Police Pension Opt Out to Opt back in?

Nathan1698

Hi, Sorry if this has been discussed already but I can't find it, and I am new to the forums.

I am a 31 year old constable with 11 years service, and I am considering opting out of the pension for a few years but intending to opt back in.

I am on the PPS scheme and not the NPPS scheme and knowing that no matter what we all go on the same pension in 2015 and that we can opt out and then back in, my thinking is that at the moment (so I can get on the property market)I would rather spend the money on a mortgage now than the pension for when I am 60+ years old. I have 11 years pension built up already and if I were to opt out for either 3 or 5 years then opt back in to the new one I would still have paid into the pension for 35 years so surely would still get a good pension.

That way I can enjoy life now for 3 years whilst I get onto the property market again and then still have investment for the future.

I just don't know what I will lose out on, if it works out 2-3k a year less when I am retired then this would be a good option. The Pension Calculators etc just don't work that I have been sent and my knowledge of all the ins and outs and working outs is minimal.

My current thinking is that this is the best option for me to provide me with what I need now and still in the furture, I am just worried that there is something that I am not seeing.

I know my NI and tax goes up if I opt out but £450 a month on my pension at the moment I can't justify. I am 31. Many 31 year olds I know haven't worried about a pension yet.

Any help or insight will be appreciated.

Thanks

dunstonh

I am a 31 year old constable with 11 years service, and I am considering opting out of the pension for a few years but intending to opt back in.

Opting out of such a good scheme would be silly in the vast majority of cases.

my thinking is that at the moment (so I can get on the property market)I would rather spend the money on a mortgage now than the pension for when I am 60+ years old.

Not very good thinking. Given the small contribution you pay and the tax relief and reduced NI, you wouldnt make much of a difference at all to your savings.

That way I can enjoy life now for 3 years whilst I get onto the property market again and then still have investment for the future.

You would be robbing your retirement years of tens of thousands of pounds for a hundreds of pounds now.

I know my NI and tax goes up if I opt out but £450 a month on my pension at the moment I can't justify.

With a 12.25% contribution rate, you look as if you would be a higher rate taxpayer. So, some of that contribution gets higher rate relief. So, you woulnt be saving as much as you think.

Many 31 year olds I know haven't worried about a pension yet.

Just because they are stupid, doesnt give you an excuse to be.

Nathan1698

I am sure it may be a stupid thing to do, but I don't know unless I knew the numbers.

As in how much extra tax? and How much extra national insurance? My pay with the london weighing / allowance etc it works out I have about 42500 a year but 6k off that going on a pension. Surely a combined pension of 11 years in PPS and 25 years in the 2015 pension will still leave me comfortable when I retire? Due to the age of some colleagues they will have 11 years in PPS and only 20 in the 2015 one because they have to retire at 65 so wont I be better off than them even if I have a break from paying into it?

The few hundreds now would be an investment into property too, and whilst I know loosing 2k a year for 20 years of retirement means I lose out on 40k in total I would be happy with that loss.

I understand that planning for the future with pensions etc is a sensible thing to do and I would never opt out permanently but the current pension I am in I am being forced to leave to join the new one in 2015 so I am going to lose out anyway on what I had initially planned for when joining the PPS.

And if I make it to age 60-65 and get the pension great, but what about now? I can't live in a studio flat now, just so I can live in a bigger place when I retire.

dunstonh

The few hundreds now would be an investment into property too, and whilst I know loosing 2k a year for 20 years of retirement means I lose out on 40k in total I would be happy with that loss.

You would lose out on far more than £40k as you need to factor inflation into it. Chances are it would be in 6 digits over retirement.

And if I make it to age 60-65 and get the pension great but what about now?

4 out of 5 men make it. The "what about now" attitude is part of what was wrong with the credit boom years.

I can't live in a studio flat now, just so I can live in a bigger place when I retire.

A couple of hundred pounds a month isnt going to make much difference though.

benalder284

The other thing that would make me hesitant to support any 'temporary' opting out of such a great pension scheme is that it is very easy once you have left the scheme to always find that your outgoings increase to match your income and that you never seem to have enough spare cash to justify rejoining.

jem16

Nathan1698 wrote: »

My pay with the london weighing / allowance etc it works out I have about 42500 a year but 6k off that going on a pension.

Well let's say your salary increases in line with CPI at around 2.5%pa. In 29 years when you are age 60 that would be about £86,972. 5 years service on a 1/60ths scheme would see you losing £7247pa on retiral. This would increase each year with inflation. Multiply even the £7247 by 20 and you're at £144,950 without accounting for index-linking.



