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    • kmb500
    • By kmb500 28th Sep 17, 5:13 PM
    • 409Posts
    • 110Thanks
    kmb500
    Opting out of pension
    • #1
    • 28th Sep 17, 5:13 PM
    Opting out of pension 28th Sep 17 at 5:13 PM
    Hi, I am 21 and work for a local council. I pay in to my pension £105.67 per month as part of the LGPS scheme and my employer pays in £315 per month. I know the scheme is very good as my employer pays in 3x what I pay in, but I won't be retiring for 50 years and I could well be dead by then - I could really use the extra £100 now.


    I was looking at our pension information and it says that if you are considering opting out of the scheme then you should take financial advice as the tax and NI will increase. Going by the MSE tax calculator my income tax would increase from £151/month to £172/month. So in reality I will have £84 extra per month.


    Is this worth it? I currently struggle to save anything at all and basically live paycheque to paycheque. If I opt out of the pension I can put money in my savings account which seems to me more important than getting money when I'm near dead. But my brain tells me it's all a good investment... in the past year and a half that I've been working here I've earned 8 grand in my pension.


    Not sure what to do.
    Last edited by kmb500; 28-09-2017 at 5:18 PM.
Page 4
    • JoeCrystal
    • By JoeCrystal 29th Sep 17, 4:55 PM
    • 1,302 Posts
    • 777 Thanks
    JoeCrystal
    if she doesn't want it I will happily take it. Kill maybe too extreme but as someone paying £750 a month into her pension in the vain hope of getting something like a living pension out the other end I am incredibly envious of the opportunity she has and am banging my head against a brick wall they she wants to chuck it away.
    Originally posted by haras_nosirrah
    Me too. I pay in 20% to 25% of my salary (Not high as your amount in pounds) and still, the projection look really miserable. The projection tell me that I will get about a third of my salary if my pension pot grew at mid investment rate by SPA in 37 years.

    I am giving a serious thought to finding a job with DB pension scheme so I can transfer a part of my pension pot in exchange of an index-linked guaranteed income by SPA a decade or two down the line (if they still are around).
    Last edited by JoeCrystal; 29-09-2017 at 5:05 PM.
    • Bravepants
    • By Bravepants 29th Sep 17, 5:23 PM
    • 274 Posts
    • 321 Thanks
    Bravepants
    OP, I just stuck your £22k a year into a tax and NI calculator...it seems you take home £1520 a month. You should at least be putting 10% of that into long term savings...your pension contribution would be a substantial proportion of that.

    You can't make ends meet on £1520 a month?

    OK it's time....I call troll!
    • haras_nosirrah
    • By haras_nosirrah 29th Sep 17, 5:29 PM
    • 1,322 Posts
    • 2,468 Thanks
    haras_nosirrah
    OP, I just stuck your £22k a year into a tax and NI calculator...it seems you take home £1520 a month. You should at least be putting 10% of that into long term savings...your pension contribution would be a substantial proportion of that.

    You can't make ends meet on £1520 a month?

    OK it's time....I call troll!
    Originally posted by Bravepants

    I don't think the op is a troll - they have been posting for 2 years. It depends a little on where you live as to how far £1500 goes - in london and the south east I can see it could be a stretch. I would move into shared housing or get a weekend job in a pub before I gave up that pension though
    I am a Mortgage Adviser
    You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
    • mollycat
    • By mollycat 29th Sep 17, 6:14 PM
    • 950 Posts
    • 1,911 Thanks
    mollycat
    Well might be better to put any response in context.

    Apologies if you didn't want a sensible debate but just wanted a knee jerk reaction, I would not have thought discussion boards and forums were the place for you in that case.
    Originally posted by bigadaj
    I read post #14 over again and can't quite get what part constitutes "sensible debate".

    I realise that the urge to consider yourself one the forum's elite is quite strong, and this probably is the reason you arrogantly suggest who is suited to participate. I have to tell you, the forum is for everyone, whether they have 10,000 posts or 10 posts. Try reading others views with a more open mind and you will probably be less likely to misconstrue context.

    Bravepants...I thought troll very early on in the thread also.
    • Bravepants
    • By Bravepants 29th Sep 17, 6:27 PM
    • 274 Posts
    • 321 Thanks
    Bravepants
    I don't think the op is a troll - they have been posting for 2 years. It depends a little on where you live as to how far £1500 goes - in london and the south east I can see it could be a stretch. I would move into shared housing or get a weekend job in a pub before I gave up that pension though
    Originally posted by haras_nosirrah
    Indeed shared housing! At such a young age that would seem sensible in such areas, until pay rises and an OH comes along at least.

