Suspend a pension for 1 year

cford_2

Hi

new member here - been reading for a while but time to contribute...

i am lucky in that i have an excellent job with one of the largest companies in the world and a first class benefits package that goes with that...
but am in the process of - after years of stupidity - now trying to clear some debts built up - as i guess most of you know, credit card debts are endless and can take years to pay off...
all my other loans etc come to an end next year - so for 1 year only, i am considering an option offered to me by my employer to suspend my pension payments for 1 year in order to put 100% of the (taxed) amount towards my cc debts. I am 40 years old and have been putting into this private pension since 2000 and intend to retire at 68...

some notes from the benefits intranet site:

The Pension Suspension option offered under *** gives greater choice and flexibility by allowing members of the above plans to suspend contributions to their pension plan, in exchange for extra benefit funding whilst still remaining a member of the *** Plan. The benefit funding amount can either be used to elect other benefits within the *** scheme or taken as a monthly cash alternative.
Eligible members have the opportunity to elect to suspend contributions to their pension plan for the duration of the *** scheme year. This means that the companies contributions and your contributions will cease for this time period; this also includes any ASCs/AVCs.
During the suspension period the Company will make a payment into the employee's Benefit Fund which is in lieu of the basic employer contribution to their Retirement Account. This payment will be slightly lower than the Basic *** Plan contribution to reflect the National Insurance that the Company will have to pay. The amount will be fixed for the *** scheme year, will be paid monthly and if taken as cash, will be subject to Income Tax and NI.
Under the Pension Suspension option, all death in service benefits will continue to be protected. This means that during this period, the level of the spouse/partner pension, and/or any children’s pensions (if applicable) will be unaffected and pensionable service will continue to accrue for any dependants' pensions under the *** Plan. *** Plan members will also remain covered under the *** Group Life Assurance Plan.


Any advice or thoughts are greatly appreciated! thanks for reading...

chesky369

hmmm...... I always suspect the worst when companies offer out of the kindness of their hearts to mess around with pensions. And if you're managing to pay off other debts, presumably you'll have some spare cash when those cease to start to pay off the credit cards. I think you should really look hard at your expenditure to see what other economies you can make before you suspend your pension contributions.

cford_2

chesky369 wrote: »

hmmm...... I always suspect the worst when companies offer out of the kindness of their hearts to mess around with pensions. And if you're managing to pay off other debts, presumably you'll have some spare cash when those cease to start to pay off the credit cards. I think you should really look hard at your expenditure to see what other economies you can make before you suspend your pension contributions.

not sure about your skepticism re companies offering this???

but in this instant, i am desperate to pay these cc debts off as quickly as possible - the amount of interest i am paying them is of course very high, and i want to clear them as soon as i possibly can (for other family reasons also) - i have explored other options, and I don't think there any any other alternatives
my thinking re the pension is once the debts are cleared, i can then top up my pension with the newly available cash in order to bring my pension back up to (or close to) what i would have paid in anyway during my 1 years suspension

bendix

If you're a high tax payer, it doesnt seem like a wise move to me. Not only do would you lose the 40% tax relief on your own contributions, but the extra payment you would get in lieu of your employers' contribution would also be subject to tax and NI. That sounds like a double whammy to me.

Are you cc debts so large you can't pay them off without suspending your pension? The phrase 'robbing peter to pay paul' springs to mind.

cford_2

bendix wrote: »

If you're a high tax payer, it doesnt seem like a wise move to me. Not only do would you lose the 40% tax relief on your own contributions, but the extra payment you would get in lieu of your employers' contribution would also be subject to tax and NI. That sounds like a double whammy to me.

Are you cc debts so large you can't pay them off without suspending your pension? The phrase 'robbing peter to pay paul' springs to mind.

thanks for the response and your thoughts - i know what you mean about the double whammy and it doesn't sit well especially at 40% - i guess where i am at the moment is i would rather get hit by tax on an income (as hard as that is!!) than i would pay yet more interest on a debt. its probably a hearts-and-minds thing, but i am just so sick and tired - and stressed - of this debt situation having to pay more tax on more income just seems like an easier problem to deal with. for a year at least...

i should explain that i don't want to do this, and it is a last resort. i've sold my car and made other significant sacrifices, and i always said i would never touch my pension - that is my future and the future for my family - however, i am not sure i'll even survive as long as my pension at this rate! ok, slightly melodramatic, but i just want shut of this debt as its keeping me awake at night, which of course affects my work and family life, and it is only for one year! i know it probably doesn't look like a sensible thing to do on paper but desperate measures take desperate actions i guess

if i could attach some value to this (i.e. missing pension payments of x means that the difference in my pocket when i am 68 will be y) i think it would be easier to calculate in my mind. I don't think this is possible, but i am erring on the side of taking this step - just in case that wasn't entirely obvious!! I think I know the pitfalls, but also just want to reduce any risk in case I have missed something...
:-)

thanks again for your input...

