Opting out of pension

sandsy

I try to live life to the full so that I won't have regrets.

But I know one thing - not putting that £100 into my pension each month would leave me with massive regrets come retirement. It's the best investment you can give your future self.

Audaxer

Mnd wrote: »

The biggest gain you will get from staying in is the ability to finish working early.

Totally agree. If you stay in the pension scheme it is possible you will be able to retire well before you are 71. If you opt out, you will have an extra £84 a month now but miss out on £315 per month free money that your employer is paying into your pension. When you get into your 30s and 40s and possibly have kids of your own you will regret opting out of the pension back when you were 21, when you that realise even if you restart a pension in your 30s or 40s you will not end up with nearly as good a pension than if you stayed in the pension at 21.

kmb500

Thanks everyone for all your replies, I appreciate it.

JoeCrystal wrote: »

I urge you in strongest possible form not to opt out. What you are paying for is a benefit whose cost is ultimately paid by the council. Based on your information about income tax, I am guessing you are earning £20,000 or so

For paying £105.67 per month, you get 1/49th of your pensionable pay so about £408 a year. Each year, that amount get uplifted by cost of living every year so that specific amount stay the same in real term. Let say you worked for forty year under 1/49th accrual rate and let say you are on same salary for rest of the period, you will get £16,000 a year pension at least. You also get death in service benefit payout and ill health retirement and so on.

To get anything like that in private sector, you would need to be paying in 25 to 33% of your salary (And that is purely for pension, not for ill health and death in service payout), it is very good deal and please do not opt out. What employer is paying is just nominal and ultimately, they will pay whatever the amount is needed to cover your pension when you retire with all the risk rests solely with them.

Again, it is worth every single penny and please do not opt out!

Yes, I'm on £22,000 currently.
I don't really know what you mean by 1/49th. Are you saying that if I stayed at my current salary until I retire then I would get £16000 a year in private pension?
As for things like death in service payouts - I don't have any kids or partner to pass that onto, at least not yet, so that doesn't really matter at the moment.

dunstonh wrote: »

Only around 1 in 5 do not make retirement. So, you are planning on the odds of 1 in 5 not making it rather than the 4 in 5 that do?

So, clearly a bad financial move on your part if you do it.

If you are struggling now, when earning what you earn now, how do you think your future self will survive on £8500 a year state pension?

Well, that is just stupid thinking. Hopefully, you are not doing an important role with Local Govt. And yes, my language is blunt on purpose. You need a right kick up the backside. You are not a child anymore. So, stop thinking like one.

How do you get £84 (probably less after NI) to be better than over £300 for the same cost?

As you get older and wiser, you get grumpy at the stupidity of some of the things that people do.... Such as opting out of a great occupational pension scheme because of really daft and ill-considered opinions.

Opting out of the scheme would rank with one of the worst financial decisions of your life. Hence my blunt response.

1) What I mean is, anything could happen within the next 50 years. I could win the lottery, I could die, pensions could be long gone the way of the dinosaur. Compared to a guaranteed amount of money I could have right now.

2) Again, I have no idea what kind of life I'll be living at age 70 (or whatever the retirement age is by then).

3) I'm not sure what I said to provoke your rudeness. When I say "I don't care what happens in 50 years" I'm talking about myself, not that I don't give a crap about anything in the world...

4) Like I said I'm well aware that you get more money, a lot more, from the pension. But it's not money I can use right now, and in terms of what I think about my finances, I'm more concerned with the present. An extra 8% on my income can go a long way. If I was offered an 8% pay rise right now I'd leap at the chance.

TARDIS wrote: »

You've obviously not read many threads on this forum about all the varied and often extremely active things many are doing in their retirement! Mind you that's often with decent pensions, which you're currently thinking of giving up. And I'd argue there are grumpy people of all ages.

You say your lifestyle is shortening your estimated life expectancy which suggests to me cigarettes and alcohol (apologies if I've misinterpreted this). Could you cut these down/out to allow you some additional spending/saving money?

You would essentially be declining a significant portion of your pay, albeit deferred for a few decades, by opting out and almost certainly will regret it. You say yourself it's the wrong this to do, but ultimately it's your mistake to make or not.

