Auto Enrolment Pension - Is it worth it ?

[tintin82]

Definitely worth it, although I would say that as my company contributes 20% which is stupidly good.

That's insanely good!


Yes it is a definite must. I don't know if anyone pointed out the tax advantages also, but your contributions have the tax refunded on them.

To break it down, lets say your employer matches your contributions to 5%.

Lets say that is £100

So you put in £100, your employer matches that = £200.

Now the contributions are tax free so add the tax back, that's an extra £50.

So the decision is now up to you. To make it simple, if you opened a bank account and the bank said 'if you give us £100, we will top it up to £250' every month! You would bite their hand off! Only catch is that you cant access it until your 55.

(tax rebate is based on the level of tax you pay, so 40% payers 40% back)

Someone please correct me if my figures are wrong

 

[Burnsy2023]

That's insanely good!


Yes it is a definite must. I don't know if anyone pointed out the tax advantages also, but your contributions have the tax refunded on them.

To break it down, lets say your employer matches your contributions to 5%.

Lets say that is £100

So you put in £100, your employer matches that = £200.

Now the contributions are tax free so add the tax back, that's an extra £50.

So the decision is now up to you. To make it simple, if you opened a bank account and the bank said 'if you give us £100, we will top it up to £250' every month! You would bite their hand off! Only catch is that you cant access it until your 55.

(tax rebate is based on the level of tax you pay, so 40% payers 40% back)

Someone please correct me if my figures are wrong

Pensions taken via PAYE are generally deducted pre tax so there is no rebate.

 

[tintin82]

Pensions taken via PAYE are generally deducted pre tax so there is no rebate.

Unless you pay 40% tax and then its up to you to claim it back.

But the point I was trying to make is that although its done through PAYE, it is still a perk which should be taken advantage of. You still avoid 20% at the end of the day collected through PAYE or not.

If someone doesn't contribute to a pension, that monies becomes part of their taxable income, so by contributing you are avoiding the tax, bonus!

 

[The_Abyss]

Lots of opinion rather than fact in here, so let's run through a few points.

Basically its a big scam designed to fleece you of more money.

No. You're saving your own money, together with an employer contribution and tax relief.

The "scheme" is not opt in, it is forced on you

This is the whole point of auto enrolment. You're opted in automatically and can opt out if you want.

You can only opt out after they have taken the first payment and you have only a month to do it

Yes, you can get your money back if you want and you have a whole month to do it.

You can opt out, but they automatically put you back in

Yes, they do. After about 3 years normally. And you can opt out again.

You get charged a fee by the company handling the "scheme"

Yes, capped at 0.75%. And it definitely will be in a scheme.

If you fail to pay a debt, the court can order you to relinquish what has been paid in, so you don't get it (although it has been through the courts, the decision is being challenged by big business AGAIN)

No, apart from exceptional circumstances, as in you've made a deliberate significant contribution to try and shield the money from creditors. What's current being challenged is whether you can be forced to withdraw your pension after the age of 55 in order to satisfy creditors. There are two recent significant cases, and the most recent case denied creditors the right to access the pension fund.

If like me you aren't going to live long enough to see retirement, its a big waste of time

Being able to normally access your pension from 55 years old means that you're probably quite pessimistic. But even then, and beyond, there are significant tax and inheritance tax benefits, as well as income tax benefits for your beneficiaries.

If you scrimp and save, eventually the government will declare that your pension is too big and you will lose state pension

Nonsense. The State Pension is not means tested.

You are forced into it, meaning if you already have a pension, this is an extra burden

We've covered this one already. You can opt out.

If you are already on low income, the final outcome will be meaningless anyway

Well, that depends on how much you save.

You will lose enhanced or "fixed" protection

Yes, you will lose it. However, given that if you've applied for enhanced or fixed protection, or the other 6 types of protection available then you likely have or expect to have a pension fund at least in excess of £1,000,000.

Employers will withhold pay rises to pay for this new tax

Employer pension contributions are undoubtedly a cost for them, but there's no evidence to suggest that this is happening.

The last pensions revolution ended up earning an whopping £1000 above what was paid in

I don't really understand what this means.