MikeJones_2

Hi cford,

You may be able to put a value on the 'lost/suspended' contributions. To help further we'll need to know more information if you care to divulge?

Let's start with: is the pension a defined benefit scheme or a money purchase type scheme?

Mike

I work in the field of Pension Education and Pension Guidance in the UK. I am a member of the Specialist Pensions Forum as well as being a Voluntary Adviser for The Pensions Advisory Service. I work with scheme members, employers, trustees, scheme administrators and advisers on most things to do with employer sponsored pension schemes. The views expressed by me in this thread are my personal opinions. You should seek professional advice from an appropriately experienced and qualified adviser. I am not an IFA.

cford_2

MikeJones wrote: »

Hi cford,

You may be able to put a value on the 'lost/suspended' contributions. To help further we'll need to know more information if you care to divulge?

Let's start with: is the pension a defined benefit scheme or a money purchase type scheme?

Mike

I work in the field of Pension Education and Pension Guidance in the UK. I am a member of the Specialist Pensions Forum as well as being a Voluntary Adviser for The Pensions Advisory Service. I work with scheme members, employers, trustees, scheme administrators and advisers on most things to do with employer sponsored pension schemes. The views expressed by me in this thread are my personal opinions. You should seek professional advice from an appropriately experienced and qualified adviser. I am not an IFA.

hey thanks mike!

my pension is described as "Defined Contribution" the description of which is:

In a Defined Contribution pension plan, individual members are responsible for making their own investment decisions. This includes selecting investments, deciding how much is paid into each fund, monitoring the performance on a regular basis and making changes if and when necessary. Taking responsibility for investment decisions
is a major commitment. After all, the types of investment chosen and how well these perform will ultimately determine the size of the fund available to provide benefits at retirement.

There are other pensions offered (depending upon years of service, job grade and whether the employee was "brought" into the firm through acquisitions or mergers. These are defined, as you described, as Defined Benefit. The blurb on these available is:

In a Defined Benefit pension plan, members do not have to become actively involved in investments (other than those members electing Additional personal Contributions (ASCs) or paying Additional Voluntary Contributions (AVCs)). The Plan Trustee deals with all aspects of investment and works to ensure that the Plan has sufficient resources to
meet the cost of members’ benefits as they fall due.
(Additional personal contributions are additional contributions elected under your flexible reward scheme.)
Although Defined Benefit members don’t become actively involved in investments for their main Plan benefits, ASC/AVC investors do. They
need to adopt the same ‘hands on’ approach to ASC/AVC investment that a Defined Contribution member has with all of their investments.

But, I am definitely in a Defined Contribution scheme
hope that helps!

MikeJones_2

Hi cford,

Can you let us know:

a) The approximate monetary amount of your (i.e. employee) contribution to the pension for the year in question that you intend to suspend the pension(e.g. £1,800, or say 6% of a salary fo £x p.a.)

b) The approximate monetary amount of your employer's contribution to the pension for the year in question (e.g. £2,400, or say 6% of a salary fo £x p.a.)

c) Your term to NRD at the date you will start to suspend contributions (e.g. 20 years 4 months exactly)

d) The type of fund(s) your contributions are/would be invested in (as close as possible) e.g. 25% UK Managed, 50% UK Equity, etc.) - assuming these would have remained unchaged in the 'suspension period'

e) Your attitude to risk on say a scale of 1-10, with 1 being lowest risk and 10 being highest risk

Mike

I work in the field of Pension Education and Pension Guidance in the UK. I am a member of the Specialist Pensions Forum as well as being a Voluntary Adviser for The Pensions Advisory Service. I work with scheme members, employers, trustees, scheme administrators and advisers on most things to do with employer sponsored pension schemes. The views expressed by me in this thread are my personal opinions. You should seek professional advice from an appropriately experienced and qualified adviser. I am not an IFA.

cford_2

sure mike - i will send personally
thanks!