Pension - Can I opt out?

Mercenary Keyboard Warrior · 23 Dec 2015 at 14:51

EvilRob said:
Sounds like a load of rubbish to me. It's no different from a payroll system really. That also has hundreds of payments to hundreds of different accounts of different amounts, which may vary every month.

If it was a requirement for a company to do it, it could be done extremely easily and the systems to manage it would quickly be developed.

No its not, payroll systems go most of the time into a one size fits all payments system, BACS. One file, in one formatted structure to multiple end points.

All the pension providers have differing portals, file structures etc that make dealing with them far more hastle.
It would probably need some revision to make it function far more like BACs, but certainly as of today that is not the case.
Aegon for example had a massive issue with us sending them two payments in a month. (the system kicked out payments into suspense accounts which had to be manually allocated)

dowie · 23 Dec 2015 at 15:10

Mercenary Keyboard Warrior said:
I don't think this is coming as a given right.

Eg my current employer selects the investment advisor and they recommend the pension supplier. In my case Aegon.

Possibly George will give more rights but bear in mind the company need to make the payments to the pension provider so they wouldn't want every employee making their own arrangements.

I don't see why it has to be an issue though - they pay salaries into different bank accounts no reason why they couldn't (at least in theory) do the same with pensions. I'd guess in practice either some naff IT systems won't be set up for it or some woman in finance will complain about stuff changing but given time that stuff sorts itself out, software vendors adapt etc..

dowie · 23 Dec 2015 at 15:12

booyaka said:
Problem for the employer would be if they had 300 people employed all who wanted payments to their own pension - it's 300 seperate payments/direct debits etc which is WAY harder to control, over a single monthly payment to one provider etc. Never going to happen

I doubt all those employees bank with the same bank either... yet all those separate salary payments have to go out each month... It really doesn't have to be a problem.

dowie · 23 Dec 2015 at 15:14

Kemik said:
Interestingly enough, current Government proposals suggest taxing pension contributions now and then paying out tax free. One way to shake up the industry!

yeah, suddenly you'd have no incentive to contribute above the amount matched by your employer

EvilRob · 23 Dec 2015 at 15:56

Mercenary Keyboard Warrior said:
No its not, payroll systems go most of the time into a one size fits all payments system, BACS. One file, in one formatted structure to multiple end points.

All the pension providers have differing portals, file structures etc that make dealing with them far more hastle.
It would probably need some revision to make it function far more like BACs, but certainly as of today that is not the case.
Aegon for example had a massive issue with us sending them two payments in a month. (the system kicked out payments into suspense accounts which had to be manually allocated)

It is far from a show stopper if such a change was being discussed. It would not be one of the main considerations when making the decision.

Mercenary Keyboard Warrior · 23 Dec 2015 at 17:02

dowie said:
yeah, suddenly you'd have no incentive to contribute above the amount matched by your employer

It wouldn't change in reality for the majority

In fact you could argue if your that way inclined that it gives more certainty than the current regime.

Eg when making payments into a pension currently a standard rate tax payer is making the assumption that basic rate tax is going to be about 20% when he gets his pension taxed in x years
The personal taxation system could be completely different, eg it could be at 33% and with no personal allowance or it could be on a sliding scale from 0%-99% with a Labour government

If you paid tax only at the point of salary then your investment would be protected from income tax rule variations. Yes of course the pension rules could change again, they always can, but your TOTAL investment would be arguably less impacted by taxation as you would pay at whatever relevant rate and rules were year by year not run the risk that they have become horrible by the time you start drawing your pension.

Mercenary Keyboard Warrior · 23 Dec 2015 at 17:08

EvilRob said:
It is far from a show stopper if such a change was being discussed. It would not be one of the main considerations when making the decision.

Its not was, it is being discussed right now.

As I said it would require some sort of rethink on the whole basis.
Ideally they would bring in some sort of portability legislation at the same time, so think standardised account numbers so you could in theory move from one provider to another without changing your account number.

What you would really need is the pensions providers to band together and adopt a system that functions in the same was as BACs, ie an EDI type system that allowed simple software to generate the file, not needing to know or supply any special data to the end recipient of the data.
Having dealt with some of these providers I can tell you they are far from this, think more like banking 40 years ago where every building society could have differently formatted account numbers.

The_Abyss · 23 Dec 2015 at 17:41

Pot follows member has been abandoned for this parliament.

dowie · 23 Dec 2015 at 19:23

Mercenary Keyboard Warrior said:
It wouldn't change in reality for the majority

In fact you could argue if your that way inclined that it gives more certainty than the current regime.

Eg when making payments into a pension currently a standard rate tax payer is making the assumption that basic rate tax is going to be about 20% when he gets his pension taxed in x years
The personal taxation system could be completely different, eg it could be at 33% and with no personal allowance or it could be on a sliding scale from 0%-99% with a Labour government

If you paid tax only at the point of salary then your investment would be protected from income tax rule variations. Yes of course the pension rules could change again, they always can, but your TOTAL investment would be arguably less impacted by taxation as you would pay at whatever relevant rate and rules were year by year not run the risk that they have become horrible by the time you start drawing your pension.

would it just be the contributions that are taxed and the funds still exempt from CGT? Otherwise what is the advantage in putting money into such a scheme instead of a normal portfolio for amounts above that matched by an employer?

Mercenary Keyboard Warrior · 24 Dec 2015 at 08:51

dowie said:
would it just be the contributions that are taxed and the funds still exempt from CGT? Otherwise what is the advantage in putting money into such a scheme instead of a normal portfolio for amounts above that matched by an employer?

