Having a break from pension payments to save house deposit??

gazapc

If you are on £34k a year and struggling to save any money then you should look at your outgoings. That salary is well above the UK average and if you have saved £1k in 4 years there is something not quite tight.

Good luck on your cost cutting quest.

SeduLOUs

Don't forget that as a member of the NHS scheme your next of kin would get a lump sum payment of 2 years salary if you were to pop your clogs. Makes no difference to you personally of course, but it's just another 'perk' that you'll be giving up by leaving the scheme.

I do think it would be bonkers to give up two years of contributions - there must be other areas you can cut back on, even if it feels like hard work in the short term to avoid making such a big dent in your future income that you will probably come to regret.

hyubh

hugheskevi wrote: »

Yes - my understanding is that it is as if the leaving had never happened, so the end outcome would be the same as if the member had been on unpaid leave

You're quite right - just tracked it down in the 2015 scheme Regulations, which are very explicit (Schedule 9, Part 3):

Deferred member’s account closed after break not exceeding 5 years

18.—(1) If a deferred member re-enters pensionable service under this scheme after a break in service not exceeding 5 years—

(a)the deferred member’s account must be closed; and
(b)the active member’s account must be re-established.
(2) The active member’s account—

(a)must specify the amount of accrued earned pension as at the beginning of the break in service; and
(b)must be adjusted as if the member had continued as an active member during the break in service but had received no pensionable earnings.

http://www.legislation.gov.uk/uksi/2015/94/schedule/9/part/3/made

atush

wotsthat wrote: »

Seriously you people!

The OP has identified a plan to accelerate their way to home ownership which has the added benefit of saving the taxpayer money.

Looks like a win-win.

To the severe detriment of their retirement. So no, we say dont do it.

We aren't here for the taxpayers really. The point of this forum is to help individuals wo ask questions about their retirement.

HardCoreProgrammer

There could be a case for not joining a pension scheme to save more money for house deposit.

I did not join my company's pension scheme until I had bought my home and saved an emergency fund. At the time, everybody said I was an idiot, but with hindsight it was a very good financial decision.
However, the pension scheme was a 5% salary sacrifice with the employer paying in 7% of the lowered salary (so effectively they were only chipping in just under 2%). You may have more to lose by suspending your pension payments.
Nevertheless, it is not fun if you get a higher pension, but do not own your home so all the extra money goes to pay the rent!

On this forum, I once illustrated a simple calculation which could be used to evaluate the value of "free money" from your employer against money you can save by being on the property ladder sooner. Please search my previous posts. Doing the sums may give you some concrete figures to come to a sensible decision.

Where do you live? If you live in London, 34k is not a large salary, and property prices in London are not going to fall anytime soon (if you look at the policies of the major political parties), so there may be merits to get on the housing ladder as soon as possible.

And with interest rates so low and unlikely to go up anytime soon, I would expect you would pay less than your rent, once on the property ladder.

hyubh

HardCoreProgrammer wrote: »

However, the pension scheme was a 5% salary sacrifice with the employer paying in 7% of the lowered salary (so effectively they were only chipping in just under 2%). You may have more to lose by suspending your pension payments.

The NHS scheme is rather better than that - it's now CARE DB, accrual rate of 1/54, revaluation rate for active membership of CPI+1.5% (CPI if in deferment or payment), two tiers of ill health pension, death benefits, 1/3 spousal pension (don't have to be formally married), etc.

On this forum, I once illustrated a simple calculation which could be used to evaluate the value of "free money" from your employer against money you can save by being on the property ladder sooner. Please search my previous posts. Doing the sums may give you some concrete figures to come to a sensible decision.

Does your 'simple formula' take account of DB vs. DC differences? Given you're now up to 58 posts when I looked a link might be handy...

SeduLOUs

HardCoreProgrammer wrote: »

On this forum, I once illustrated a simple calculation which could be used to evaluate the value of "free money" from your employer against money you can save by being on the property ladder sooner. Please search my previous posts. Doing the sums may give you some concrete figures to come to a sensible decision.

The amount the employer pays in (14.3% currently) bears no real relevance to the amount of pension you get at the end in the NHS scheme.

As has already been pointed out above, a 2 year break would cost a minimum £1724 per year of retirement (in the new 2015 scheme the amount added to the pension each year is 1/54 of pensionable pay).

Furthermore, the £3,200 per year 'saved' by not paying in would realistically only equate to about £2,500 as you would lose the tax relief.

To save £7k she would need a 3 year break from pension contributions, which would reduce her retirement income by a minimum of £2586 per year (likely more as this amount is index linked).

It would be far more wise to have a tough few years of really cutting back on spending rather than making such a dent in a retirement fund that is likely to be regretted later.

cns06

My advice is wait. At that age there is a high chance your life will change over the next 3-5 years. I would hang fire and save. Don't stop the pension. When you are young it seems like a lot of money but trust me when you come to retire that's going to be one of the best pensions of anyone you know and the last thing you want to do is risk it now. If you stop and you start your own pension 5-10 years down the line you are NEVER going to be able to afford to put in anywhere near enough to get out what your colleagues will get from their DB pension.

MARTYM8`

I would agree - bad idea. The benefits of the NHS pension scheme are extensive - how would you provide for your family if you die young. They would get death benefits and a pension rising by inflation for life.

Add on the ill health benefits if you cannot work and more and its a no brainer compared to what those would cost from a private insurer.

I am aware the LGPS allows you to pay 50% contributions - which allow you to keep the full death benefits and ill health benefits but you only accrue 50% of the normal pension annually. Don't know if this is an option in the NHS - but this could be an option to stay in but reduce the monthly cost.

wotsthat

atush wrote: »

To the severe detriment of their retirement. So no, we say dont do it.

We aren't here for the taxpayers really. The point of this forum is to help individuals wo ask questions about their retirement.

Financially the OP will likely be worse off if they follow their plan but we don't know whether they're willing to prioritise home ownership now at a cost of future pension income - no-one asked but offered opinions from their own perspective.

My priority is a pension and I think of £5 spent at Starbucks as lost tax relief, tax free lump sum and x years of lost compounding - not everyone thinks like that but it doesn't mean it's 'wrong' to go into Starbucks - it just means I wouldn't.