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

JoeCrystal

You should opt-in your work pension right away. You are right in that the employer matched your contribution and that alone is worth doing. Assuming that your employer matches your contribution in full, I can't think of any other way for example that cost you £80 in take-home pay which adds on £120 (£20 from tax relief and £100 from the employer) on top.

Frankly, if you want to have a comfortable retirement, you need to contribute more. £70 per month isn't going to cut it I am afraid. After all, many pension scheme now has £100 per month as a minimum contribution.

You are very fortunate that you recognise the need to save up when at 18. I only realised the need six years later myself and wished I start my pension earlier.

Alexland

Good job you came here to ask as your DIY calculations are not realistic and the maths behind your workplace pension calculations are based on assumptions that you will need time to understand.

Firstly signup to your workplace pension ASAP to get maximum employer contributions and then consider if you can do better. We occasionally transfer lump sums across from our workplace pension into our SIPPs so we can invest at a lower cost. That might be an option once you have accumulated a sufficient balance depending on scheme rules.

Assuming you are are basic rate then it is unlikely to be worth making direct contributions into the SIPP when you have a LISA allowance to use. It's the same initial 25% uplift but some of the SIPP and workplace pension is likely to be taxed on withdrawal depending on your eventual returement income profile.

Alex

k6chris

The logic is below . From the original post, I think the OP will know most of this, but sometimes it's worth breaking down the steps for clarity.



1) You have recognised that you need to start saving for the time when you do not have income from employment - which is commonly known as 'retirement'.



2) The earlier you start saving the better as you get the twin benefits of more time to pay in money and more time for that paid-in money to grow.



3) A 'pension' is simply a very effective tax wrapper that allows you put in is net of tax, so for a basic rate tax payer you are getting a +20% benefit right from the start for all the money you put in.



4) A 'company pension' has the added advantage that your employer is also paying into your pension - in effect free money (which is why opting out is such a bad idea!)


5) The money inside your pension can be invested in a number of different funds. This will depend on the scheme you are enrolled in. You should absolutely see what options your pension has and choose a fund that best suits your longer term needs - in the same way you have with your SIPP / ISA


Overall, the more money you can get into your retirement saving and the longer that money has to grow, the more comfortable your retirement will be. Good luck and as other have said, well done for focusing on this now!

Paul_Herring

4) A 'company pension' has the added advantage that your employer is also paying into your pension - in effect free money (which is why opting out is such a bad idea!)

I prefer the term "deferred pay" (along with 'why would you turn down wages?')

vacheron

My Summary.

• Your company estimates are very pessimistic.
  
• Your estimates are very optimistic.
  
• Focus only on increasing the size of your fund, forget what this will equate to in the future.

If you don't like the fund(s) offered by your company pension, check if you can transfer out to another fund. Use your company fund to build up a pot (which will include the immediate doubling in value due to your employer contributions), and then move the pot to another provider of your choice. (If you transfer your pot every 5 years your other fund would have to increase by way more than 20% more than your company fund just to break even!)

nigelbb

Paul_Herring wrote: »

I prefer the term "deferred pay" (along with 'why would you turn down wages?')

It's even more true with a DB scheme based on 1/45 or 1/54 or 1/60 or whatever. Given a 20-30 year retirement the pension can amount to 50% or more extra on top of original salary.

hyubh

nigelbb wrote: »

It's even more true with a DB scheme based on 1/45 or 1/54 or 1/60 or whatever. Given a 20-30 year retirement the pension can amount to 50% or more extra on top of original salary.

FWIW, assuming the OP works in the private sector with a modern DC workplace pension, I don't think the term 'deferred pay' is very helpful - the employer contribution is just part of the OP's current total renumeration package, so it would be foolish to refuse just as it would be foolish to refuse part of your basic salary.

Put another way, the pension will be closer in form to the OP's LISA rather than anything that involves an accrual rate, i.e. the pension is long-term savings/investments plan that the employer contributes to, rather than a plan for future income that the employer will provide.

david78

The projection for the workplace pension may include the effect of inflation as well as pessimistic assumptions about the growth rate.

You should opt back in and put the minimum into the workplace pension to get the maximum employer contribution on offer. If you want to use a SIPP as well see it as a top-up pension funded by additional contributions you may make.

Will you save NI in the Employers scheme? Depends if it uses salary sacrifice or not.

The good thing is you have made a start on the journey.