    Re troll: I think I was being more sarccy than genuinely meaning troll...she does come across as being a little troll like.
    • kmb500
    • By kmb500 29th Sep 17, 7:24 PM
    • 409 Posts
    • 110 Thanks
    kmb500
    OP, I just stuck your £22k a year into a tax and NI calculator...it seems you take home £1520 a month. You should at least be putting 10% of that into long term savings...your pension contribution would be a substantial proportion of that.

    You can't make ends meet on £1520 a month?

    OK it's time....I call troll!
    Originally posted by Bravepants
    My take home pay is £1436 (I think) per month. If it was £1520 as you've rightly calculated, then yes exactly there's more money to save.

    I don't think the op is a troll - they have been posting for 2 years. It depends a little on where you live as to how far £1500 goes - in london and the south east I can see it could be a stretch. I would move into shared housing or get a weekend job in a pub before I gave up that pension though
    Originally posted by haras_nosirrah
    Indeed shared housing! At such a young age that would seem sensible in such areas, until pay rises and an OH comes along at least.

    Re troll: I think I was being more sarccy than genuinely meaning troll...she does come across as being a little troll like.
    Originally posted by Bravepants

    I do live in a shared house. It's still very expensive at least here in Cambridge.
    • Alice Holt
    • By Alice Holt 29th Sep 17, 8:11 PM
    • 1,581 Posts
    • 1,684 Thanks
    Alice Holt
    As a Council tax payer to the tune of over £2k pa, I would personally strongly encourage the OP to opt out.

    I would also be very happy for her to use the £84 to buy cancer sticks / booze, as it limits dramatically any future Pension Credit payments liability for the taxpayer.

    Go on KMB500 ignore all the advice on here. You know best. Of course you do.
    Get that opt out form in now, forget about tomorrow.
    BTW - I believe there are some very good credit card deals ATM, live for now.
    Something is bound to turn up when you're older (apart from poverty, regret, the early intervention of a grim reaper, etc).
    It'll be fine.
    Last edited by Alice Holt; 29-09-2017 at 8:17 PM.
    • k6chris
    • By k6chris 29th Sep 17, 8:19 PM
    • 149 Posts
    • 232 Thanks
    k6chris
    YOLO.....but what they don't tell you is that 1/3 of that L is likely to be funded by your pension....
    EatingSoup
    • Bravepants
    • By Bravepants 29th Sep 17, 9:01 PM
    • 274 Posts
    • 321 Thanks
    Bravepants
    My take home pay is £1436 (I think) per month. If it was £1520 as you've rightly calculated, then yes exactly there's more money to save.

    I do live in a shared house. It's still very expensive at least here in Cambridge.
    Originally posted by kmb500
    Yes add the £84 to £1436 and we get to £1520.

    It would be interesting to see a breakdown of your monthly spending.

    How much rent do you pay? £400 a month? Does that include bills?

    First rule is to "Pay yourself first", that means savings. Getting 3 times what you pay in is far too good a return to just forget about.
    • haras_nosirrah
    • By haras_nosirrah 29th Sep 17, 9:05 PM
    • 1,322 Posts
    • 2,468 Thanks
    haras_nosirrah
    looks to be about 400-500 a month to rent a room in cambridge including bills

    if you take home £1436 now that still gives you around £900 a month to spend on food, commuting, stuff, and fun after your pension has been deducted.

    you can afford £84 a month - If you were paying £750 a month plus council tax and bills then it may be different but with £900 left for spends you need to stay in the pension - you have more disposable income now than most people do
    I am a Mortgage Adviser
    You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
    • GunJack
    • By GunJack 29th Sep 17, 10:21 PM
    • 9,880 Posts
    • 7,358 Thanks
    GunJack
    to the OP - why exactly have you moved out of parent's house (where your rent/keep would be a lot cheaper) into something that's:-

    1. costing you a lot more
    2. putting one of the best remaining pensions in the country at risk
    3. increasing your other living costs (food, utilities, etc.)
    4. there are probably more, but 1-3 are plenty

    If it's all because your social life now is more important than your future, fine, but you WILL regret it as you get older, guaranteed. I know it's a good area to be in (I lived in Huntingdon just up the road for 9 years) for nights out, but that really isn't the be-all and end-all.

