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

Silvertabby

BikingBud said:

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.

Yes, very true.  40% deposit, although as we were both in our 30s that included pre-marriage savings (from living in subsidised barrack blocks and then Sgts' Messes).   Mind you, when we were sorting out our mortgage (7.8%) we asked how much our monthly payments would be if the rate went up to, say, 12%.  The adviser said that would never happen, but when we pointed out that rates had been nearer 15% just a few years earlier, he reluctantly produced the sums.  When we said that was do-able, he tried to sell us a bigger mortgage ....

SouthCoastBoy

FIREDreamer said:

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.

Yes it was a db pension, however I would not have been able to afford it without going into debt, so for that reason I am comfortable with the decision I made at the time.

I could also say the same about houses, I only ever borrowed a small percentage of what I could have which in turn has meant I most probably have a house which is only 50% of the potential value I could have had.

Both cases illustrate perhaps I should have taken more risk, however I come from a family where my mum had to pawn her engagement ring to ensure the house was not repossessed. I remember her in tears walking into town to pawn it. That had a lasting effect on me.

FIREDreamer

SouthCoastBoy said:

FIREDreamer said:

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.

Yes it was a db pension, however I would not have been able to afford it without going into debt, so for that reason I am comfortable with the decision I made at the time.

I paid unnecessary LTA charges in 2021-2023 of over £68,000. I still kick myself about it now. Could have bought a £3,000 pa indexed JL annuity with those funds instead. Have saved some LTA charges since then with a transitional certificate (previous DB taken early without taking a PCLS). Also gained by the big increase in annuity rates since then I suppose when i bought an annuity in October 2023.

Given his amount could only be taken at 40% tax (apart from about £10,000 LSA available under the new system) due to my total pension benefits, my net loss is £45,000. Ouch.

Silvertabby

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.

We had that, to a certain degree, in the form of SERPS/SP2.  High earners could accrue almost £400 per week / over £20K per year.  More if they deferred payment under the old, much more generous rate, of over 10% per year.  This wasn't widely known, as most high earners were also members of contracted out occupational DB schemes and so, having paid reduced rate NI, they only received the lower basic State pension.  But with the equivalent of the SERPS/SP2 they had contracted out of/not paid for being paid with their occupational pensions.  

This all ended in 2016 with the introduction of the nSP.  Once we are out of the lengthy transitional period (still a few years to go yet) the UK State pension will indeed be a simplified flat rate - meaning it is even more essential that today's workers are encouraged to add to their retirement provisions instead of just subsisting on £11,500, and then moaning about how hard done by they are in comparison with their European counterparts.

ADD. Also rarely mentioned that while the majority of European pensioners live in rented accommodation, there is no such thing as housing benefit or council tax benefit.  And not all medical treatment/drugs are 'free' as they would be with the NHS.  Whatever pensions they get are their lot. 

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. 

Having seen some of the reasons given by full time reasonably well paid LGPS members who opted out, I agree.  They couldn't just download the opt out form themselves - they had to ring an administrator to request one.  That was our cue to explain exactly what they would be giving up by opting out of the scheme.  If financial difficulties were mentioned, we would suggest that they looked at the LGPS 50/50 scheme.  Briefly, the member paid half rate pension contributions in return for a pension that accrued at half the normal rate (although death in service and ill health benefits were unaffected).  This scheme was introduced when contracting out / reduced rate NI ended, as a means of encouraging members to keep their membership going when their take home pay may have reduced.  It was intended to be a temporary measure, to help tide people over until their finances picked up again, but most still opted out fully.  I think by the time they got through to us they had already mentally spent their pay 'increase'.  

eltisley98

crv1963 said:

I know several well educated and competent in their field professionals who refuse to join the NHS Pension scheme, generally when asked why I get told

1) I don't trust the Govt to pay me a pension
2) It's better in my pocket now I can't afford it
3) I don't expect to live that long my father/ grandfather died when he was 50 something
4) I'm only 20 something.....why would I put money away for forty years time?

I also know several who have previously opted out and are now in scheme, regretting having missed sometimes twenty years of contributions as arriving in their 40s and 50s focused them on the 60s and beyond!

As far as I can see, their reason 3) is not entirely unreasonable.

Pat38493

eltisley98 said:

crv1963 said:

I know several well educated and competent in their field professionals who refuse to join the NHS Pension scheme, generally when asked why I get told

1) I don't trust the Govt to pay me a pension
2) It's better in my pocket now I can't afford it
3) I don't expect to live that long my father/ grandfather died when he was 50 something
4) I'm only 20 something.....why would I put money away for forty years time?

