Why would someone want to opt out from a pension scheme?

Emmia

EnPointe said:

GibbsRule_No3. said:

I wonder if younger people, reading about the benefits of being entitled to Pension Credits and the extra opportunities that often now brings, are considering why they need to join a Pension scheme if they can use the money now?  PPOV I am still better off by being in the schemes I was in (still am in) during my current 54 years of work but there are a lot of stories where people are a little over the limit for PC and they say they would have been better off not having a Private pension. I’d like to see a graph showing a cut off point of when it is not financially worth joining but I don’t think Government Departments would like that. Probably not able to do it anyway, too many variables.

given that pension credit  is  something which is only paid to those o nthe absolute breadline because they don;t  for whatever reason have entitlment to a full state pension ...

Also, with auto enrollment there's an argument to discontinue this top up. People are being actively encouraged to save for themselves now.

OldBeanz

Emmia said:

EnPointe said:

GibbsRule_No3. said:

I wonder if younger people, reading about the benefits of being entitled to Pension Credits and the extra opportunities that often now brings, are considering why they need to join a Pension scheme if they can use the money now?  PPOV I am still better off by being in the schemes I was in (still am in) during my current 54 years of work but there are a lot of stories where people are a little over the limit for PC and they say they would have been better off not having a Private pension. I’d like to see a graph showing a cut off point of when it is not financially worth joining but I don’t think Government Departments would like that. Probably not able to do it anyway, too many variables.

given that pension credit  is  something which is only paid to those o nthe absolute breadline because they don;t  for whatever reason have entitlment to a full state pension ...

Also, with auto enrollment there's an argument to discontinue this top up. People are being actively encouraged to save for themselves now.

They were being encouraged and I assume everyone on this forum believes in sàving for retirement. The cut to Winter Fuel Allowance reverses that trend towards those who haven't saved. I can live without the allowance but the signal given out is wrong.  It would have been more sensible to have taxed the allowance and/or tapered it for those with income above £30k.

LightFlare

Willingly opting out a scheme should have consequences- sadly the state picks up the bill

Silvertabby

LightFlare said:

Willingly opting out a scheme should have consequences- sadly the state picks up the bill

Those much envied (by some UK pensioners who insist on comparing apples with oranges) European pensions are higher than the UK State pension for that very reason.  They are hybrid schemes, part State and part private, with an element of salary linking.  Both employees and employers pay in way more than we do in just NI, and it's not possible to opt out of any part of the scheme.

Yet I suspect that any moves to bridge this perceived gap in our pensions, by making opting out illegal, would be met with howls of horror.

MattMattMattUK

Silvertabby said:

LightFlare said:

Willingly opting out a scheme should have consequences- sadly the state picks up the bill

Those much envied (by some UK pensioners who insist on comparing apples with oranges) European pensions are higher than the UK State pension for that very reason.  They are hybrid schemes, part State and part private, with an element of salary linking.  Both employees and employers pay in way more than we do in just NI, and it's not possible to opt out of any part of the scheme.

Whilst I agree that they are hybrid schemes, the state element of the scheme is more generous to higher earners, it reflects total tax contribution more rather than being just a flat rate, I do think that there should be an element of that in the state pension in the UK. 

Silvertabby said:

Yet I suspect that any moves to bridge this perceived gap in our pensions, by making opting out illegal, would be met with howls of horror.

The problem in the UK is not higher earners in general, who also generally make sensible private provision for retirement, it is the bottom and middle third of earners. The bottom and middle third of earners have the lowest effective rate of income taxation in the EU, we have the largest tax free allowance of any EU member, of any major European economy, whilst the top third have the fifth highest rate of income taxation in the EU. From my limited understanding (I have a client who operates many pension schemes both within the UK and internationally) the issue with people opting out is actually more of a lower middle class issue, what would have historically been C1 and C2. These people tend to be trying to "keep up with the Jonses" and take the view that they just need to do it for a few years, then they will get a promotion etc. The same group that also buy holidays, furniture and cars on finance, continually overextending themselves and living in the short term rather than planning long term. 

DoublePolaroid

MattMattMattUK said:

The bottom and middle third of earners have the lowest effective rate of income taxation in the EU, we have the largest tax free allowance of any EU member, of any major European economy, whilst the top third have the fifth highest rate of income taxation in the EU. 

Could you point me in the direction of a source for this? I’m not being contrarian, just interested in perusing the data. 

BikingBud

MattMattMattUK said:

Silvertabby said:

LightFlare said:

Willingly opting out a scheme should have consequences- sadly the state picks up the bill

Those much envied (by some UK pensioners who insist on comparing apples with oranges) European pensions are higher than the UK State pension for that very reason.  They are hybrid schemes, part State and part private, with an element of salary linking.  Both employees and employers pay in way more than we do in just NI, and it's not possible to opt out of any part of the scheme.