    This isn't meant to sound harsh, but grow up, you're an adult not a student, and you'll be so for a pretty long time - move back in home, save some money to have behind you before venturing to a rented place, stay in the pension, and then maybe you can have both ( a decent pension and a social life)....
    ......Gettin' There, Wherever There is......
    • Terron
    • By Terron 29th Sep 17, 10:31 PM
    • 113 Posts
    • 116 Thanks
    Terron
    Yeah, I would like to earn more money and when a more senior position comes up I will be applying for it, although I am pleased with my current salary for what it is, since I have nothing except some GCSEs to my name, I'm happy to be earning 22K at 21. If I was earning more money I'd be able to put more aside, but as it stands in the short term I think the extra money from opting out would help.
    Originally posted by kmb500
    £22k is a decent saklary at 21. The average starting salary for graduates last year was between £19 and £22k. However in most jobs a few years experience makes a significant different to what you earn,

    When I was 21 I graduated, but was then unemployed for 15 months (apart from afew days of temporary work.

    I don't have any big aspirations in life, just want to be able to get by, some time in the next decade would like to have a partner and kids get a house etc. but I can't save up for a holiday at the moment let alone a deposit on a mortgage.
    Originally posted by kmb500
    So lets say you are looking for an average sort of life. The average salary for a full time worker is about £27k. That would be a reasonable target to aim for by your mid to late 20s. That should enable you to save several times the £84 for long term saving, save for a holiday, and spend more.

    Thanks. Yeah, I'm going to arrange to see someone in HR to discuss it.
    Originally posted by kmb500
    You should probably also arrange to meet with HR or your manager to discuss your career progression, unless such meetings are automatic. Ask them what you need to do to make sure you qualify for the more senior position when it opens up, and is there any training you could do that would help.
    • zagubov
    • By zagubov 30th Sep 17, 12:31 AM
    • 14,947 Posts
    • 127,725 Thanks
    zagubov
    OP I cashed in my NHS pension at your age so I could have a bit of extra money. Worst advice ever. The person who gave me it can't bear to look me in the eye about it, they're so ashamed of it.

    It's taken me massive efforts and huge costs to try to replace the lost pension and I'll never regain the lost benefits, but you can learn from my ignorance and not repeat the same mistake.

    Please do that. The reason why most people are saying you should keep in the scheme is because of the wisdom of crowds/wisdom of the ancients/ common sense/ known experience/ call it what you will. You're just tapping into many many people's experience.

    There's also a reason why you're the only person that thinks you should leave the scheme, but that reason involves you facing the limitations of your current situation vis a vis your future employment history. Which I hesitate to tell you, will progress by decades in the blink of an eye.
    There is no honour to be had in not knowing a thing that can be known - Danny Baker
    • bigadaj
    • By bigadaj 1st Oct 17, 10:46 AM
    • 10,803 Posts
    • 7,100 Thanks
    bigadaj
    I read post #14 over again and can't quite get what part constitutes "sensible debate".

    I realise that the urge to consider yourself one the forum's elite is quite strong, and this probably is the reason you arrogantly suggest who is suited to participate. I have to tell you, the forum is for everyone, whether they have 10,000 posts or 10 posts. Try reading others views with a more open mind and you will probably be less likely to misconstrue context.

    Bravepants...I thought troll very early on in the thread also.
    Originally posted by mollycat
    The irony.

    The pension option is good and most people would benefit from taking it, but it's an individuals choice, the OP is getting slated and called stupid for opting out, it's unlikely to be a sensible mood but it's up to them.

    In relation to an open mind then the slightly abusive and gang view on this is very sad.
    • dunstonh
    • By dunstonh 1st Oct 17, 7:41 PM
    • 89,873 Posts
    • 56,546 Thanks
    dunstonh
    People have an individual choice to put their head in an oven. However, it doesn't mean that we should support them exercising their free choice to do that.

    When someone is doing something that is clearly very silly and irresponsible, it is right to point it out. When that person still gives the impression that they are going to do it, despite being told by everyone its bad, then you need to ramp up the criticism.
    Last edited by dunstonh; 01-10-2017 at 9:43 PM.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • somethingcorporate
    • By somethingcorporate 2nd Oct 17, 10:16 AM
    • 8,840 Posts
    • 8,533 Thanks
    somethingcorporate
    People have an individual choice to put their head in an oven. However, it doesn't mean that we should support them exercising their free choice to do that.