Yes, by that I do mean smoking and drinking. Yeah I could cut down on the things I like and I would save some money, but I don't particularly want to. I enjoy going out with my friends drinking a lot, I like to make the most of it while I can.

mollycat wrote: »

Nail on the head.

OP, the imbecilic, near dead, don't need money, 55+ year olds that you so casually disparage in your posts are now reaping the rewards of sensible but uncomplicated financial decisions, (ie long term pension contributions), and looking forward (hopefully) to decades of enjoyment and financial freedom.

But hey, you go ahead and pocket your extra £84.

Not blunt enough Dunston, some people seem determined to disadvantage themselves.

Makes me wonder why we bother.

Again, "decades" - by the time I see any of my pension money, I'll have lived my current life 3 and a half times over. It is so far away.

Silvertabby wrote: »

Stay - in - the - pension - scheme. We can't say it often enough.

If you are having temporary financial difficulties then, as a last resort, go into the 50/50 part of the scheme - ie, you pay half contributions for half pension.

I've seen many people like you opt out of the LGPS 'because the money is better in my pocket rather then the Council's..... because I won't get anything back for years....

One case which still makes me sad was the young man who wanted to opt out and take a refund of his (just under 2 years) contributions to pay for his wedding. He wouldn't take no for an answer, but promised me that he would opt back in once he could afford it.

About 4 years later his HR manager rang me to say that he had been killed in an accident, that one of his colleagues had gone to see his widow to tell her that she would get a tax free lump sum plus pensions for her and the three children, and to ask how long it would take us to pay the lump sum as she was desperate for money.

He never did opt back into the LGPS. His widow didn't get a penny.

I'm sorry to hear that, and I do take your point.

If I earned more money, or if I had a partner and we had a more stable income, I'd be happy to pay in to a pension. But I live in an expensive area and the money would really help, at least until I have enough breathing room that I can pay into my pension.

I hadn't actually realised I could opt out of the pension until recently, which is why I'm thinking about it. I had assumed it was mandatory.

Terron wrote: »

You say you won't be retiring for 50 years, at 70. Maybe the state paension age might be that high then, but you would be able to take you pension at least 10 years earlier, and maybe you will want to. Having the option would be good.

The there is the possibility of getting it earlier. I know someone who was injured at work at 40 and got her pension then, based on double the number of years she had contributed.

Yes there is a value to having the money available now, but I still think contributing to such a great pension scheme is worth it.

I would concentrate on trying to increase your income, say by getting promoted. When it does put some of the increase in a regular savings scheme, and only increase your spending by what is left.

You can take your pension earlier than the retirement age? I thought you have to wait until you're 68 / retirement age ?

Bravepants wrote: »

Yes keep paying into your pension. If you keep paying in the same amount you are paying now, assuming growth by inflation alone (2.9% per year) and compounding growth, your pot after 50 years will be worth nearly £600,000. According to my basic spreadsheet that is.

I know it's a DB scheme but just putting a rough figure on the pot size really shows the effect of small, regular amounts and growth.

DO NOT THROW AWAY YOUR PENSION SO YOU CAN SPEND MORE OF YOUR TAKE HOME PAY ON POINTLESS CRAP!

It's not pointless crap, I can currently afford to just about stay where I am, but I would really like to put more money into my savings account.

POPPYOSCAR wrote: »

I would stay in for two reasons.

1. The high contribution your employer is making.

2. As your state pension will be in your 70s it will enable you to retire earlier than that.

Can you really see yourself working until gone 70?

I thought you had to work until retirement age? (presumably in my 70s)
I didn't know you could claim your pension before that.

Mnd wrote: »

The biggest gain you will get from staying in is the ability to finish working early. I finished at 63, my wife will finish at 61, because we both had reasonable (not massive) pension arrangements. If you stick at it, with what you are paying in, with the employer contributions and tax relief, you could probably finish working at 55, and please believe me that will soon be here.
If you do decide to opt out, will you have the options to opt back in later?

I think I've really misunderstood the idea of a pension. At what age can you get your private pension?

flashg67

Believe me, the years will fly by, sadly. You won't regret skimping now to reap the benefits later. I know it seems so long off, but really it isn't.

