Opt out, or opt in

goodwithsaving

I am early 30s and currently in a pension scheme where I have just been given the option to opt out, having opted in for the last 6 years. 
At the moment, the reduced NI is quite attractive given I have just taken on a higher mortgage, gas bills have increased etc. However, I am aware of the longer term implications around state pension should I pay reduced NI contributions.
In all honesty I don't see my age group getting a state pension, and certainly don't see myself alive if they increase it to 80 or so (which I firmly believe they will, if they do not scrap it altogether). 
Would I be better off putting the £50/month towards my mortgage, into a cumulative investment, or going against the employer's automatic preference and continuing to pay the increase NI contributions?

It's a hard decision. I play the long game with finances so the £50/month would be very helpful at the moment, however if it pays off in the long run I would still be happy to pay the full NI contribution.

I just wondered if anybody on here may have some good advice.
Thank you

xylophone

I am a little puzzled as to what exactly you mean.

Do you envisage earning so little that you do not pay NI?

Do you mean that you are contemplating opting out of your workplace pension scheme and thereby failing to save for retirement with the help of your employer's contribution?

Or do you mean that you want to opt out of a salary sacrifice scheme?

Or.....?

Stubod

..what alternative options have you considered for saving for your retirement?

MX5huggy

You can’t opt out of NI. 

You shouldn’t opt out of the company pension (it’s free money)

You might be allowed to salary Sacrifice pension contributions which reduces your NI, this is a good idea.

There will be a state pension in 40 years (pensioners have this habit of voting) they’ve raised it 3 years so far.

grumiofoundation

goodwithsaving said:

I am early 30s and currently in a pension scheme where I have just been given the option to opt out, having opted in for the last 6 years. 
At the moment, the reduced NI is quite attractive given I have just taken on a higher mortgage, gas bills have increased etc. However, I am aware of the longer term implications around state pension should I pay reduced NI contributions.
In all honesty I don't see my age group getting a state pension, and certainly don't see myself alive if they increase it to 80 or so (which I firmly believe they will, if they do not scrap it altogether). 
Would I be better off putting the £50/month towards my mortgage, into a cumulative investment, or going against the employer's automatic preference and continuing to pay the increase NI contributions?

It's a hard decision. I play the long game with finances so the £50/month would be very helpful at the moment, however if it pays off in the long run I would still be happy to pay the full NI contribution.

I just wondered if anybody on here may have some good advice.
Thank you

As above it's not really clear what you mean by opt out. I don't see how opting out of a pension scheme will save you paying NI, in fact if you pay into pension via salary sacrifice you will actually pay more NI?

As this is an employer's scheme by opting out of would you not be turning down employers contributions? (I.e. free money) 

I don't really follow your logic on the state pension - if you believe it will not exist for you (it will) then all the more reason to have a bigger private pension?

Possibly there is a misunderstanding on the different types of pensions. Workplace pension and state pension are separate. 

Marcon

goodwithsaving said:

I am early 30s and currently in a pension scheme where I have just been given the option to opt out, having opted in for the last 6 years. 

You can't be compelled to join a pension scheme, so you have been free to opt out at any stage during the last 6 years. When you say you have 'just been given the option', what exactly do you mean? It's unlawful for employers to offer incentives to encourage people to opt out of workplace pensions.

goodwithsaving said:

At the moment, the reduced NI is quite attractive given I have just taken on a higher mortgage, gas bills have increased etc. However, I am aware of the longer term implications around state pension should I pay reduced NI contributions.

Paying reduced NI has only ever been possible if you joined an employer's pension scheme and that was contracted out of the State Additional Pension (SERPS/State Second Pension). Contracting out was abolished altogether in 2016, so you won't have been paying reduced NI since then, even if you were before.

What 'longer term implications' do you think there are for the state pension (could be one of those occasions where misunderstanding could have a cheery answer!).

goodwithsaving said:

Would I be better off putting the £50/month towards my mortgage, into a cumulative investment, or going against the employer's automatic preference and continuing to pay the increase NI contributions?

It's a hard decision. I play the long game with finances so the £50/month would be very helpful at the moment, however if it pays off in the long run I would still be happy to pay the full NI contribution.

