Is it actually worth saving towards pension?

aagie

I'm 31 and I've been contributing towards my pension since 3 years (I pay 10% of my salary and my employer pays additional 14%). I've recently started worrying that by the time I'm 67, the retirement age will increase again and that I may not live long enough to benefit from my savings. In addition, I heard that having an extra income (i.e. additional pension) would make me not eligible for government benefits should I ever need it when I'm old. Does this mean that I may actually lose out unless I've contributed a lot towards my pension, own my house and can afford to keep it?
I'm considering opting out to have a bit more money now (my net pay would increase by around £1000 a year). However, my income tax and national insurance contribution would slightly increase upon opting out (as the government provides a discount for those who save) and I was told by my pension provider that if I wanted to sign up again, I'd need to fill in lots of forms and undertake a medical etc.
I wonder what would be the best option to choose in a long term... Having in mind all the risks, is it a good idea to stopped contributing money towards pension? I would very much appreciate any piece of advice.

dunstonh

'm 31 and I've been contributing towards my pension since 3 years (I pay 10% of my salary and my employer pays additional 14%).

Nice contribution and nice "free money" from the employer.

I've recently started worrying that by the time I'm 67, the retirement age will increase again

The retirement age has not increased to 67. You can retire whenever you like. You can commence pensions from age 55. The only thing that is increasing in age is the state pension age.

In addition, I heard that having an extra income (i.e. additional pension) would make me not eligible for government benefits should I ever need it when I'm old.

The Govt is abolishing means tested pension benefits in a few years. Plus, do you really want to rely on state benefits only? They only just bring you up to the breadline.

Does this mean that I may actually lose out unless I've contributed a lot towards my pension, own my house when I'm old and can afford to keep it?

No.

I'm considering opting out to have a bit more money now (my net pay would increase by around £1000 a year). However, my income tax and national insurance contribution would slightly increase upon opting out (as the government provides a discount for those who save) and I was told by my pension provider that if I wanted to sign up again, I'd need to fill in lots of forms and undertake a medical etc.

Are you mad?

wonder what would be the best option to choose in a long term... Is it actually worth saving money towards pension? I would very much appreciate any piece of advice.

You have a cracking pension scheme that is only costing you 8% of your pay (less with NI) and for that you are getting 24% going into your pension. Nothing else can come close to matching that. However, you instead prefer the idea of living in poverty in retirement.

I'm sorry but I am going to have to be blunt on this to really make sure it sinks in. You would have to be stupid to opt out of that pension scheme and choose to live in poverty in retirement (£7280 a year). It sounds like you lose the death in service benefits as well and possibly any sickness benefit that goes with it.

Your information is incorrect or out of date. Your assumptions are wrong. Wherever you are getting your information from, you need to change it. You have a pension scheme that many would love to have. Yet you want to opt out to save a small amount now so you can live in poverty later. Crazy.

edit:
Just to add to how crazy you would be, I put your contribution and employer contribution into a pension calculator and selected age 60. It would give you an income in today's terms of around £8600 a year. That is £716 for 30 odd years compared to you saving around £80pm for 30 odd years. (make it 65 and its £12,665 a year).

Bigsmak

aagie wrote: »

I'm 31 and I've been contributing towards my pension since 3 years (I pay 10% of my salary and my employer pays additional 14%). I've recently started worrying that by the time I'm 67, the retirement age will increase again and that I may not live long enough to benefit from my savings. In addition, I heard that having an extra income (i.e. additional pension) would make me not eligible for government benefits should I ever need it when I'm old. Does this mean that I may actually lose out unless I've contributed a lot towards my pension, own my house when I'm old and can afford to keep it?
I'm considering opting out to have a bit more money now (my net pay would increase by around £1000 a year). However, my income tax and national insurance contribution would slightly increase upon opting out (as the government provides a discount for those who save) and I was told by my pension provider that if I wanted to sign up again, I'd need to fill in lots of forms and undertake a medical etc.
I wonder what would be the best option to choose in a long term... Is it actually worth saving money towards pension? I would very much appreciate any piece of advice.

Just noticed someone beat me to the reply.. but here is what I wrote anyway!

I won't give you advice, but I will give you some questions to ask yourself!

How much money would you need in retirement to retire on (imagine you retired today)
Do you know how much the state pension benefit is?
Is your employer really putting in 14% of FREE MONEY into an account that will benefit, if you stopped paying in yourself would they stop paying? If so, this is a 14% pay cut you have just asked for!

Also, you said that you are worried about your health etc for retiring at 67, who said you have to retire at 67. Under current rules you can take your pension (not the state) from 55 onwards. So if you pay even more in, you can retire earlier.

Also the reason this age is going up is because people are living longer and are healthier on average.

aagie

Dear Bigsmak and especially Dunstonh, thank you very much! I was not aware that I can retire at the age of 55 and that changes a lot. Plus, I didn't realise that a contribution from the employer is not common. You're right, my brain must've been suffering from a major malfunction!

dunstonh

aagie. Please don't leave the scheme. It really is worth it. I would love to have an employer paying in that much. To put it in perspective, the Govt is forcing employers to pay into pensions between now and 2017 and they will be forcing them to pay a minimum of 3%. So, you can see where that 14% sits compared to that.

Always be wary of workplace myths and mischief makers. There is so much misinformation out there. Often much of it is linked to a truth but then gets altered as its relayed via many people or relates to something totally different but a similar subject. Never make an important financial decision on the basis of unqualified opinions. In theory, you should take what we post here with a pinch of salt as we could be wrong and have an agenda and there is nothing to say we are what we say we are. However, with what we have said, you can see how good it is. If I could have a pension like that, I would jump at the chance.

RichandJ

aagie wrote: »

Dear Bigsmak and especially Dunstonh, thank you very much! I was not aware that I can retire at the age of 55 and that changes a lot. Plus, I didn't realise that a contribution from the employer is not common. You're right, my brain must've been suffering from a major malfunction!

Well done for listening. It can be uncommon when some posters are not told exactly what they want to hear.

aagie

I won't leave the scheme. Thank you all for your help and advice.

StephenM_2

aagie wrote: »

I was not aware that I can retire at the age of 55 and that changes a lot.

Be aware though that whilst the legal minimum age for retiring may be 55, whether you will actually be able to retire at 55 depends on the scheme rules. For example, in my private sector Final Salary scheme if I want to retire before 65 I need permission from my employers and the pension scheme trustees. That may or may not be forthcoming.

Also if you retire at 55 your pension will be a lot smaller than if you retire at, say, 65.

aagie

Thanks StephenM. You're right. I've contacted my pension provider and they said I could retire at 55 but would not be entitled to full pension. However, if I retire at 60, I'd get the full pension.

dunstonh

aagie, your earlier posts suggested a money purchase pension (one based on funds). As the thread has gone on it appears you have one based on years of service. If it is based on years of service then the 14% employer bit is irrelevant. They will pay to meet the liabilities of the fund. That may be 14% one year or 4% another. What they pay doesnt matter. You will get x number of years service multiplied against your final pensionable salary using a calculation. This actually means your pension is even more valuable as typically these are the type that are so hard to come by.

aagie

Thanks Dunstonh, this is something completely new to me as I didn't realise there are pension schemes based on funds or years of service. I guess I should finally read all those booklets that the scheme comes with... Overall, I'm convinced it's better to keep contributing.