I also know several who have previously opted out and are now in scheme, regretting having missed sometimes twenty years of contributions as arriving in their 40s and 50s focused them on the 60s and beyond!

As far as I can see, their reason 3) is not entirely unreasonable.

I'm not sure I would agree.  First, even if your antecedants died in their 50s, you still have a significant chance of making it to 70 or 80.

More importantly were these people married or with dependent children?  If you opt out of the pension scheme, you are also opting out of a spouse/dependent pension when you die, and in a lot of organisations (not sure about NHS), you are opting out of the death in service benefits as they are linked to the pension.

Therefore unless the person is single with no dependents and has an actual specific diagnosis of shorter life expectancy, this is still a bad decision.

LHW99

eltisley98 said:

crv1963 said:

I know several well educated and competent in their field professionals who refuse to join the NHS Pension scheme, generally when asked why I get told

1) I don't trust the Govt to pay me a pension
2) It's better in my pocket now I can't afford it
3) I don't expect to live that long my father/ grandfather died when he was 50 something
4) I'm only 20 something.....why would I put money away for forty years time?

I also know several who have previously opted out and are now in scheme, regretting having missed sometimes twenty years of contributions as arriving in their 40s and 50s focused them on the 60s and beyond!

As far as I can see, their reason 3) is not entirely unreasonable.

That was my grandfather's thinking (although to give him his due, he didn't opt out of his pension) as his father died age 56. He, on the other hand lived to nearly 90.

Predecessors genetics are not something to trust in IMO

crv1963

LHW99 said:

eltisley98 said:

crv1963 said:

I know several well educated and competent in their field professionals who refuse to join the NHS Pension scheme, generally when asked why I get told

1) I don't trust the Govt to pay me a pension
2) It's better in my pocket now I can't afford it
3) I don't expect to live that long my father/ grandfather died when he was 50 something
4) I'm only 20 something.....why would I put money away for forty years time?

I also know several who have previously opted out and are now in scheme, regretting having missed sometimes twenty years of contributions as arriving in their 40s and 50s focused them on the 60s and beyond!

As far as I can see, their reason 3) is not entirely unreasonable.

That was my grandfather's thinking (although to give him his due, he didn't opt out of his pension) as his father died age 56. He, on the other hand lived to nearly 90.

Predecessors genetics are not something to trust in IMO

Although genetics plays a part undoubtedly life style and environmental factors also play a huge role, as does improved healthcare and access to it, which we may hear (edit I wrote here not hear!) the NHS is failing but in reality access to appropriate treatment is still there. 

Emmia

crv1963 said:

LHW99 said:

eltisley98 said:

crv1963 said:

I know several well educated and competent in their field professionals who refuse to join the NHS Pension scheme, generally when asked why I get told

1) I don't trust the Govt to pay me a pension
2) It's better in my pocket now I can't afford it
3) I don't expect to live that long my father/ grandfather died when he was 50 something
4) I'm only 20 something.....why would I put money away for forty years time?

I also know several who have previously opted out and are now in scheme, regretting having missed sometimes twenty years of contributions as arriving in their 40s and 50s focused them on the 60s and beyond!

As far as I can see, their reason 3) is not entirely unreasonable.

That was my grandfather's thinking (although to give him his due, he didn't opt out of his pension) as his father died age 56. He, on the other hand lived to nearly 90.

Predecessors genetics are not something to trust in IMO

Although genetics plays a part undoubtedly life style and environmental factors also play a huge role, as does improved healthcare and access to it, which we may here NHS is failing but in reality access to appropriate treatment is still there. 

And there's an article today saying that cancers are being detected at stages 1&2 more frequently, often through routine screening programs, increasing the chances of survival substantially.

incus432

eltisley98 said:

crv1963 said:

I know several well educated and competent in their field professionals who refuse to join the NHS Pension scheme, generally when asked why I get told

1) I don't trust the Govt to pay me a pension
2) It's better in my pocket now I can't afford it
3) I don't expect to live that long my father/ grandfather died when he was 50 something
4) I'm only 20 something.....why would I put money away for forty years time?

I also know several who have previously opted out and are now in scheme, regretting having missed sometimes twenty years of contributions as arriving in their 40s and 50s focused them on the 60s and beyond!

As far as I can see, their reason 3) is not entirely unreasonable.

Really bad logic. The father and grandfather may have been smokers, heavy drinkers, got cancer, or any number of things that have no bearing on your own life expectancy.