If you opt out of your employer's pension scheme, you are giving up 'free' money - i.e. the employer contribution (and you must be earning enough to qualify for employer contributions, given that you have just taken on a higher mortgage).

The only way you could reduce your NI payments is if you contribute to your pension via 'salary sacrifice' - a method of contribution employers will normally only operate in respect of the scheme they nominate, otherwise the admin complexities become messy and expensive for them.

goodwithsaving

Apologies, I was using language we use internally. I should have been clearer. Thank you for your replies so far, I really do appreciate it. 

I pay a lot of NI @xylophone, it's the extra which was used for the additional state pension. There's a basic one and then if people have paid x years in with full NI rates, they get the additional state pension. This was related to many occupational pension contributors paying a reduced rate of NI, and so they get the basic state pension. @MX5huggy it is what you alluded to; doing my occupational pension as a salary sacrifice to reduce NI contributions. I have been given the option to do salary sacrifce.

I have a very good occupational pension which I contribute a lot into and my employer also contributes a lot into, however the goal posts keep moving on it. I do have other savings which I have managed on my behalf and are doing well, and I save a lot generally (although most goes on doing properties up and moving up the ladder, but one day that will stop and it will be banked and invested elsewhere instead). 

dunstonh

At the moment, the reduced NI is quite attractive given I have just taken on a higher mortgage, gas bills have increased etc. However, I am aware of the longer term implications around state pension should I pay reduced NI contributions.

The amount of NI no longer has an impact on state pension provision. You either qualify or you dont.

In all honesty I don't see my age group getting a state pension, and certainly don't see myself alive if they increase it to 80 or so (which I firmly believe they will, if they do not scrap it altogether). 

There is zero chance it will go to 80 in your lifetime.    It is almost certain it wont be scrapped either.

Would I be better off putting the £50/month towards my mortgage, into a cumulative investment, or going against the employer's automatic preference and continuing to pay the increase NI contributions?

the pension is a cumulative investment.   It is the most tax efficient option and you get free money from the employer.  Nothing else will beat that.

goodwithsaving

Thank you @dunstonh
My contributions to the workplace pension would remain the same. I certainly wouldn't mess about with that, it is free money and although it is costly, I firmly believe it is a good pension and my employer also puts in a good amount.

What I am querying is how the workplace pension is paid. I have changed employers hence this has come up now. It is the same pension scheme but with a different employer.

The employer can pay it on my behalf, do it as salary sacrifice and therefore save me National Insurance to the sum of £50/month. So if I fund my workplace pension via salary sacrifice, my national insurance contributions reduce. However, that may have state pension impacts later on. 

If I continue to pay my workplace pension in the way I currently do, I do not save national insurance. I have to notify my employer if this is the route I wish to take.

I believe it relates to this: https://www.gov.uk/contracted-out 

MX5huggy

As you’re link says contracting out stopped in April 2016. 

If they are offering Salary Sacrifice, then do it.

It will reduce your NI but Because you can’t Sacrifice below the National Minimum Wage (ie your gross salary after the sacrifice must be equal or greater than NMW). You will pay enough NI for each year for them to count.

hyubh

goodwithsaving said:

Thank you @dunstonh
My contributions to the workplace pension would remain the same. I certainly wouldn't mess about with that, it is free money and although it is costly, I firmly believe it is a good pension and my employer also puts in a good amount.

What I am querying is how the workplace pension is paid. I have changed employers hence this has come up now. It is the same pension scheme but with a different employer.

The employer can pay it on my behalf, do it as salary sacrifice and therefore save me National Insurance to the sum of £50/month. So if I fund my workplace pension via salary sacrifice, my national insurance contributions reduce. However, that may have state pension impacts later on. 

If I continue to pay my workplace pension in the way I currently do, I do not save national insurance. I have to notify my employer if this is the route I wish to take.

I believe it relates to this: https://www.gov.uk/contracted-out 

Contracting out was abolished completely in 2016, along with the distinction between basic and additional state pension for accrual going forward. Presumably you're still paying some NI, in which case you'll get the qualifying year.