Am I right to not to opt in for my Works Pension?

cymro2001

Hi,

So since turning 18 I've been sussing out pensions, so that I won't have to worry about it later on in my life. I current have an SIPP, Lifetime ISA and S&S ISA with HL. I've had a few people question me in work on whether I'm contributing to the pension scheme, which I'm not as in my opinion it's an extremely poor plan, and I'd me much better off putting my money elsewhere - even though they would match my contributions.

I'm currently paying £70 in per month between the SIPP and LISA, pre tax-relief and bonuses. As long as the market continues to uptrend, which is pretty likely for the next 40+ years, and my investments to perform as well as they have based off the past five years, then I've calculated that I my accounts should grow on average 10% per year. Using a compound interest calculator, I've estimated by the age of 60 I should have around £1mil in retirement funds. Of course, I'd have to factor in inflation, cost of living and contribute more as they years go on. But I'm hoping this sort of pot should lead to me to a nice comfortable retirement.

Our workplace has a calculator that gives us an estimate of what we could look at receiving from the plan and for the same contribution plus theirs, they are estimating that at the age of 60 I would receive ~£21,600 as a tax-free lump sum and ~£1,190 per year.

These figures are extremely poor in my opinion, but I'm looking for someone to shed light on whether somehow it may be worth doing.

I'm also planning to stash some money in regular investments each month in my S&S ISA, in case I need it a few years before pension age.

Any thoughts would be greatly appreciated. Thanks in advance.

Albermarle

they are estimating that at the age of 60 I would receive ~£21,600 as a tax-free lump sum and ~£1,190 per year.

These type of estimates are typically rather pessimistic , so I would not take too much notice of them .
Almost certainly by refusing free money from your employer you are taking the wrong decision, even if the employer pension underperforms a little.
Have you had a close look at what funds are available in your employer pension. Maybe you can change them.

Drp8713

No, you are likely not right.

If you name the plan, people can help more, but most work place schemes will offer a generic passive 'Global Equity Fund'.

This will give you the return of the global stock market. This is the same return you will get from your SIPP, you can choose active funds in the SIPP which may give you a better return but there is no guarantee.

So it is highly unlikely £80 in a SIPP plus £20 tax relief is going to beat £80 in a workplace scheme, plus £20 tax relief plus £100 employer contribution.

testertrev

cymro2001 wrote: »

even though they would match my contributions.

Why would you turn down their free money?

Triumph13

Join the workplace pension immediately.

The illustration they give is using unrealistically low estimates for future growth and will then assume you buy a very expensive annuity. It is the estimate that is rubbish, not the investments - although do check what the choices and charges are.
That was the good news. The bad news is that your own projections are almost certainly way TOO optimistic. Yes there have been high returns as we rebound from the GFC lows. No those returns are not sustainable long term. Net of inflation stock markets have historically average around 5% real return. Most people expect these to be lower in future and very few people work on more than 4% real in their models.


Once you use comparable assumptions for both pensions the employer contributions will make the work scheme a very clear winner.

NoMore

You are throwing free money away and to justify that being way too optimistic on your own returns.

Join your Works pension to at least the point where they no longer match, any left over you can invest in your own pensions if you want.

[Deleted User]

Hello cymro2001, Your sussing out of pensions has not started very well. You would be wise to heed the information given by knowledgeable members of this board re your opt out choice!
Regards

Sea_Shell

Think of it this way...if your employer matches your contributions, you are instantly doubling your money!!! Try getting that return in a SIPP.

AnotherJoe

Even if your works pension is rubbish, and as said you should just ignore the projections, (as you should ignore your own, both are poor) you simply cant beat doubling your money to start off with.

So as a minimum put in enough to get the maximum from the employer.

Also, at age 18 you are unlikely to still to be at this employer in say 40 years time and you can take the accrued pension pot and move it elsewhere, perhaps move it into your SIPP to then get the added benefit of your astute investment capability on top of your doubled money

xylophone

By turning down your employer's contribution you are in effect turning down salary.

BLB53

If you want to turn down 4% free money from your employer, fine.