With £6kpa going into the pension that's £500pm but with tax relief, some at higher rate you only pay £383. NI costs would go up too. So over 5 years you could save £22980 - a bit more if you count inflation over 5 years.

atush

That is my thought too. That you would not opt back in (as your 3 years is already 5 in your post?) for many years if ever as there is always 'something better' to spend your money on.

Second, there may be other ways you can save in your current spending. Cut back on luxuries, nights out, things you don't need etc. Do a spending diary and see where your money goes.

Look into buying with a friend/relative? Look into a shared purchase scheme- like a teacher you are in a necessary occupation?

Will you always be in London? Are you from there? Could you buy elsewhere and rent it out with a lower deposit?

Nathan1698

Thanks,

I am from the north so my intention would be when I move from london back to the north in 3-5 years I would opt back into the pension because the cost of housing up there is a lot less and I would have more disposable income.

I am in the process of attempting to get shared ownership housing, the total cost of this on a mortage and rent is 1100 a month and that doesnt include bills.

I have got rid of my car, quit drinking apart from one night out a month, get the slower cheaper train back to the north and I am spending drastically less. Whilst I would rather keep my old lifestyle I am well aware it's not just me having to cut back. I have tried to transfer to the north where I would pay a lot less and get a lot more on a mortgage, and be able to live in a nice area away from the people I deal with day in day out, but this is not possible.

Teachers, police and other keyworkers no longer get priority on Shared Housing because they no longer have problems retaining staff is what I was told by the Affordable housing companies. So MOD and Social tennants score more points, then people who work on the borough where they are built. There are none being built on the borough I work so I lose more points again.

I have one loan that I am paying off (which is the deposit for my mortgage) but that and my phone bill are my only monthly commitments because I currently sleep on a friends sofa whilst I try to find a way to live somewhere and save money.

Obviously you are on here for a reason and you know the numbers better than me, so if I would lose almost 8k a year then I guess its not worth it. (Jem16 thanks for the numbers, that's what I was hoping for, to help me understand the damage more.)

1 year off that monthly payment would have helped at the moment, until my girlfriend would be able to move in a split some of the cost if I got a shared ownership property. But then it would be hard to opt back in before I move back.

I just didnt think 3 (or 5!) years out would be that much of a difference, my parents can't afford to live on the state pension and I don't want to end up like that so I guess I'll have to find another way to make some extra money.

Thanks again for your help.

jamesd

Nathan1698 wrote: »

I am a 31 year old constable with 11 years service, and I am considering opting out of the pension for a few years but intending to opt back in. ... my thinking is that at the moment (so I can get on the property market)I would rather spend the money on a mortgage now than the pension for when I am 60+ years old. ... That way I can enjoy life now for 3 years whilst I get onto the property market again and then still have investment for the future. ... £450 a month

Really bad financial planning.

You should instead do one or more of these things as a much better financial plan:

1. Buy a lower value place that is not perfect, then save on rent while living there.
2. Buy with a higher loan to value.
3. Consider shared ownership, an excellent way to get started at otherwise too high LTV. I see you are, great, good luck with it!
4. Consider subsidising costs with long term unsecured borrowing to get deposit and closing money together. 18 months of interest free credit will decrease your income multiple but will increase your available deposit and so reduce your loan to value, making it easier to get a mortgage at a good interest rate.
5. Adjust your lifestyle/future home spending balance for a while.

You're only considering two or three years. That's only £10,800 or £16,200 total. That's peanuts compared to things like not buying a perfect property first time or buying with shared ownership.

Girlfriend and less than ideal living conditions are a pretty good compromise to more quickly get into a place of your own. So is a less than ideal place owned for a while, then sold when you can move back up north.

Not really what you wanted to read but it is the best set of things to do to leave you in the best possible position.

Looking beyond this, you don't have to retire at 60 or 65, you know. You may not appear to have a lot of money given where you are now and what you're trying to do but longer term you can retire well before that if you start doing investing in a stocks and shares ISA to provide you with money to live on between retiring and getting the work and state pensions. Too soon for you to be doing this, just me looking a few years down the road and giving you a pointer.

jem16

Nathan1698 wrote: »

I just didnt think 3 (or 5!) years out would be that much of a difference,

I think the main difference is that you have not thought about the value of the employer's contribution and how good a defined benefit pension really is.

bigadaj

Jamesd - excellent advice generally as ever, however your point about girlfriend and less than optimal living conditions - great in theory but rather more difficult to achieve on practice, one or other is fine, together would often be a problem.