Workplace Pension - Opt Out

mojoscotland

Hi All,

My workplace auto-enrolment pension now has me contributing £150 per month. My employer matches this.

My statement reads (in today’s money...)

At 65 years old (I’m 36 now) I may receive.

£11k tax free.
£120pm (taxed?)

i feel this is a very disappointing return even with the ‘free money’ from my employer.

Who has has opted out - who is focusing the monthly cash on business / property instead?

Anyone chosen to opt-out ?

I have a 3 new-build Buy-to-Let properties that i planned to become (or add) to my pension.

(circa £1100pm profit from these properties in todays money)

Thanks

Silvertabby

Ignore the projection - you should (I say should because we ARE talking nearly 30 years ahead!) be able to take this money as draw down rather than purchasing an annuity.

£300 per month for 29 years = £104,400. That, plus 29 years of investment growth, should give you a decent enough return for your money.

Should you opt out of your work place pension? Only if you are happy to say 'thanks, but no thanks' to your employer's £150 per month.

dunstonh

My workplace auto-enrolment pension now has me contributing £150 per month. My employer matches this.

Nice level of contribution from the employer.

i feel this is a very disappointing return even with the ‘free money’ from my employer.

That is because that figure is not real. Its a synthetic projection based on assumptions. Most of which massively understate the likely outcome. Take a look at the assumptions and you will quickly realise the reasons it is low on paper but not in reality.

However, even if you do the crudest calculation going and assume no growth, you would be looking at having over £100k with a £5k income p.a.

Who has has opted out - who is focusing the monthly cash on business / property instead?

In this scenario, only a stupid person would.

It would be a failure by the individual to understand what they are doing. God help them if they are looking to invest in a business/property.

mojoscotland

Hi, thanks for the reply.

I'm good with property but terrible with pensions !

The statement of £11k / £120pm ....i'm assuming that 'as it is in todays money' means it doesnt take account of investment / compounded growth ? Therefore, It's purely a "money in vs money out" statement.

Thanks
Craig

JoeCrystal

Less than one in twelve have opted out of the workplace pension scheme, so you are very much in the minority. You have to bear in mind that the annuity is quite low and it is increasingly popular to drawdown on the pension pot instead. I am sure your employer is thanking you for saving them £1,800 per year. You can end up with a pension pot of £145,000 by 65 assuming 5% return.

So really, your choice in opting out actually costs you money, especially you would not be getting tax relief. Just out of interest, what is your salary?

mojoscotland

Hi, thanks for the replies all.

I'm good with property but terrible with pensions !

SILVERTABBY: The statement of £11k / £120pm ....i'm assuming that 'as it is in todays money' means it doesnt take account of investment / compounded growth ? Therefore, It's purely a "money in vs money out" statement.


DUNSTONH your message popped up after i wrote my reply. I have had 4 previous employers whom i had small pension pots with. Should i group these pension pots together ? Are there companies who search and advise the figure in the pension pots? Most of those old pensions i cannot remember the provider as it was many years ago

JOECRYSTAL. My salary is £40000 GROSS not inc bonuses......I also have 3 buy-to-lets @ £13k NET, and another £10k NET from other interests.

Thanks
Craig .

Silvertabby

mojoscotland wrote: »

Hi, thanks for the replies all.

I'm good with property but terrible with pensions !

SILVERTABBY: The statement of £11k / £120pm ....i'm assuming that 'as it is in todays money' means it doesnt take account of investment / compounded growth ? Therefore, It's purely a "money in vs money out" statement.


DUNSTONH your message popped up after i wrote my reply. I have had 4 previous employers whom i had small pension pots with. Should i group these pension pots together ? Are there companies who search and advise the figure in the pension pots? Most of those old pensions i cannot remember the provider as it was many years ago

JOECRYSTAL. My salary is £40000 GROSS not inc bonuses......I also have 3 buy-to-lets @ £13k NET, and another £10k NET from other interests.

Thanks
Craig .

Ignore the quote. It really is meaningless, and is only there because pension funds have to, by law, give SOME indication of what you might receive at retirement.

The only figures to watch are your and your employer's contributions and your eventual fund value.

Albermarle

Therefore, It's purely a "money in vs money out" statement.

No this is not correct. Some investment growth is factored into the calculations but it is a very pessimistic view . It could also be that the pension is invested in a too low risk/return fund . For someone so far from retirement it should be invested in a high risk/return fund. Do you have a choice of fund with the pension?

xylophone

Most of those old pensions i cannot remember the provider as it was many years ago

You're only 36! So perhaps twenty years ago as a maximum?:)

https://www.gov.uk/find-pension-contact-details

You need to establish the type of pension (defined benefit/defined contribution/any safeguarded benefits etc).

Once you have done this, you will be able to explore your options for consolidation.

dunstonh

The statement of £11k / £120pm ....i'm assuming that 'as it is in todays money' means it doesnt take account of investment / compounded growth ? Therefore, It's purely a "money in vs money out" statement.

It can be even worse than that.

I have a pension on my desk that is showing a mid rate projection of 1.4%. That is 1.4% before charges (not after). When you look at investments, the returns are shown after charges. So, that 1.4% has to have the charges deducted from it. Then it has 2.5% deducted for inflation. So, even though it has a very small growth rate figure, it is actually calculating an annual loss.

In reality, that fund has been doing over 6.5% a year after charges. So, that projection at 1.4% before charges is way off the mark. Even ignoring the further 2.5% deduction for inflation or the silly annuity rate of an annuity that no-one would buy.

The income figure is even more farcical as it assumes a joint annuity with annual indexation. A figure that is around a 10th of what will be available to draw.

The current pension projections are doing more damage than good. They have moved from a position of overstating by a long way in the 80s, to gradually falling to a position that now massively understates reality. Better to be that way round but it has gone too far and you are not the first to see it as a bad thing.

AnotherJoe

mojoscotland wrote: »

Hi, thanks for the reply.

I'm good with property but terrible with pensions !

The statement of £11k / £120pm ....i'm assuming that 'as it is in todays money' means it doesnt take account of investment / compounded growth ? Therefore, It's purely a "money in vs money out" statement.

Thanks
Craig

These projections ,that are mandated by government, that frankly are simply rubbish (see what others have written) dont help and could end up seriously damaging peoples returemenst by leading them to make terrible decisions.

They give you a figure based on annuity that to the nearest decimal point, no one woudl take (because its rubbish) and poor investment returns, etc etc.

Consider this;
Over the last what, 50-100 years, the stock market has outperformed housing. Not by much, but a reasonable amount. So since we have nothing else to go on, and since there are all sorts of pressures coming on landlords, its reasonable to think that will continue.
Now, you might say, OK If investment is only a bit better I'll take housing then as I understand that.

However, the money you have to spend on housing is a fraction of what you get to spend on a pension.
In a pension. Take that £150. Add employers £150. Easy calculation, £300 invested.
Now for housing. Well, after tax and NI and loss of employers matching amount, you'll be putting just £100 into housing.
So your pension should be 3x as large as the BTL empire you'd build.