Whilst I agree that they are hybrid schemes, the state element of the scheme is more generous to higher earners, it reflects total tax contribution more rather than being just a flat rate, I do think that there should be an element of that in the state pension in the UK. 

Silvertabby said:

Yet I suspect that any moves to bridge this perceived gap in our pensions, by making opting out illegal, would be met with howls of horror.

The problem in the UK is not higher earners in general, who also generally make sensible private provision for retirement, it is the bottom and middle third of earners. The bottom and middle third of earners have the lowest effective rate of income taxation in the EU, we have the largest tax free allowance of any EU member, of any major European economy, whilst the top third have the fifth highest rate of income taxation in the EU. From my limited understanding (I have a client who operates many pension schemes both within the UK and internationally) the issue with people opting out is actually more of a lower middle class issue, what would have historically been C1 and C2. These people tend to be trying to "keep up with the Jonses" and take the view that they just need to do it for a few years, then they will get a promotion etc. The same group that also buy holidays, furniture and cars on finance, continually overextending themselves and living in the short term rather than planning long term. 

But they only follow the example of the state!

No government has ever succeeded in getting ahead of the curve. It's not even living hand to mouth, it is borrowing from tomorrow to cover today's excesses.

We really need a fundamental discussion on the difference between needs and wants, desirables and essentials and then decide how we want to pay for it. 

BikingBud

Silvertabby said:

Roger175 said:

When I was in my teens (late 70's/early 80's), my Mum and Step-Father ran a business which got into trouble. In the end they decided to make a fresh start, downsized and moved a couple of hours away (by then I was 19 and opted to stay living locally). The downsizing process released sufficient money for them to clear most of the debts, but they were still struggling financially. Mum ended up getting a reasonably good senior management position with the NHS, but unknown to me at the time, she opted out of the pension scheme in order to maximise take-home pay. Role-on a few years and they divorced and Mum eventually got herself sorted, but she never opted back into the pension scheme and when she eventually retired after 20-odd years in the job, all she had was her old-style state pension. I only found this out after the event and would have pushed her in a different direction had I known. Very foolish, but there you go, luckily I didn't inherit my Mum's terrible financial judgement - we once has a big disagreement, when she advised me to get the maximum possible mortgage in order to get the maximum tax-relief - go figure!   

My mum and dad were very much 'live for the day and don't give the Government a penny more than you have to' as well.  When I got married in the early 1990s my pre wedding mother-to-daughter speech was on the importance of 'claiming your stamp back, because married women pay less tax' (she meant NI).  When I said that that was no longer an option, she went into a half hour rant about the 'robbing government'.  I didn't bother saying that even if paying the married woman's stamp had still been an option, I would have carried on paying the full whack in order to get my own pension, because she would have never let it go.

She had another fit when we moved from our RAF Married Quarter to our own home in the mid 1990s.  Our mortgage was way more than our (heavily subsidised) married quarter rent, and she just couldn't understand why we hadn't stayed put and 'saved' all that money.  

She's sadly no longer with us, but I could just imagine her carry on if she knew that I had voluntarily paid 'the government' £3K in order to top up my nSP to the full amount!

Separate discussion but the reasons behind subsidised MQs in supporting a "migrant" workforce were well understood and seems you left when many changes were occurring. Hopefully living in that MQ enabled you to pull together a deposit that prospective buyers nowadays could only dream of, giving you quite a head start.

leosayer

Silvertabby said:

Some of the reasons people trotted out for wanting to opt out of the LGPS (public sector final salary scheme) were crackers.  I've listed these before, but for the newbies:

My husband has a good pension scheme so I don't need this one as well.

This is just another council tax, and if I don't have to pay it I won't.

The money is better off in my pocket than the council's.

The LGPS is a rip off.  You are taking over £100 per month from me, when I can get a stakeholder for just £20 per month.

Now that the State pension will be the same as my wages I don't need this pension as well.  (After I explained what the restoration of the salaries link to the State pension really meant....) Well, the money is better off in my pocket than the council's.  

My wife just took VR from a local authority after 20 years and heard lots of this from colleagues unwilling to take the time to understand the value offered by the LGPS scheme. 

The reasons mainly surrounded not needing it due to having investment properties that would be their pension, thinking they could invest to produce better returns, wanting to stay in control of their own money and just simply not affording the contribution.

FIREDreamer

SouthCoastBoy said:

I have always been careful with money and never wanted to get into debt, even as a student in the 80s I never went overdrawn unlike a number  of my contemporaries. 

When I got my first job in London after graduating I needed every penny as the wage wasn't great so I opted out of the pension scheme, in hindsight, I should have just gone overdrawn every month.In total I missed out on 4 years and 9 mths of pension contributions, I regret that now but unfortunately not a lot I can do about it.

Presumably a DB pension too, given your age. Ouch, especially given you can calculate how much pension income you will miss out on per year. I would be pig sick.