    When someone is doing something that is clearly very silly and irresponsible, it is right to point it out. When that person still gives the impression that they are going to do it, despite being told by everyone its bad, then you need to ramp up the criticism.
    Originally posted by dunstonh
    I agree to an extent but if they do not listen to the first 50+ replies with plenty of logical and factual reasons increasing the criticism will often just result in them digging in their heels further.

    You see this kind of behaviour in science deniers and children (and Donald Trump).
    Thinking critically since 1996....
    • Malthusian
    • By Malthusian 2nd Oct 17, 10:21 AM
    • 3,435 Posts
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    Malthusian
    I'm going to stick my head above the parapet on this one as some of the knee jerk analysis on this one may be slightly flawed. Yes it's screamingly obvious that the 'right' answer here is to stop smoking instead of stopping the pension, but if the OP did end up stuck in this same job until state pension age, what would the numbers actually look like? If we assume SPA will be 70 by the time he gets there, then he has 49 years to go in a scheme with a 1/49th accrual rate. He would therefore have 'scrimped and saved' until he was 70 in order to suddenly have a 55% increase in his take home pay on his 70th birthday when state pension starts and both NI and pension contributions stop.
    Originally posted by Triumph13
    I'm always up for a thought experiment but the idea that the OP might be in the same job for 49 years is almost too remote to be worth considering. If they do end up with "too much" guaranteed income they can always opt out and take the money when they are in their 50s. The earlier you pay in the better, even in DB schemes.

    It would be the height of folly to say "I only need (say) 25 years so I'll opt out now and opt back in later". By then the OP could have been made redundant, or left for a better job, or the DB scheme could have been closed or changed to less generous terms - again.

    Get it while it's hot.

    If the OP does end up with 49 years in the LGPS scheme and "too much" guaranteed income, there is the possibility of a partial transfer. I don't think the LGPS offers them right now, but there's a concerted effort to get more defined benefit schemes to allow partial transfers and we're talking about decades from now. If we assume it's an option, they could take however much guaranteed income they need and transfer the rest into a defined contribution scheme, which they could then spend on the traditional Lambo or travelling round the world. Even if a partial transfer isn't possible, they can take out a loan against the "excess" income. Again, having money gives you options.
    • Malthusian
    • By Malthusian 2nd Oct 17, 10:28 AM
    • 3,435 Posts
    • 5,270 Thanks
    Malthusian
    I agree to an extent but if they do not listen to the first 50+ replies with plenty of logical and factual reasons increasing the criticism will often just result in them digging in their heels further.

    You see this kind of behaviour in science deniers and children (and Donald Trump).
    Originally posted by somethingcorporate
    And what alternative do you suggest that usually works on science deniers and Donald Trump? Putting children on the naughty step isn't an option on an Internet forum.

    In any thread like this the responses to the OP cover the entire range of the spectrum of tact, from softly-softly through coldly logical to blunt. The OP can choose whichever they find most persuasive. Or, if the OP just wants to be told what they want to hear, they can go with the responses saying "Do it, it'll save me council tax".
    • Triumph13
    • By Triumph13 2nd Oct 17, 11:01 AM
    • 1,117 Posts
    • 1,373 Thanks
    Triumph13
    The earlier you pay in the better, even in DB schemes.
    Originally posted by Malthusian
    If you mean the longer you pay in for the better I agree with you. If you mean the earlier then I don't. By definition a 65 year old is getting WAY better value than an 18 year old for their same contribution as the 18 year old has to wait 47 years longer to receive that same (inflation adjusted) income stream. In almost all DB schemes there is effectively a cross subsidy from younger employees to older ones.
    I've seen some DB schemes (not the LGPS) where the odds would have been strongly in favour of opting out for a 20 year old as the impact of compounding on the employee contributions should more than make up for losing the employer 'contribution'.


    Get it while it's hot.
    That I entirely agree with.
    • atush
    • By atush 2nd Oct 17, 12:18 PM
    • 16,374 Posts
    • 10,133 Thanks
    atush
    I agree to an extent but if they do not listen to the first 50+ replies with plenty of logical and factual reasons increasing the criticism will often just result in them digging in their heels further.

    You see this kind of behaviour in science deniers and children (and Donald Trump).
    Originally posted by somethingcorporate
    But why post here and ask for advice and then trash/ignore it?

    It is pretty much unanimous apart from Big that the OP should stay in the pension. Anyone not taking that into acct shouldnt ask in the first place.
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