Nothing stated (but its only consultation) gives any impression CGT is being expanded to cover pensions just the same as George hasn't mentioned bringing back window tax, but you can never say never

DJMK4 · 24 Dec 2015 at 09:42

Seems pointless opting out a pension

The_Abyss · 24 Dec 2015 at 10:00

dowie said:
would it just be the contributions that are taxed and the funds still exempt from CGT? Otherwise what is the advantage in putting money into such a scheme instead of a normal portfolio for amounts above that matched by an employer?

IHT exemption, income tax exemption for beneficiaries.

esoteric · 24 Dec 2015 at 10:31

It breaks down to a very simple question.

Do you more money, or do you want less money?

If you want less money then opt out.

dowie · 24 Dec 2015 at 11:56

The_Abyss said:
IHT exemption, income tax exemption for beneficiaries.

fair point re: IHT

but income tax is kind of irrelevant here if it has already been paid on the contributions... avoiding it on dividends is one thing I guess but otherwise if you're say liquidating an ordinary portfolio over time you're not paying income tax either

BongoHunter · 24 Dec 2015 at 12:15

Now I've read this thread I'm a bit concerned Im not making the most of the scheme they run at work...

I put £100 a month into my pension at work, and then my employer pays in double my contribution.

How would one go about working out the "optimum" amount that can be paid in per month - I seem to remember being told there are limits on what you can put in tax free? Though I'm not sure on this... reading the advice in the thread I should probably be putting in a lot more...?

So I'm putting in £1200 PA, with employer contribution thats rising to £3600 PA - this doesnt seem like a lot? I'm on around 65K PA.

I also put £250 a month into a employee Share Save scheme and £500 into personal savings, I think it would be sensible to reduce my monthly savings by about £100, I could then increase my monthly pension contribution to about £240 - with employer contribution this would mean I'm getting £8640 PA into the pot.

I'm 30 though and dont have a house yet, so maybe I should carry on focussing on my savings pot instead (I'm sick of rented accomdation after 12 years of moving...).

I feel like an hour of week at school on this type of stuff rather than the pointless General Studies AS would have been much more valuable!

MickeyFinns · 24 Dec 2015 at 12:42

BongoHunter said:
Now I've read this thread I'm a bit concerned Im not making the most of the scheme they run at work...

I put £100 a month into my pension at work, and then my employer pays in double my contribution.

How would one go about working out the "optimum" amount that can be paid in per month - I seem to remember being told there are limits on what you can put in tax free? Though I'm not sure on this... reading the advice in the thread I should probably be putting in a lot more...?

So I'm putting in £1200 PA, with employer contribution thats rising to £3600 PA - this doesnt seem like a lot? I'm on around 65K PA.

I also put £250 a month into a employee Share Save scheme and £500 into personal savings, I think it would be sensible to reduce my monthly savings by about £100, I could then increase my monthly pension contribution to about £240 - with employer contribution this would mean I'm getting £8640 PA into the pot.

I'm 30 though and dont have a house yet, so maybe I should carry on focussing on my savings pot instead (I'm sick of rented accomdation after 12 years of moving...).

I feel like an hour of week at school on this type of stuff rather than the pointless General Studies AS would have been much more valuable!

If my employer was tripling my contributions I'd be putting in as much as I could!

D.P. · 24 Dec 2015 at 12:43

^^ do you know what your employer will match up!to? Typically it will be something like 5-7% of your salary but some are more generous? I would as a minimum have the pension max out the employer matching. .

balky12 · 24 Dec 2015 at 12:54

BongoHunter said:
So I'm putting in £1200 PA, with employer contribution thats rising to £3600 PA - this doesnt seem like a lot? I'm on around 65K PA.

You put in just shy of 2% of your salary? You want there at 10% or at least a lot nearer! IMO of course.

The_Abyss · 24 Dec 2015 at 13:00

BongoHunter said:
Now I've read this thread I'm a bit concerned Im not making the most of the scheme they run at work...

I put £100 a month into my pension at work, and then my employer pays in double my contribution.

How would one go about working out the "optimum" amount that can be paid in per month - I seem to remember being told there are limits on what you can put in tax free? Though I'm not sure on this... reading the advice in the thread I should probably be putting in a lot more...?

So I'm putting in £1200 PA, with employer contribution thats rising to £3600 PA - this doesnt seem like a lot? I'm on around 65K PA.

I also put £250 a month into a employee Share Save scheme and £500 into personal savings, I think it would be sensible to reduce my monthly savings by about £100, I could then increase my monthly pension contribution to about £240 - with employer contribution this would mean I'm getting £8640 PA into the pot.

I'm 30 though and dont have a house yet, so maybe I should carry on focussing on my savings pot instead (I'm sick of rented accomdation after 12 years of moving...).

I feel like an hour of week at school on this type of stuff rather than the pointless General Studies AS would have been much more valuable!

Don't focus on products, you need to focus on outcomes. The solutions then follow. You might have short term savings priorities - house deposit etc as well as longer term goals - retirement etc. Only by working through those will you arrive at the right amount to save in the right type of product.

On that salary you can easily afford proper advice. Go and see an IFA.

MickeyFinns · 24 Dec 2015 at 13:01

D.P. said:
^^ do you know what your employer will match up!to? Typically it will be something like 5-7% of your salary but some are more generous? I would as a minimum have the pension max out the employer matching. .

I currently get a 4% match and put in 15% myself.