Anyone reduced their pension contribution?

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OpenToSuggestions

OpenToSuggestions

Soldato
Joined
5 Aug 2006
Posts
11,426
Location
Derbyshire
Hey all.
In a few days I have been in my home for 12 months, with 24 years of mortgage left. However I overpay a little bit in order to reduce it by a few years. My student loan will be paid off when I am 29 via PAYE as I worked throughout to help pay.

I currently pay 6% into my pension as my employer matches it, however at 26 years old I have no idea what this will be worth when I am 65+. Will it be worth much? (Who knows).

I am not that hard up, but I do worry about money, even though I do not owe anything aside from house and study. I have a second car which is my hobby, but I would like to 'live' a little more as there is a lack of 'doing stuff'. Whilst my work is going well the company is not in a position to give a raise right now. An option is to reduce my pension contribution. I would never opt out of a pension as that is very short sighted imo. Perhaps go for 2% or 4% contribution? What have OcUK done?

TLDR: Reduce pension contributions for more fun money?
 
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I would leave your pension alone, a bit more money now will mean a loss of a lot more money later on. But it is up to you to decide on your priorities and how you want to live now as opposed to security later.
 
You can/should seek proper financial advice about this and the truth is you will only know the right answer with hindsight 40 or more years from now.

One thing to consider though is that the contributions you pay in "early" have more potential for growth and so should be worth a lot more than the contributions you pay in in 20 or 30 years time. So if rather than pay 6% from the age 25 to 65 you pay in 2% now, you might have to up that to 15% or 20% later on if you want to make up the difference.
 
Don't reduce your pension contribution, as presumably if you reduce your side the company will too, in which case you're effectively taking a pay cut! Actually, if your company would match your contribution to an even higher level , for example 10%, then I'd even increase it - it's free money! Sure, you can't get your hands on it now, but you will be able to eventually, and because your contributions go in from your gross salary it reduces your tax burden in the process.

Pensions end up being worth a lot of money (generally) because of compound growth, the effect of re-investing your gains over a prolonged period, so the earlier you start contributing the greater the effect at the end.

Stick with it. You'll be earning more money in a year or two's time anyway, and right now you aren't missing the money you're putting into the pension because you've never had it. If you reduce your contribution now you'll find it harder to increase it again and reduce your take home pay later on.

Quick example of compound growth, based upon you investing £100 per month, every month, never increasing or decreasing the amount, and achieving 5% growth year-on-year:
10 years - total investment = £12,000, pension pot worth = £20,055.58
20 years - total investment = £24,000, pension pot worth = £41,663.10
30 years - total investment = £36,000, pension pot worth = £83,712.95
40 years - total investment = £48,000, pension pot worth = £152,207.72
 
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**** no!

If anything, up your pension contribution, cut your hobbies, overpay your mortgage more and set up a good share portfolio. Then once the mortgage is paid off, start enjoying life with stupid amounts of spare cash.

I did the above, paid my mortgage off 18 months ago and retired last July - I'm 36yrs old and living off the share portfolio income and I'll never work again.
 
I echo the above advice. However something worth considering is the changes the gov announced to the pensions in the budget. I'm waiting for more concrete to come out surrounding the changes planned. Then I may look in later life to max out my pension contributions and take a lump sum out.

I'm now 30. By the time I get there it will have no doubt changed again!
 
No, you should do the oposite. At the absolute minimum you should hit the max your employer matches at.the employer match gives you an instant 100% return on investment. Nothing comes close to those returns, and that is without considering that the investment is done on your gross salary so that is giving you a 40% gain right there. Finally a properly manage pension scheme should always return a higher growth than mortgage interest.


Also, paying more into the pension will give a much higher return than paying more into the mortgage since the pension when you are young will have a much longer period to gain compound growth, and the return rate should almost always be higher than interest rates, especially with current rates.


It old take a very odd set of circumstances for a financial advisor to tell you not to max your pension to the employer match. Double your money instantly!
 
Keep your contributions going and, as others have said, look to increase them. But also look at building up some safety cash in ISAs - you're a homeowner now and you will need ready cash for maintenance etc.

I honestly wouldn't bother with financial advice at this stage, unless you're earning megabucks. It'll be too costly relative to what you're earning / saving, and at this stage of life it really is just about simple maths, balancing the books and making sure you're adequately insured. There are countless online guidance tools to help.

Zirax said:
I echo the above advice. However something worth considering is the changes the gov announced to the pensions in the budget. I'm waiting for more concrete to come out surrounding the changes planned. Then I may look in later life to max out my pension contributions and take a lump sum out.

I'm now 30. By the time I get there it will have no doubt changed again!
Click to expand...

We're going through our response to HMRC's consultation following the Budget right now. None of the questions they raise indicate any fundamental changes to the proposals. There'll still be access to the full pension fund. Instead, the consultation is focussing on how the advice at 'retirement' should be delivered and paid for, and whether the age for access should be linked to the State Retirement Age.

After years of lagging behind ISAs, pensions are about to take an important step forward and be better placed to meet modern retirement needs.
 
I'm keeping my pension nice and low whilst I'm young (24) if we get to retire at 65 I will be really surprised

so keeping it low at the moment and going to increase it slowly. however I have car finance so waiting to complete that then I will up my payments. struggling to see the point in skinting myself now to sit in a chair and not move later in life
 
I would personally overpay more on your mortgage and leave/increase if possible your pension contributions.

Definitely don't reduce a matched contribution scheme.
 
My employer doesn't contribute so I only get what I put in :(

Mortgage consumes about 40% of my wages with another 17 years left and pensions another 20%. Just hoping the financial suckage pays off later in life.
 
The_Abyss said:
Keep your contributions going and, as others have said, look to increase them. But also look at building up some safety cash in ISAs - you're a homeowner now and you will need ready cash for maintenance etc.

I honestly wouldn't bother with financial advice at this stage, unless you're earning megabucks. It'll be too costly relative to what you're earning / saving, and at this stage of life it really is just about simple maths, balancing the books and making sure you're adequately insured. There are countless online guidance tools to help.



We're going through our response to HMRC's consultation following the Budget right now. None of the questions they raise indicate any fundamental changes to the proposals. There'll still be access to the full pension fund. Instead, the consultation is focussing on how the advice at 'retirement' should be delivered and paid for, and whether the age for access should be linked to the State Retirement Age.

After years of lagging behind ISAs, pensions are about to take an important step forward and be better placed to meet modern retirement needs.
Click to expand...

So that means a significant proportion of people may not end up putting away tens/hundreds of thousands and not getting most of it back (because they die at or below the average age)? More reason to actually save for a pension rather than investing in other assets, which presumably is why they have done it.
 
despite the company doubling whatever contributions i put in i opted out altogether from the pension scheme.

it is a risk, one i'm very aware of, however the cash now is of much more use to me than being locked away until my late 60's.
 
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