I have an ok pension to look forward to, but I regret not putting in more (or having a pension as good as yours) when I was in my twenties. It is very difficult to put that 'missing' money back.
There will always be some thing eating into your income, whether its basics like mortgage or food, or kids, new car, holidays, etc.

Stick with it, boring as it is, you will reap the reward eventually!

k6chris

It's your decision, you are an adult. The strong probability is you will get to retirement age and the certain fact is that you are getting £300 of 'free money' by saving your £100 in a pension every month, think carefully before you throw that away. You clearly have an interest in financial matters judging by how many posts you have made and are thinking about pensions (as you came to this forum!). The very very VERY strong advice from everyone will be to keep on paying into the pension, given the very generous nature of the LGPS scheme and the many mistakes people have made by not saving enough. Every pound you pay in now, has a long time to grow and become worth a lot, lot more.

As I say, it's your decision and ultimately your life in all aspects will turn out to be a result of the decisions you make. My advice? It's your decision and your life, not mine. Good luck whatever you decide.

sammyjammy

I'm not really clear on why you're asking for advice, it seems you've clearly made up your mind.

Chances are if you opt out you'll never go back in as you'll never want to make that contribution again, particularly if in 20 years time you earning twice the money and your contribution is £200 a month and you've got two kids!

Silvertabby

I thought you had to work until retirement age? (presumably in my 70s)
I didn't know you could claim your pension before that.

You can take your LGPS pension from (currently) age 55, subject to a reduction for early payment. More realistically, you could look to take your LGPS pension from 60+ (still subject to an early payment reduction but not as much as at 55).

Do it right - and that means NOT opting out now! - and you could retire comfortably way before you are able draw your State (old age pension). Do it wrong, and you'll have to work until you are 70(?) and then subsist on far less than your current income.

Bravepants

kmb500 you asked for advice in the pensions forum of MoneySavingExpert....did you ever actually expect anyone to say "No, don't bother with your pension?"

JoeCrystal

kmb500 wrote: »

TYes, I'm on £22,000 currently.
I don't really know what you mean by 1/49th. Are you saying that if I stayed at my current salary until I retire then I would get £16000 a year in private pension?.

Yes. that is exactly what I am saying (In real money anyway). 1/49th is accrual rate. It is the rate at which you built up pension benefits whilst you were an active member.

Every year, you will build up a pension at a rate of 1/49th of the amount of pensionable pay you received in that scheme year. The amount of pension built up during the scheme year is then added to your pension account and revalued at the end of each scheme year so your pension keeps up with the cost of living. Simply this means that for every £49 that you earn and pay contributions on you’ll get £1 of pension added to your pension account each year.

It is not private pension but a pension ultimately backed by the fund and the council taxes. If you move up a pay scale throughout your working life then it is even better and you will build up even more pension. Okay, let say for next forty year, you get 2% pay rise every year and the cost of living is 2% per year. Your earnings is £47,600 by age of 60 and you would built up a pension income of £38,877 (assuming that cost of living revaluation is the same as payrise) Which translate as £16,000 in today money out of £22,000 in today money. As a matter of fact, once you get state pension, you would be earning even more in your retirement than on your salary beforehand since £8,000 in today money is likely to be similar in the future.

Therefore, it is very stark, if you opt out and you spent forty years working for the council, you will kiss goodbye a pension worth at least £16,000 a year income and even more should you got better pay-rise. To put it in context, to get a income of £16,000 a year in privately at 68, you would need to accumulate a fund of £400,000 or so today.

Mnd

I can't do that quotes thing (too lazy to find out sorry)
At the moment you can access your pension fund at 55
This may change in line with the state pension going up but that is the rules now, so your fund will provide a bridge to cover the years between when you want to stop working and get your state pension, and then supplement your state pension or even allow you to delay taking your state pension which is another good financial decision (worry about the technicalities later on that)
Our situation is that I've good a decent occupational pension 9k but we thought my wife was only going to get her basic state pension. After research we tracked down a pension fund she has of £50k that she had no idea existed and that money has enabled us to plan for early retirement. You will be in a far stronger position than us so please don't do anything rash. I urge you to make this your number 1 priority payment if you can, you will not regret it I promise you.