Workplace pension -cancel or leave?

discat11

Apologies if asked before.
I am paying in far more monthly than I think I'll ever see back out, so I'm wondering whether it would be better to cut my losses now and stop paying in, and what to do with the funds in the pension currently.
Age 56, intend to retire at 60, probably won't have a job too much longer in any case, probably another year not much more.
Contributions £254 pcm (me: £145 and employer: £109 pcm)
Projected pot value (at 60) £14.2k, current pot value £12,332, paid in since 2016.
Projections for 60 are £3550 lump sum and £410 pa pension (£34 a month).
I realise that a pension could, conceivably, be for many years after retirement, but based on the fact I'm paying in £3k+ a year, to get even just the money paid in back my I'd have to live for 26 years after retirement, which is possible, although an income of £34pcm is a bit pointless really and I'm not bothered by the lumpsum either.
I already have an occupational pension and presumably (!) will receive the state pension.
Pension is a NEST one JIC that makes any difference.

I understand that I can withdraw the funds and that I can stop paying in.
Do I have to pay tax on that withdrawal? (I am currently a higher rate TP) and, if yes, how much is that likely to be?
Best place to stick the remainder (£10k?) low risk- just my savings account?

Many thanks


 

 

Dazed_and_C0nfused

Prepare for some flak.

You seem to be suggesting you would prefer to (possibly) pay more tax than you need to.

And give up free money from your employer.

For anyone to give useful help you need to confirm if this is a DB or DC pension.

Why do you think there is any possibility you might not receive a State Pension ?

Have you actually checked your State Pension forecast (you must read past the headline figure) to see what you have accrued to date.

dunstonh

I am paying in far more monthly than I think I'll ever see back out, so I'm wondering whether it would be better to cut my losses now and stop paying in, and what to do with the funds in the pension currently.

Why do you think you are suffering losses?
And why do you think alternatives will be better?

Contributions £254 pcm (me: £145 and employer: £109 pcm)

What alternatives exist that you think will not only make up for the lost tax relief and tax free growth on your contributions but the free money from the employer that you would be kissing goodbye too?

Projected pot value (at 60) £14.2k, current pot value £12,332, paid in since 2016.
Projections for 60 are £3550 lump sum and £410 pa pension (£34 a month).
I realise that a pension could, conceivably, be for many years after retirement, but based on the fact I'm paying in £3k+ a year, to get even just the money paid in back my I'd have to live for 26 years after retirement, which is possible, although an income of £34pcm is a bit pointless really and I'm not bothered by the lumpsum either.

You are misreading the projections.
1 - projections are in today's terms. no future money terms.   That means they are showing in today's spending power.  The actual figures will be higher.
2 - the assumptions used are pessimistic and use worst case figures (e.g. they use the most expensive income option that virtually no-one buys).   
3 - The whole fund is available to you when you want it.   It won't take 26 years. 

Best place to stick the remainder (£10k?) low risk- just my savings account?

Putting the money in a savings account would never see you get the money back (including what you have given up).  The pension trumps the savings account massively.       So, why do you think it would be better?

Do not make a foolish mistake on a misunderstanding.  It would be a really really really daft idea to do what you are suggesting.  

AlanP_2

First point, your £254 pm is actually costing you £87pm when you allow for the HR 40% tax relief and the employer conttribution, so £1044 a year.

£1044 from you adds £3048 to your pension pot, so a 192% rate of return - Do you think your savings account will equal that?

Second point, you don't have to take the pension in the way that the forecast suggests., The forecast will be based on industry standard rates of return and costs for an annuity (the equivalent of a DB from an insurance company). Annuity rates are very low so most people use their pension fund in a similar way to a bank account and withdraw what they need, when they need it whilst trying to keep an eye on how long it needs to last. A withdrawal rate of 3 to 4% is typical for an estimated 30 odd years of retirement, but you could take it all out over a couple of years before SP age thus reducing your overall tax bill in retirement or any other strategy that suits your corcumstances.

Why would you wnat to give up free money from your employer and the government?

Prism

Best thing you can do for the moment is completely ignore those projections and focus on the size of the pot. You can do other things with that pot rather than just a lump sum and a pa pension.

Also you say that you are paying in £3k+ per year but thats not quite true. You are paying in £1740 per year. If you didn't pay that in then you would be taxed on that amount instead - maybe around 40% as you are a higher rate tax payer. So your choice is to receive around £1k in your pay or £3k into the pension.

discat11

Many thanks guys, 
Some very good information: specifically the possibility fo withdrawal of the lump sum before SP age, since I have a small occupational pension I will probably then use this lump to top that up from 60-67.
It was a flippant remark about the SP, it's been moved 2 years already, I don't trust HMG not to move it again, I have full contributions in it anyway.
The nest workplace one is a Defined contribution pension.

Albermarle

Higher rate tax relief & employers contribution . You are looking a gift horse in the mouth .
Many people in your position/age  , increase contributions at least to the point where no 40% tax is payable, for the last few years of employment as a final push to get the pot as large as possible. Which is what I have done from around 55 to 61 .
Adding £25,000 pa to my pension costs me £15,000 and my employer adds around £10,000 pa .
So for £15K I get £35K in my pension . Then the investments have grown about 7% pa ( not guaranteed to happen of course ) so altogether in 6 years I added £90K and now it is worth £225K . I will pay tax of 15% when I withdraw it so will be £190K so more than double what I put in .

discat11

Now that IS interesting Albermarle. I'd reckon on probably getting made redundant at some point later this year or maybe next summer and have started saving £1500 a month as a drawdown pot to service outgoings until I find (or not) something until the age of 60.  Obviously I'm getting negligible interest on that. Paying that into the pension would certainly bring me down to below the 40% tax bracket. I'm not sure my employer will match a higher rate though? 

Prism

discat11 said:

Now that IS interesting Albermarle. I'd reckon on probably getting made redundant at some point later this year or maybe next summer and have started saving £1500 a month as a drawdown pot to service outgoings until I find (or not) something until the age of 60.  Obviously I'm getting negligible interest on that. Paying that into the pension would certainly bring me down to below the 40% tax bracket. I'm not sure my employer will match a higher rate though? 

They probably won't match it but even then its often still worth doing to avoid the high rate tax. I paid high rate tax for just two years in my late 20s and have ensured that I have never paid it since by putting a decent percentage into my pension.

discat11

Thanks again all, I have decided to hang onto it and in fact, pay in a very sizeable increase on the basis that I only needed these savings in the event of being redundant anyway, and in which case I'd be able to draw down on the pension in any case.

Dazed_and_C0nfused

A genuinely satisfied customer 🙂

12:32
I am paying in far more monthly than I think I'll ever see back out, so I'm wondering whether it would be better to cut my losses now and stop paying in, and what to do with the funds in the pension currently

14:13
Thanks again all, I have decided to hang onto it and in fact, pay in a very sizeable increase on the basis that I only needed these savings in the event of being redundant anyway, and in which case I'd be able to draw down on the pension in any case.