However, perhaps the biggest problem with auto-enrolment relates to how it interacts with state benefits. At the moment, for every pound of "excess income" someone receives, they lose 65p of housing benefit. For council tax benefit, the reduction is 20p for every pound.

That's the same for any income in retirement. You can avoid it by remaining in poverty and relying solely on state benefits.

The fact that this is a state run ponzi scheme doesn't help its credibility either.

It isn't. It is your money, held under trust.

 

[tintin82]

Thanks Abyss, I am sure that last post will clear up some utter rubbish on this thread.

If only everyone would take a little bit of time and interest into their financial affairs and planning we wouldn't have so many misconceptions about what pensions and other financial products are.

 

[mejinks]

Lots of opinion rather than fact in here, so let's run through a few points.

Thank you for agreeing with me in the most part.

It is a scam as you and your employer will pay into a scam that is run by a quango. The money goes to the government.

Unless you are on the ball or you have the necessary information in front of you for opt out, a month can easily pass going back and forth trying to get out of the scam.

Im not pessimistic, I am realistic. I won't get to see any money I pay in and neither will by next of kin. Pensions on the whole are a waste of time as even when they do pay the next of kin, they only get paid a tiny percentage of what was paid in.

My comment about the government means testing your pension was tongue in cheek, however, I have a habit of being proved correct when it comes to ridiculous things that the government does.

The fact that it is FORCED on employees and employers is a big warning sign as to its credibility and anyone who thinks this scam is a good thing is deluded.

 

[mattyfez]

It's not forced, a two line email to HR to opt out is all it takes to opt out.

The issue is that many people are not investing in any shape or form.

Would you care to qualify your assumptions?

 

[The_Abyss]

Thank you for agreeing with me in the most part.

Let's be a little more clear this time around then. I disagreed with virtually everything that you said. Because it was incorrect.

It is a scam as you and your employer will pay into a scam that is run by a quango.

It isn't a scam. If it helps, try comparing a pension to just a normal savings account. The pension differs in that you get tax relief when you pay in (i.e. more goes in) and you pay tax on around 75% of the money when you take it back out. You can normally take it all back out from age 55.

But... it is YOUR MONEY.

NEST is a quango. There are countless other auto enrolment pensions that are not. Auto enrolment pensions are simply normal pensions that have to meet a certain set of rules. We've covered some of those already.

The money goes to the government.

Actually, part of the money comes FROM the government. Or, more specifically, you avoid paying as much to HMRC as you would have done if you hadn't paid into the pension.

Unless you are on the ball or you have the necessary information in front of you for opt out, a month can easily pass going back and forth trying to get out of the scam.

Yes, you should read the information provided because if you don't you do indeed risk saving some of your own money. We've already covered this. Just opt out.

And once again, it isn't a scam.

Im not pessimistic, I am realistic.

You're also poorly informed and mostly incorrect.

I won't get to see any money I pay in

If you don't die before the age of 55 then you can see it all if you want.

and neither will by next of kin.

Yes, they will. Unless you've already withdrawn it all and spent it, or used the whole pension to buy an annuity. Or unless you nominated someone other than your next of kin as your pension beneficiary.

Pensions on the whole are a waste of time as even when they do pay the next of kin, they only get paid a tiny percentage of what was paid in.

No. If you haven't drawn your pension then your next of kin will get everything. If you happen to die before 75 and haven't already started withdrawing it, then it will be tax free for them for the remainder of their lives.

You're probably thinking about an annuity, where you can choose an option to continue to pay a regular income to a survivor should you predecease them. That percentage is normally between 50% and 70%, but it is your choice at the point you buy it.

My comment about the government means testing your pension was tongue in cheek

So it was another thing that was incorrect.

however, I have a habit of being proved correct when it comes to ridiculous things that the government does.

Perhaps. But not when it comes to pensions.

The fact that it is FORCED on employees and employers is a big warning sign as to its credibility

It is a big sign, through the very name of auto enrolment, that you're going to automatically start paying in and saving unless you choose not to.

The credibility stacks up - it is doing precisely what it was intended to do.

and anyone who thinks this scam is a good thing is deluded.

You're terribly misinformed. If you don't like it, opt out. Enjoy your retirement whatever you choose. If you're not saving yourself or refusing to rely on State benefits, it is likely to be a very interesting one for you.