US, which often happens, then if you exit a pension now you will not get back in. (to one)
In the US if you change jobs you are lucky if they have a decent 401k (a tax deffered offering)
It is of course very easy for me to sit here as I don't know the value of twenty quid to you, but I would strongly advise you to hang on to any sort of pension.
I don't think that is a sound way to fund a trip to Florida.
If UK follows the ways of the US, which often happens, then if you exit a pension now you will not get back in. (to one)
In the US if you change jobs you are lucky if they have a decent 401k (a tax deffered offering)
It is of course very easy for me to sit here as I don't know the value of twenty quid to you, but I would strongly advise you to hang on to any sort of pension.
I don't think that is a sound way to fund a trip to Florida.
groak has a point but I think he's quite a successful investor, so perhaps not representative of the average person. If you can make more money elsewhere though, taking into account the tax-free perks of a pension, then go for it.
For the rest of us, I think so long as your employer has been matching your contribution or exceeding it, we have to believe they're a good idea. Because the government in [<70 minus your current age] years won't be able to afford to keep you in a comfortable lifestyle. They may be struggling to keep you from starving, if you believe the statistics for birth-rate and life expectancy.
But why would you mention pensions and cars/holidays in the same breath. Pensions have nothing to do with whatever fun you might want to have during your working life. The whole point of the pension is to provide for you when you don't want to work anymore, or can't work anymore. Unless you plan to work until you die?
For the rest of us, I think so long as your employer has been matching your contribution or exceeding it, we have to believe they're a good idea. Because the government in [<70 minus your current age] years won't be able to afford to keep you in a comfortable lifestyle. They may be struggling to keep you from starving, if you believe the statistics for birth-rate and life expectancy.
But why would you mention pensions and cars/holidays in the same breath. Pensions have nothing to do with whatever fun you might want to have during your working life. The whole point of the pension is to provide for you when you don't want to work anymore, or can't work anymore. Unless you plan to work until you die?
A little basic arithmetic for you.
To self fund an inflation proof income stream of 1,000/month using a 4% draw down would require 300K.
An annuity of 1k would need less capital, but you lose control of the principal.
Your current pension is (I'm pretty sure) being helped along by your employer, although it sounds underfunded (as many are) because of the reduction.
The fact that they are addressing the underfunding is positive.
I would find the pension website and read what is happening and see if the Gov is assisting them to get back on track (they do that as it is also in their interest).
To self fund an inflation proof income stream of 1,000/month using a 4% draw down would require 300K.
An annuity of 1k would need less capital, but you lose control of the principal.
Your current pension is (I'm pretty sure) being helped along by your employer, although it sounds underfunded (as many are) because of the reduction.
The fact that they are addressing the underfunding is positive.
I would find the pension website and read what is happening and see if the Gov is assisting them to get back on track (they do that as it is also in their interest).
http://www.direct.gov.uk/en/Pensionsandretirementp...
Might as well stay in it. Depending on the size of your employer (different roll outs) we're all going to be forced to save for our futures soon.
For 19 quid a week I think it's worth it. If you really want to save 30 quid a week, surely you could find that 19 from other parts of your life?
Might as well stay in it. Depending on the size of your employer (different roll outs) we're all going to be forced to save for our futures soon.
For 19 quid a week I think it's worth it. If you really want to save 30 quid a week, surely you could find that 19 from other parts of your life?
Definitely stay in it.
Don't mix up retirement planning with taking the kids to florida planning.
You are 23 now so have 32 years to go to 55.
From 55 you will have about the same time to death.
This means that for every pound you want to have after 55, you need to put one pound away now.
You have two choices:
1) Spend 100% of your income now, and have 0% in retirement.
2) Spend 80% of your income now, and have 80% in retirement.
Simples, but always hard for youngsters to appreciate.
Don't mix up retirement planning with taking the kids to florida planning.
You are 23 now so have 32 years to go to 55.
From 55 you will have about the same time to death.
This means that for every pound you want to have after 55, you need to put one pound away now.
You have two choices:
1) Spend 100% of your income now, and have 0% in retirement.
2) Spend 80% of your income now, and have 80% in retirement.
Simples, but always hard for youngsters to appreciate.
I have never quite understood the argument that one should not take money out off a Pension scheme, thereby placing that money into a tax environment. It seems to me not to dissimilar to the business person purchasing a capital item, when there is no need/use for the same, other than claiming the 40% tax relief, allowance.
So a pensioner does not take up their Pension, enjoying 60% of the Pension fund, or order to avoid paying tax to HMG, meaning the pensioner ends up not enjoying any of his pension pot.
