Should i stop paying pension contributions

swaledaleslots

I am considering stopping paying into my BT pension, I have 41 years service & hope to retire in the next year or 2 at age 58/59. My pay is effectively frozen, however becoming a deferred pension member would mean an index linked increase every April. If I stop paying in, I get a 6% 'pay rise' and can't see a downside at the moment. My final salary pension stopped in April 2009 and moving forward it goes to a CARE pension, with that part due at 65.
I am financial sound, with no debt, in good health, but object paying in 6% every month for no obvious return.
Any thoughts, guys?

Zelazny

What are the terms of the CARE scheme? It might be a very good investment...

taking_stock

swaledaleslots wrote: »

I am considering stopping paying into my BT pension, I have 41 years service & hope to retire in the next year or 2 at age 58/59. My pay is effectively frozen, however becoming a deferred pension member would mean an index linked increase every April. If I stop paying in, I get a 6% 'pay rise' and can't see a downside at the moment. My final salary pension stopped in April 2009 and moving forward it goes to a CARE pension, with that part due at 65.
I am financial sound, with no debt, in good health, but object paying in 6% every month for no obvious return.
Any thoughts, guys?

definitely a bad idea.
even with CARE, you'll be losing a huge chunk of your total benefit. of course, you'll only pick up 4% of that 6 % (assuming basic rate taxpayer).
if you doubt how much you'd lose, calculate what a year in the CARE scheme provides and then compare it to ~£35k needed to buy £1k of pension, index-linked at age 60 with spouse benefits.
eg if you were on £30k pa and the CARE provided for one 60th of your salary each year, then you would be forgoing £500pa of pension - costing about £17.5k for money purchase types - or an unbeleivable 58% of slary in the year before retirement!!!!
(note that the calbulation would be rated down by 7.5%pa for anyone further from retirement).

taking_stock

just noticed the CARE bit payable at age 65, so that would effectively rate down the figures by 43% (discount rate compounded for 5 years). so the example above would be worth (17.5/30)/1.43 = 40% of salary.
you'd still have to be mad to give it up for 4% in your pocket.

dunstonh

So, you gain 6% (before tax and NI is deducted from it) if you leave the scheme but lose benefits that would cost around 20%-25% if you stay in it.

Why do you want to leave the scheme when it will cost you more?

but object paying in 6% every month for no obvious return.

You are getting around 25% of benefit for that 6%. Why do you not consider that an obvious return?

swaledaleslots

as I understand it, both parts of my pension would be actuarily reduced if taken early, with the career average part taking a much larger hit, as it is payable at 65. The final salary part was due at 60. My plan was to not take the pension until I leave in a couple of years, and let the indexation take care of any pension increase that my (lack of) pay rises would otherwise have done. I seem to be getting a very big 'no' from the forum, but I'm still not convinced why.