Workplace pension or pay rise - given decision to make.

JustAnotherSaver

My workplace pension begins this month but my wife's begins next year some time.

I expected my workplace to try & discourage us from opting in but they have been ok about it.

My wife's workplace on the other hand have told the staff that as of next year they will have a decision to make - to opt in to the workplace pension scheme (& therefore NOT receive a pay rise for x-years) or to opt out of the scheme (& receive a pay rise - but obviously don't know how much, how frequent one will come, IF one will come etc).


With my wife currently 33 years old, what would you say would be the better option?

My thought is opting in to the workplace pension since that is guaranteed and a pay rise is not, especially not one every year.

Jack_Griffin

So what will you live on when you are old, the State Pension is only barely sufficient for the basics.

JustAnotherSaver

About 4-5 or so years ago we saw an IFA regards retirement planning & was advised to go down the S&S ISA route at that time, which we did. We would've been 28-29 so we started a little late.
As we were also saving up for a house we also wasn't contributing a great deal.

So there's something there, but nothing significant. Just to get the ball rolling i guess.

So you would take the workplace pension over a pay rise i take it then.

xylophone

My wife's workplace on the other hand have told the staff that as of next year they will have a decision to make - to opt in to the workplace pension scheme (& therefore NOT receive a pay rise for x-years) or to opt out of the scheme (& receive a pay rise - but obviously don't know how much, how frequent one will come, IF one will come etc).

Does this equate to " tempting or pressurising staff to opt out of pension saving, whether it’s during the recruitment process or after."?

http://www.thepensionsregulator.gov.uk/press/pn12-19.aspx

hugheskevi

Does this equate to " tempting or pressurising staff to opt out of pension saving, whether it’s during the recruitment process or after."?

I think it does.

The detailed guidance is here.

On page 11 there are examples of what the Regulator considers inducements to opt out, one of them is:

The employer tells their jobholders/entitled workers that if they opt out of, or leave, their pension scheme, they will receive any of the following:
• An extended or renewed contract in the case of a shortterm worker
• A one-off payment
• A higher salary level
• A promotion.

MEM62

JustAnotherSaver wrote: »

My wife's workplace on the other hand have told the staff that as of next year they will have a decision to make - to opt in to the workplace pension scheme (& therefore NOT receive a pay rise for x-years) or to opt out of the scheme (& receive a pay rise

Having just sorted our scheme out I believe that such an approach might not be lawful. They employer cannot threaten no pay rises for not opting out of auto-enrolment.

JustAnotherSaver wrote: »

About 4-5 or so years ago we saw an IFA regards retirement planning & was advised to go down the S&S ISA route at that time, which we did.

Unless you had compelling exceptional circumstances this advice seems fundamentally flawed. Anything you put into a pension gains tax relief and, usually, an employer contribution. You pay into an ISA out of your net income. Even without the employer contribution there is no way an ISA can beat a pension in investment terms.

Kendall80

MEM62 wrote: »

Unless you had compelling exceptional circumstances this advice seems fundamentally flawed. Anything you put into a pension gains tax relief and, usually, an employer contribution. You pay into an ISA out of your net income. Even without the employer contribution there is no way an ISA can beat a pension in investment terms.

Although an S&S ISA does have other plus points. Such as no tax when withdrawing and a freedom to make those withdrawals whenever you like/need. Personally I have a mix of both along with a 4%:6% workplace pension.

dunstonh

This employer is at risk of being fined as it cannot offer an incentive to opt out over opting in.

They would not only be breaching auto-enrolment rules they would also be risking discrimination laws. (Mr X gets paid more and gets pay rises compared to Mrs Y)....

About 4-5 or so years ago we saw an IFA regards retirement planning & was advised to go down the S&S ISA route at that time, which we did. We would've been 28-29 so we started a little late.

That was probably the right thing 4-5 years ago. However, since then, we have had auto-enrolment arrive and free money from the employer trumps personal individual arrangements. Plus, the new pension freedom options would now make pension more suitable in a number of scenarios where ISA would have been better before.

Are you in the workplace scheme AND doing the ISA?

PensionTech

I second (and third, etc.) the view that what your wife's employer is doing is not allowed.

Your wife should consider how secure her position is and what would happen if she were to bring this up with her employer directly in an attempt to get them to change this policy. If she thinks it could harm her, she can consider whistleblowing directly to TPR, who will investigate and enforce the law as necessary.

The employer is trying to shirk their responsibilities - this is not what auto-enrolment is all about. She should be entitled to a pension as well as her normal employment benefits. The employer's ability to award pay rises may be hampered by the requirement to pay pension contributions and corresponding impact on their overall costs - but they are not allowed to use this to discriminate on an individual basis.

The only other thing your wife should be aware of is if this is their intention, they may find ways around it more subtly e.g. deciding on a discretionary basis that certain employees won't get pay rises from year to year, and these just happening to be the employees who are in the pension scheme. All the more reason for TPR to be made aware as it could get nasty in years to come.

Thrugelmir

How many people are employed in the organisation? Are pay rises discretionary or given across the board?

kidmugsy

I dare say the rogue employer expects to save money by avoiding having to make pension contributions without paying as much by way of pay rise. So, on average, shouldn't employees expect to do worse by avoiding the pension?