Opting out of pension

kmb500 · 28 September 2017 at 5:13PM

Hi, I am 21 and work for a local council. I pay in to my pension £105.67 per month as part of the LGPS scheme and my employer pays in £315 per month. I know the scheme is very good as my employer pays in 3x what I pay in, but I won't be retiring for 50 years and I could well be dead by then - I could really use the extra £100 now.

I was looking at our pension information and it says that if you are considering opting out of the scheme then you should take financial advice as the tax and NI will increase. Going by the MSE tax calculator my income tax would increase from £151/month to £172/month. So in reality I will have £84 extra per month.

Is this worth it? I currently struggle to save anything at all and basically live paycheque to paycheque. If I opt out of the pension I can put money in my savings account which seems to me more important than getting money when I'm near dead. But my brain tells me it's all a good investment... in the past year and a half that I've been working here I've earned 8 grand in my pension.

Not sure what to do.

worried_jim · 28 September 2017 at 5:15PM

Don't do it. Just don't.

Alter_ego · 28 September 2017 at 5:15PM

Stay in the pension if you possibly can, for many reasons.

kmb500 · 28 September 2017 at 5:23PM

Alter_ego wrote: »

Stay in the pension if you possibly can, for many reasons.

What reasons?

I am not very concerned with what will be happening in 50 years time. That is half a century. I am trying hard to save at the moment but I've got so little left at the end of the month. If I opt out of the pension I can have an extra £85 a month which I could put in savings. Not in spending money but I could literally just put £100 into the savings account as soon as I'm paid. That seems more useful to me?

I just did an online life expentancy calculator and apparently I am statistically most likely to die at 71 due to my lifestyle. That's probably rubbish but I could easily see myself not living much past retirement age. And honestly when you're that old you can't do anything except sit around moaning about everything you missed out on your life, OAPs are so grumpy. the point is I rather live my life now. When I have things like rent to pay, maybe one day buy a house.

I know that obviously it is a better investment to have a 300% return on the money compared to a sub-1% rate in a bank account. But I feel like it's more valuable to me now.

robin61 · 28 September 2017 at 5:36PM

I know it seems a long time away but the time will pass much more quickly than you think.
If you are really short of money why not try to get a part time job - something like working a couple of nights a week in a pub. I did this kind of thing when I was young and quite enjoyed it and in some ways it enhanced my social life. It provided me with 2 extra nights out, meant I spent nothing and actually made me some money.

Are there simple things you can do like take sandwiches and a flask to work that will save you say £10 per week ? Which is almost half the sum you say you will save.

It's your choice of course but I think you will regret it one day if you opt out of the pension scheme.

OldBeanz · 28 September 2017 at 5:37PM

Go for it then. *Personal interest note : As a council tax payer it will benefit me. PS as always this is not advice.

bostonerimus · 28 September 2017 at 5:37PM

STAY IN THE PENSION!!!!!!! Contributions made early on are the most valuable because they have longer to compound. Also it would be a big loss to give up that fantastic employer contribution.

Do a detailed budget and I bet you'll find enough savings to more than cover your pension contribution.

JoeCrystal · 28 September 2017 at 5:51PM

I urge you in strongest possible form not to opt out. What you are paying for is a benefit whose cost is ultimately paid by the council. Based on your information about income tax, I am guessing you are earning £20,000 or so

For paying £105.67 per month, you get 1/49th of your pensionable pay so about £408 a year. Each year, that amount get uplifted by cost of living every year so that specific amount stay the same in real term. Let say you worked for forty year under 1/49th accrual rate and let say you are on same salary for rest of the period, you will get £16,000 a year pension at least. You also get death in service benefit payout and ill health retirement and so on.

To get anything like that in private sector, you would need to be paying in 25 to 33% of your salary (And that is purely for pension, not for ill health and death in service payout), it is very good deal and please do not opt out. What employer is paying is just nominal and ultimately, they will pay whatever the amount is needed to cover your pension when you retire with all the risk rests solely with them.

Again, it is worth every single penny and please do not opt out!

dunstonh · 28 September 2017 at 5:54PM

but I won't be retiring for 50 years and I could well be dead by then

Only around 1 in 5 do not make retirement. So, you are planning on the odds of 1 in 5 not making it rather than the 4 in 5 that do?

So in reality I will have £84 extra per month.

So, clearly a bad financial move on your part if you do it.

I currently struggle to save anything at all and basically live paycheque to paycheque.

If you are struggling now, when earning what you earn now, how do you think your future self will survive on £8500 a year state pension?

I am not very concerned with what will be happening in 50 years time.

Well, that is just stupid thinking. Hopefully, you are not doing an important role with Local Govt. And yes, my language is blunt on purpose. You need a right kick up the backside. You are not a child anymore. So, stop thinking like one.

Not in spending money but I could literally just put £100 into the savings account as soon as I'm paid. That seems more useful to me?

How do you get £84 (probably less after NI) to be better than over £300 for the same cost?

And honestly when you're that old you can't do anything except sit around moaning about everything you missed out on your life, OAPs are so grumpy.

As you get older and wiser, you get grumpy at the stupidity of some of the things that people do.... Such as opting out of a great occupational pension scheme because of really daft and ill-considered opinions.

Opting out of the scheme would rank with one of the worst financial decisions of your life. Hence my blunt response.

TARDIS · 28 September 2017 at 5:57PM

kmb500 wrote: »

And honestly when you're that old you can't do anything except sit around moaning about everything you missed out on your life, OAPs are so grumpy. the point is I rather live my life now.

You've obviously not read many threads on this forum about all the varied and often extremely active things many are doing in their retirement! Mind you that's often with decent pensions, which you're currently thinking of giving up. And I'd argue there are grumpy people of all ages.

You say your lifestyle is shortening your estimated life expectancy which suggests to me cigarettes and alcohol (apologies if I've misinterpreted this). Could you cut these down/out to allow you some additional spending/saving money?

You would essentially be declining a significant portion of your pay, albeit deferred for a few decades, by opting out and almost certainly will regret it. You say yourself it's the wrong this to do, but ultimately it's your mistake to make or not.

Thrugelmir · 28 September 2017 at 6:10PM

kmb500 wrote: »

the point is I rather live my life now.

Life changes, friends, family, loved ones. Your body will age, whatever. In all honesty you will be one of those grumpy OAP's. For the simple reason that you made stupid decision in your earlier years. Watching those that didn't commit financial suicide for a few quid a month.

Opting out of pension

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