I put lots of money into Equitable Life, and with all the other Pension Policies that both myself and wife contributed to, the monies will be left free of IHT to our children, who will have no hesitation in enjoying the same in the UK tax environment.
I quite understand why young working people/couples are hesitant in saving for a Pension.
So a pensioner does not take up their Pension, enjoying 60% of the Pension fund, or order to avoid paying tax to HMG, meaning the pensioner ends up not enjoying any of his pension pot.
I put lots of money into Equitable Life, and with all the other Pension Policies that both myself and wife contributed to, the monies will be left free of IHT to our children, who will have no hesitation in enjoying the same in the UK tax environment.
I quite understand why young working people/couples are hesitant in saving for a Pension.
Wings said:
I have never quite understood the argument that one should not take money out off a Pension scheme, thereby placing that money into a tax environment. It seems to me not to dissimilar to the business person purchasing a capital item, when there is no need/use for the same, other than claiming the 40% tax relief, allowance.
So a pensioner does not take up their Pension, enjoying 60% of the Pension fund, or order to avoid paying tax to HMG, meaning the pensioner ends up not enjoying any of his pension pot.
I put lots of money into Equitable Life, and with all the other Pension Policies that both myself and wife contributed to, the monies will be left free of IHT to our children, who will have no hesitation in enjoying the same in the UK tax environment.
I quite understand why young working people/couples are hesitant in saving for a Pension.
Can you say that again in plain english? I don't have a clue what you mean.So a pensioner does not take up their Pension, enjoying 60% of the Pension fund, or order to avoid paying tax to HMG, meaning the pensioner ends up not enjoying any of his pension pot.
I put lots of money into Equitable Life, and with all the other Pension Policies that both myself and wife contributed to, the monies will be left free of IHT to our children, who will have no hesitation in enjoying the same in the UK tax environment.
I quite understand why young working people/couples are hesitant in saving for a Pension.
Im a trainee paraplanner for an IFA, you need to be very careful what you do with your pension. OP needs to check far more into the details of his existing scheme as from what he has said it sounds like it could be a defined benefit scheme as it mentions 3 levels of benefit. In fact it sounds almost certain its a defined benefit scheme because of what you have said.
I would go as far to say that there are very few circumstances where a final salary/defined benefit scheme would ever be switched out of, money purchase schemes ie defined contribution, are often switched out of into SIPPs but again in very specific circumstances.
Im not an expert on pension schemes and am still learning about them really but I would strongly recommend that the OP looks into this a lot more before doing anything hasty and maybe seeks some professional advice if he is thinking of cancelling. You might be able to get this through a Union at work if you are in one, sorry no idea of your circumstances.
Dont take my advice as gospel though, although all I am actually telling you is to check very carefully the scheme.
Personally I think you would be nuts to cancel the pension and use it for a holiday or a car but thats my personal opinion only. If I were looking at it I would be thinking along the lines of what this will give me now compared to what it might give in the future and this will allow you to make a better decision.
I can see why the pension industry gets a lot of stick, some schemes the charges are ridiculous and some of the stuff advisers have got up to in the past is terrible. Luckily the firm I work for are quite good at the ethics stuff (so please dont all attack me!)
Edited to add - dont assume if you leave a defined benefit scheme they will let you back in, a lot of the schemes wont even if you offer to pay extra because the employers dont really want you in them a lot of the time as they have to carry all the risks.
I would go as far to say that there are very few circumstances where a final salary/defined benefit scheme would ever be switched out of, money purchase schemes ie defined contribution, are often switched out of into SIPPs but again in very specific circumstances.
Im not an expert on pension schemes and am still learning about them really but I would strongly recommend that the OP looks into this a lot more before doing anything hasty and maybe seeks some professional advice if he is thinking of cancelling. You might be able to get this through a Union at work if you are in one, sorry no idea of your circumstances.
Dont take my advice as gospel though, although all I am actually telling you is to check very carefully the scheme.
Personally I think you would be nuts to cancel the pension and use it for a holiday or a car but thats my personal opinion only. If I were looking at it I would be thinking along the lines of what this will give me now compared to what it might give in the future and this will allow you to make a better decision.
I can see why the pension industry gets a lot of stick, some schemes the charges are ridiculous and some of the stuff advisers have got up to in the past is terrible. Luckily the firm I work for are quite good at the ethics stuff (so please dont all attack me!)
Edited to add - dont assume if you leave a defined benefit scheme they will let you back in, a lot of the schemes wont even if you offer to pay extra because the employers dont really want you in them a lot of the time as they have to carry all the risks.
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