reducing pension contributions

chrisw99

Next month I will be 45 and the employer pension contributions increase from 6% to 9%, which is nice.

My personal contribution is also 6%, so currently I've got a 12% contribution.

Whilst looking into all this, I've discovered the personal contribution is now voluntary, I could pay 0% or 50% if I wanted. It used to be mandatory so I had no choice previously.

As I'm currently in a lot of debt and trying to lower all my expenditure, the 6% (£200 ish) going in as a personal contribution each month now seems excessive as it's voluntary. With the employer contribution about to rise to 9%, I am very tempted to drop my personal contribution to 1%.

So what are the pros and cons. Obviously less will be going into my pension pot each month (10% instead of 12%), but I will have a lot more cash each month to throw at the debts. I can always whack my personal %age back up again next year when things hopefully improve

andyfromotley

Hi Chris,

Sounds like a nice pension mate. As the recipient of an absolutely top notch occupational pension i would be very wary of dropping my contributions. I had to retire early (in my 40's) and am able to live a comfortable life and not have to worry about working again unless i choose to. I am in this situation because no matter what, come rain shine or even staring poverty in the face i never stopped my very high contributions. Month in month out i paid it, now i am reaping the benefits.

Now i am not saying one should never stop contributions, but imo it really should only be in the circumstances where doing so would stop ones house being repossessed perhaps, or would stop one having to declare bankruptcy. I would advise against it just in order to speed up debt repayment. The dangers of doing so are that, you are missing out on tax free savings, your contributions are actually worth 20% more than you pay. You lose the miracle of compound interest on those payments that you don't make. 10% in total isn't that much to pay into a pension. A very general figure to give a pension in line with your salary is 15% or more (although this varies enormously according to circumstance)

Additionally there is the very real danger that you will not resume the repayments as there is always something you need the money for. This could leave your pension pot seriously underfunded.

Many many people face a pensions crisis. They will not be able to retire or will be about 70 when they do so. They will have to exist on a poverty level of income when they do. Whatever you do make sure that you do not end up in this situation.

Hope this helps.

[Deleted User]

pay as much as you possibly can into a pension: when I was a child, most people died in their 70's, now it's normal for people to be in good health in mid 80's. All living longer, soon 100+ will be the norm, and government won't be able to pay for all these elderly(but healthy) people. only way to have a good life will be a decent occupational pension. My good friend is an actuary, and he says pension contributions are an absolute must.

MEM62

You are short of cash now because of your debts. Reduce your pension contribution and you may be short of cash in retirement also. Find other areas to cut back in order to address your debts - don't rob your future.

ReadingTim

You need to check the details of your own scheme carefully, but in many cases, employer contributions are related to employee contributions - the more you put in, the more they put in too, so to speak.

I'd be very surprised if any employer would be happy to increase their contribution from 6% to 9% and not expect (or even require) their employees to do likewise. And even if the increase is age related (ie employer contributing more as retirement nears), you should consider that this is in place for a reason - ie so that you're saving sufficient to ensure a reasonable retirement.