Should I opt out?

cjabbir · 22 March 2017 at 11:00PM

Hi

I'd like people's views on the following;

I have just started a job on a fixed term contract for 12-18months. As part of that i have been enrolled on a local government pension scheme in which I pay 6.5% contribution and my employer pays 10.25%.

I am considering opting out of it because the job is a fixed term contract. If I opt out I pay £20 more i tax and NI respectively but have about £100 more in my pay. If I don't opt out i'm about £125 less.
My other reservation is that I have 2 very small pension pots from previous employers and I don't want to have lots of pensions that I'll forget about in 40 years. On the other hand I am 24 and I believe its never too early to save for the future. By the end of contract I could have over £3000 in that pension. That's probably a good 2 month wage at retirement.

I could also reduce my contribution to 3.25% but the reservations are still the same. It's another pension pot out there.

Any thoughts on what I should do?

chiefie · 22 March 2017 at 11:14PM

Don't opt out it would be madness to do so.

boliston · 22 March 2017 at 11:16PM

you would be throwing away the employer contribution if you opt out

lovinituk · 22 March 2017 at 11:17PM

You already asked this yesterday - http://forums.moneysavingexpert.com/showthread.php?t=5621802

ThinkingOutLoud_2 · 22 March 2017 at 11:31PM

lovinituk wrote: »

You already asked this yesterday - http://forums.moneysavingexpert.com/showthread.php?t=5621802

And the OP got told to post it on this board...

OP one day you will either be living off whatever state pension there is or thin air if you don't save into a pension.

So IMHO, you need to wake up to your future reality:-
- If you don't save towards your pension now and tomorrow - when will you?
- so opting out simply means you will be poorer to the tune of your employer's contribution and the fact your contributions are topped up with tax relief.
- figuring having several pots of money for retirement is a bad thing not worth your while should be parked in the bay marked "never think like this again"
- you can potentially combine some pensions into one pot - look into it!

More than all of this - do some thinking about your future need for money and maybe that of your family or partner to come if you don't have / may do one day - you need to plan for your future.

If someone offers you lots of free money - take it - even if they make you save a little to get it. Simples.

Quentin · 22 March 2017 at 11:31PM

You have no dissent from anyone in your threads??? How many more times do you want to hear the same advice?

hyubh · 22 March 2017 at 11:40PM

cjabbir wrote: »

As part of that i have been enrolled on a local government pension scheme in which I pay 6.5% contribution and my employer pays 10.25%.

Not that it ultimately matters for yourself, being a DB scheme, but 10.25% is a rather low LGPS employer rate.

I am considering opting out of it because the job is a fixed term contract. If I opt out I pay £20 more i tax and NI respectively but have about £100 more in my pay. If I don't opt out i'm about £125 less.

Pretty foolish reasoning, to be honest. Even if you aren't going to be in the scheme long enough to earn a pension, join and get a transfer value at the end well north of your individual contributions.

My other reservation is that I have 2 very small pension pots from previous employers and I don't want to have lots of pensions that I'll forget about in 40 years.

Get transfer in quotations from the LGPS administrator. If nothing else, transferring will get you a preserved benefit in the LGPS.

I could also reduce my contribution to 3.25% but the reservations are still the same.

Waste of time unless you are a high earner with annual or lifetime allowance issues - stay in the main section otherwise.

hugheskevi · 22 March 2017 at 11:44PM

You could transfer the small pension pots into the LGPS. That would also mean the pension would be preserved (ie stay in the scheme and increase by CPI until you claim it in the future) if you leave before 2 years.

On the other hand I am 24 and I believe its never too early to save for the future. By the end of contract I could have over £3000 in that pension.

I think you are misunderstanding how the scheme works. What you and your employer contribute is not important aside from what it costs, what matters is your pension entitlement, which is the amount of annual pension which you accrue.

Andy_L · 22 March 2017 at 11:51PM

As a (council) tax payer I would love you to opt out

JoeCrystal · 23 March 2017 at 9:03AM

I am in full agreement with others on this. Do not opt out, this would be your most expensive financial decision ever if you decide to opt out. You are paying peanuts for an guaranteed index-linked income when you retire.

Suffolk_lass · 23 March 2017 at 9:12AM

You might be on a fixed term 12 month contract now, but often, Public Sector permanent recruitment will treat existing FTE (Fixed Term Employees) as their first choice because they know you - an informal "try before you buy" for both of you. They will assume that if you apply for a permie post it is because you like the work and see a future in it.

Therefore, stay opted in and transfer your other two schemes in. You cannot do better, as everyone responding here have indicated. I realise this might feel like a financial sacrifice at the moment but trust me, your future self will thank you for this.

Should I opt out?

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