Company stopped pension contribution

fleenio

Hi,

I have a Group Personal Pension which i have been paying into for about a year now. My work has now announced that thay are going to stop all contributions to the pensions from this month. I have had no other information. Does that mean that I will only be paying into the pension? and could I stop my payments until my work decided to start contributing again. Do you think thats advisable?

jh2009

Companies are under no legal obligation to pay into a pension, (although this is proposed to change in 2012 with the intro of personal accounts). I would guess the decision to stop paying in now is possibly due to cashflow issues with the company, so if that situation changed they may one day pay contributions again.

If you are paying contributions then these will probably continue unless you opt to cease paying contributions, so it sounds like the plan will from next month simply be accepting your contributions.

In terms of paying in, then while its a shame the company isnt paying in anymore as its means less money is being invested, remember you are still getting tax relief for what you contribute of 20%. SO if you contribute £100, you are only paying £80 of what goes in. If you dont contribute you will only get 80% of what you pay in contributions in your income (assuming you are a not a top rate tax payer). Basically you are still not paying the full cost of what is going in from your side, you are just losing the employer contributions.

Another consideration is that at the moment most investments your contributions are buying are lowly priced, so another reason to carry on is that if you opt out now you are missing out on investment units when they are the cheapest for several years.

The important thing to consider is do you need the extra income from not paying into a pension? If the answer is no then you probably should continue as stopping simply will reduce your total pension income and benefits at retirement.

Also it can be tricky once you opt out and get out of the habit of saving to opt back in again....... until you get to an age near retirement when you look at your predicted income and suddenly wished you'd saved more.

fleenio

Thanks for info. Unfortunatley I have been asked to take a pay cut also

jh2009

I'm very sorry to hear about your pay cut. Clearly your company is in financial difficulties and i hope that things work out for you.

Looking back at pensions I guess theres several issues to consider. The first is how safe your job is and how important every penny of your income is. Also how much income is left after you meet any other costs such as mortgage, fuel bills, council tax etc. If you are married, or have a partner, or dependants, then you could also take into account their income or costs.

Clearly if you are seriously worried short term about your job and you have lots of outgoings then the pension contributions may be less important and any decision to stop paying in would be understandable.

Then again, if you are confident that the pay cut and other savings/actions your company is making are enough to keep your job safe, then you could continue paying into your pension. If your contributions are based on say 5% of salary, then these should automatically be adjusted down if your pay is reduced.

I would add that if the pension is a personal pension then any funds in this are safe if your employer went out of business as these funds are seperate to your employer, so they can't use your pension funds to pay off creditors so dont let that be a factor in your considerations.

If you do opt out then keep it under review in a few months. You could even put the money aside that you would have contributed into a bank account and pay it in later if circumstances change, then at least you are keeping your options open.

If you do opt out and your employer changes their mind and contributes again then you should definately pay in again. The same if you change jobs and a new employer offers to contribute to any sort of pension.

Basically, I guess to sum up, any decision comes down to your own feelings about job security, and your own financial situation really. I do hope things turn out ok for you though.