Pension - 1 year in, advice needed

dannynixon

Hi, I am a teacher who is 21 and I have been paying my pension for about a year now.

I earn 1670 per month before tax, NI and pension. After tax, NI and pension it is 1250. I pay 107 per month into my pension and I have paid around 1200. My question is because of the pinch of bills etc. I am considering leaving my pension to help pay off a few things and make some purchases (ie new baby).

If I leave my pension, I obviously will not see an increase of 107 per month into my wages because this 107 will be taxed. Even so I am considering leaving the pension for 2 years or so to help out with a few bills. I get a pay rise every year for the first 5 years (between 1.5k and 2k per annum) every september. This is not performance related, but experience related so I get it automatically. When I opt back in, I will opt in in the September when that years payrise takes effect so I will not miss the money.

I have 2 questions:

1. Is it a really bad idea opting out of a pension and then opting back in? (Apart from having a few thousand less at retirement)

2. What hapens to the 1000 I have paid in so far?

I don't know too much about pensions (could blame it on being 21 lol) but if you need any more advice than this, let me know. Hopefully I will get a decent response because I am unsure. I don't think it is a problem but just a little confused.

Dan

dannynixon

Bump......

nrsql

Can you reduce the amount paid in rather than stop altogether?

It's probably not a good idea to use debt to finance a pension which is what you might be doing if you carried on as you are.

Don't you have a pension advisor you can call - maybe your union?

dannynixon

Didn't even think about ringing my union. Will ring them tomorrow when they are open.

I am confused now though. What do you mean using debt to finance a pension? Do you mean using my pension to finance a debt?

seven-day-weekend

I am not a pensions expert, but I do know the Teachers' Pension is one of the best schemes to be in,

It may be a good idea to rung your union or see an Independent Financial Advisor(IFA) before making a decision on this important matter.

However, if I remember rightly from my husband's teaching days, you should have a rise soon. Couldn't you use this to throw at your debt?

As for the bills, try posting a SOA (Statement of Affairs) on the Debt-free Wannnabee board (there is a sticky post for new board users at the top where it tells you how to do this). They will tell you all sorts of ingenious ways to cut down your outgoings asnd you may find that this negates the need to stop your pension.

Good luck!

nrsql

>> I am confused now though. What do you mean using debt to finance a pension? Do you mean using my pension to finance a debt?

I mean continuing to pay into the pension at the expense of going into debt in other areas.
I also say it probably isn't a good idea but that's debatable. The risk is that the debt becomes uncontrollable - you would be gambling that your future salary increases allow you to pay the debt off before it causes problems.

chesky369

Get Martin's personal budget and fill it in over the next few weeks, so that you can see precisely where your money is going - I expect you will get a few shocks.

It's really not a good idea to jack in your pension; however, as nrsql says it may be better to do this than go into debt further. The problem is that it's always more difficult to find the money to re-join (particularly if you have a child, they do tend to be rather expensive). Will your partner be going back to work after maternity leave?

CLAPTON

remember.... lets say you pay 6% of your salary into the pension so nominlally you pay in 100.20 per month (1670 x 6%)

A. but the actual cost to you is
a. its taken before tax so you save 20% tax i.e.£20.4
b. and instead of paying 11% NI you only pay 9.4%
so this is another 1670 x ( 11%-9.4%) = £26.72

so your nominal 100.2 only costs you £52.44...

B. normally the pension provides generous death in service benefits which with a young children you will need to replace... check carefully the schemes full benefits

C. also consider whether you will actually restart the payment.. whatever you say it will also be difficult to actually get round to restarting.

D. are you allowed to restart when ever you like?... not all schemes allow this.

E. your employer (or rather we tax payers) are contributing about 20% of your salary to this scheme..........you're getting a fantastic bargain


Frankly...
Madness to opt out

If you are struggling with debt go over to the debt free wanabe board and psot up an SOA there and seek some friendly adivce.

seven-day-weekend

CLAPTON wrote: »

Frankly...
Madness to opt out

If you are struggling with debt go over to the debt free wanabe board and psot up an SOA there and seek some friendly adivce.

Same as I said, but in different words.

nrsql

>> Madness to opt out
Even if the alternative is escalating debt?
What happens to a pension when being made bankrupt?

I would agree that it's probably a good pension and one of the benefits of the career but I wouldn't go so far as saying it's "Madness to opt out" without knowing a lot more about the circumstances.

CLAPTON

nrsql wrote: »

>> Madness to opt out
Even if the alternative is escalating debt?
What happens to a pension when being made bankrupt?

I would agree that it's probably a good pension and one of the benefits of the career but I wouldn't go so far as saying it's "Madness to opt out" without knowing a lot more about the circumstances.

obviously correct, but one has to work with the data available... there is nothing in the post to suggest he is absolutely desperate and is about to go bankrupt
and which is why several people including myself suggested going over to the debt free wanabe board and to post an SOA there.