Opting out/cancelling auto enrolment pension

[designforlife]

I've been on an auto enrolment pensions scheme with work for a couple years now (with NOW pensions).

The employee contributions are going up to 5% this month and it's really starting to put pressure on my take home earnings to the point that i'm considering opting out/binning it off, i'll be contributing something like £150 a month so it's starting to become a considerable sum that would be much more useful paying off debts and going into savings for a mortgage in the short/medium term.

Is this a terrible idea? I'm pretty clueless about pensions, so any more learned financial advice would be appreciated.

[55palfers]

You'll also be binning off your employers contribution - i.e. turning down free money.

I'd look at my budget and cut something down a bit.

[designforlife]

I could swallow it but savings and debt payments will take a hit.. i assume there's no way to effectively hit the pause button for a year then carry on where i left off?

[mart73]

To echo that - you're turning down free money! Don't do it!
Compound interest is your friend, you just don't appreciate it until you're older.

As the poster above says, try & trim your outgoings elsewhere.
You'll thank yourself 20+ years from now.

[soupdragon1]

designforlife said:

I've been on an auto enrolment pensions scheme with work for a couple years now (with NOW pensions).

The employee contributions are going up to 5% this month and it's really starting to put pressure on my take home earnings to the point that i'm considering opting out/binning it off, i'll be contributing something like £150 a month so it's starting to become a considerable sum that would be much more useful paying off debts and going into savings for a mortgage in the short/medium term.

Is this a terrible idea? I'm pretty clueless about pensions, so any more learned financial advice would be appreciated.

Yes, its a terrible idea. Unless of course the lack of money makes your life a misery, then its a good idea.

If you can avoid opting out, you'll be glad in years to come. And have you done the maths? Are you sure you would get £150 back into your net pay? You will pay tax and NI on that money if you don't put it in your pension, so if you are contributing £150, you'll only get £100 back in your net pay if you cancel.

And bear in mind what the employer is putting in. Someone might correct me here, but at a guess, that £100 of net pay you are giving up translates to £250 going into your pension pot. So you are getting £250 for £100 - minimum. More than doubling your money, and thats before it starts building over the years through compound interest.

I checked my own pot a little while ago - for every £100 I put in during 2017, its now worth £400, just a couple of years later.

My advise - don't quit unless you REALLY can't afford it.

[designforlife]

Fair enough chaps, I figured that would likely be the case.

As a secondary question, are there any long term alternatives to a pension these days, savings wise?

[mart73]

designforlife said:

Fair enough chaps, I figured that would likely be the case.

As a secondary question, are there any long term alternatives to a pension these days, savings wise?

Would only recommend an ISA, however you'll have the ability to dip into it if you needed the money.
As a long term pension alternative, it's only going to work if you don't need the money before retirement.

[designforlife]

Right now, my priority is getting on the property ladder, and at 35, it still feels 5 years away from my grasp... i was wondering whether it would be better to divert all available funds towards that then worry about the pension a little later.

[55palfers]

designforlife said:

I could swallow it but savings and debt payments will take a hit.. i assume there's no way to effectively hit the pause button for a year then carry on where i left off?

I'd let my savings take a hit - free money don't forget!

[Ean218]

What makes you think it is free money? It has to be paid for by the employer so that is money that will not be paid out in other ways, such as pay rises.

[mholt1995]

designforlife said:

Fair enough chaps, I figured that would likely be the case.

As a secondary question, are there any long term alternatives to a pension these days, savings wise?

Lifetime ISA - can put in 4k every tax year year between age 18-50, 25% top up from the government and then you get it as a lump sum at 60.

I'm using it for house purchase in 5-10 years time but will probably chuck in a bit even after that if it makes sense to

[gazapc]

As above, don't do it.
Or at least perhaps stick at 3-4% (I assume that is possible). Once you quit completely it will be mentally difficult to get back into it and will be constantly put off.

Have you considered a life ISA if it is your first home?

[designforlife]

Worth saying that i do currently have a HTB ISA which i put £200 a month in.

Can you simultaneously have a life ISA if already paying into a HTB? Or are they essentially the same thing?

[clarky92]

I binned mine off at age 24. Im now 27.

In that time I bought my first house, did it up to some degree and spent a fair whack on a PT loosing 5 stone and getting in shape.

Yes I have missed out on 3 years but I really needed the money for other things that were more important at the time.

Im now enrolling back into the scheme at 5% in the next month.

So just do what you need to, but dont put it off forever.

[colin79666]

designforlife said:

Worth saying that i do currently have a HTB ISA which i put £200 a month in.

Can you simultaneously have a life ISA if already paying into a HTB? Or are they essentially the same thing?

Yes but you can only use one for buying a house. The lifetime ISA makes little sense as retirement savings unless you are self employed and therefore don’t get a contribution to your pension from your employer.

[Integroo]

designforlife said:

Worth saying that i do currently have a HTB ISA which i put £200 a month in.

Can you simultaneously have a life ISA if already paying into a HTB? Or are they essentially the same thing?

You can have both but only use one for buying your first home. LISA is better as you can put more in a year (4k v 2.4k) and don't have to drip feed 200pcm - can put all 4k in on April 1 each year. Disadvantage is you effectively lose 6.25% if you withdraw for anything other than buying first house, whereas with h2b there is no penalty (though you cant put it back in). Oh and the interest rate was better on my H2B ISA than my LISA.

As others have said definitely cut elsewhere before binning your pension. Spend less on cars maybe...?

[NickCQ]

pgh said:

How much debt are you servicing? Some advisors would suggest stopping everything but paying that off.

Yeah, this is an important point - depends on the interest rate on the debt.
If it's more than 4-5% you probably have negative carry on your savings.

[Scootersp]

gazapc said:

As above, don't do it.
Or at least perhaps stick at 3-4% (I assume that is possible). Once you quit completely it will be mentally difficult to get back into it and will be constantly put off.

Have you considered a life ISA if it is your first home?

Auto enrolement schemes automatically re-enrolement you after a maximum of three years, so it makes you opt out again if you still don't want to be in it.

Also to the op I am pretty sure you can suspend for a year, I know you can't chop and change month to month but there is some flexibility I'm sure.

[Scootersp]

Op you should have an online login to look up your pension (my direct experience is with NEST) and in there it should have specifics about your options.

[designforlife]

Servicing £2500 of debt which i hope to have knocked on the head by summer, then after that pretty much everything that isnt going on living costs is going into savings.

I've cut everything i can elsewhere, downgraded to a cheaper to run car, sim only contract, minimal direct debits, one holiday to Lyme Regis for me and the missus this year. So I'm pretty much bang where i want to be outgoings wise.

Putting 10% into pension would be a real hit to take... only got about £3k saved for a house sofar and i know it'll take another 2-3 years of hard saving to get to the £20k we really need... hence the temptation to divert that £100 odd pcm from the pension, extra £3k into the deposit fund over 3 years.