Opt out of Teachers Pension temporarily

Buig_Greg67

Hi all,

Some advice would be very much welcomed here:

Background
I would like to opt out of my teachers pension temporarily (1 - 2 years) and use this money to pay off debt that I have acquired over a few years due to not looking after my finances too well - holidays and reckless spending. I have a mortgage and child now and want to get rid of this.

I have approx. £11,500 on a credit card and the maximum I can afford to pay off each month being opted in to my pension is approx. £200. I current pay £200 (ish) each month to my pension. If i used them together that i could potentially pay off around £450, this would nearly see me debt free in around 2 years as opposed to maybe 4-5 years.

Questions

If i opt out of the pension scheme:

1. Is it possible to opt back in again within 1-2 years?
2. Would my tax, NI orstudent loans contributions be higher or lower if i didn't contribute to pension?
3. I am 30 now and have been paying pension for 5 years, i plan to work for at least another 30 years, would these two years have any major consequences to my overall value at the end of my teaching career?

I don't want to be in debt anymore - i want to pay it off as quickly as possible as its been hanging over me and just want it away as quickly as possible.

Any advice to the above or in general is very much welcomed.

Thanks in advance

dunstonh

I have a mortgage and child now and want to get rid of this.

The mortgage or the child?

The mortgage interest rates are likely very low. Leaving the teachers pension scheme to overpay a mortgage would be a very bad thing to do.

I can afford to pay off each month being opted in to my pension is approx. £200. I current pay £200 (ish) each month to my pension.

You wont get £200 extra in your payslip though. You will have to pay tax and NI on it.

this would nearly see me debt free in around 2 years as opposed to maybe 4-5 years.

Being debt free is not a be all and end all. Especially when the decision is likely to cost you far more than the interest you will pay over the extra couple of years.

If i opt out of the pension scheme:
Is it possible to opt back in again within 1-2 years?
Would my tax, NI orstudent loans contributions be higher or lower if i didn't contribute to pension?
I am 30 now and have been paying pension for 5 years, i plan to work for at least another 30 years, would these two years have any major consequences to my overall value at the end of my teaching career?

1 - yes
2 - yes, you would pay more tax and NI
3 - Yes, it could cost you tens of thousands of pounds in the long run by missing those 2 years.

Kynthia

Others who know more than me will be along to tell you more specifically what you'll be giving up for how little you will be gaining. You save tax and NI as that pension contribution is paid before they are deducted so your take home pay won't increase by £200. 2 years out of the scheme is throwing away the employers contributions for that time and, assuming this is the defined benefit scheme, costing you thousands in your retirement for you and potentially your partner. So it doesn't seem tge best solution to save yourself 2 years of debt interest now at the costs of hundreds of pounds a year from your scheme retirement age until both you and your partner are no longer here.

Plus is there a death in service benefit? If you opt out you lose this benefit, which is often a lump sum often 2 or 3 times your annual salary (check the scheme details though). So do you have other life insurance that pays enough to your partner should something awful happen while you are not in the scheme? As you can see, it might cost you a lot to opt out compared to the little you gain.

Buig_Greg67

Hi dunstonh

Thank you for your reply - No I don't want to get rid of the mortgage or my child (Well.....) LOL.

I wanted to use the additional income from the opted out pension to pay off the £11000 on my credit card. But if you say I will pay more tax and NI then I don't see the benefit in that.

I do see your point in paying a few more pounds in interest than costing thousands long term.

Back to the drawing board and stick it out for another few years and maybe see if i can get additional income doing something.

Thanks again

p00hsticks

Stopping your pension contributions really should be the very last option you consider, for a number of reasons.

I don't know much about teachers pensions, but if , as I suspect, it's a defined benefit (final salary or career average scheme) then its a valuable benefit that is making up a good proportion of your overall employment package. Even if it's a defined contribution scheme, then the chances are that your employer is paying in a fair proportion themselves, so you are effectively passing up on free money from your employer if you opt out.

Also, you get tax relief on your pension contribution - it is taken out of your salary before tax (and sometimes NI) is deducted. So if you are currently paying £200 in pensions contributions, then if you stop your net salary will only go up by around £160).

I can understand your desire to get out of debt, but stopping your pension is not a financially savvy way of going about it.

Buig_Greg67

Hi Kynthia

some food for thought there you have given me too - i do have in service death so i doubt i will be giving my pension up.

thanks for picking up on this

Buig_Greg67

thanks p00hsticks for the advice

i am seeing now that opting out is not the best choice

AnotherJoe

Very wise and rational decision Greg. There's probably stuff you can cut back on to pay down those credit cards debts that will make a similar contribution without mortgaging your future which you'd have been doing by stopping the pension. And thats without the temptation to hold off for another year or two once you'd started down this road, as well.

Post on the debt free wannabee board for ideas. Odds are there are expenses you can cut back on, things you can sell, forgo a holiday or two- unless you are living on the breadline now, you can I'm sure pull in that 5 year range considerably.

greenglide

The Debt Free Wannabe board may be able to help http://forums.moneysavingexpert.com/forumdisplay.php?f=76

But please ignore any advice from them to opt out of your pension, you definitely dont want to do that.

atush

I agree, there are other ways to pay off your debt faster, and the DFW forum can help.

Do a financial MOT. A spending diary of EVERY pound you spend is a start- you will be surprised what you are spending on that can be eliminated. Such as coffees, magazines etc. Meals out? Takeaways?

Then do an SOA in the debt free board and list you outgoings. you may be paying more for your phone, insurance and utilities than you need to.

Cook from scratch. Far cheaper than ready meals/take out.

Sell stuff you dont need on ebay.

Throw every penny onto the debt, and keep your penison.

xylophone

I have a mortgage and child

I have told this story before....an acquaintance (young father, two infant children), was out at work one night when a freak accident occurred - he was killed outright.

Mercifully, he was a member of a DB pension scheme - at least in her grief, the widow wasn't left wondering where the next penny was coming from.....