Are You Thinking Of Opting Out Of Auto Enrolment? Here Are A Few Things To Think About Before You Do

As auto enrolment beckons, you may feel that you can't afford to stay enrolled, or that you would just like the money now rather than when you retire. But there are many reasons why you may consider staying enrolled and contributing to your pension.

1. Enjoy A Better Retirement

You might be thinking that you need this money now more than you will need it in the future. But that is not necessarily true. When you are older, you may not wish to work, and may want to enjoy your retirement. Therefore if you start saving now you will be in a much better positon when you are old, and if you don't want to work or cannot work, then you may not have to.

For many, retirement seems too far away to even think about. But it will happen. And there is no reason why, even now, you cannot begin to look forward to it. But in order to look forward to it, you must have something to look forward to. By starting to save just a little bit now, you can ensure that you have a comfortable retirement, where you can go and do whatever you want without the worry of money.

Our free additional pensions income calculator estimates how much more your pension could pay out per week when you retire, depending on how much additional money you put into your pension pot (per month between now and your state retirement age). Click here to try it out.

Lady piggy bank

Below is a rough guide:

If a 22 year old were to save £50 a month until state retirement age, that person would receive approximately £1,000 per month from their pension in retirement.

If a 40 year old were to save £50 a month until state retirement age, that person would recieve approximately £250 per month from their pension in retirement.

And finally, the fact of the matter is that the more you save now, the earlier you can retire and stop working. So while your colleagues are still doing 9-5, 5 days a week, you could be taking semi or full retirement.

2. It Does Not Cost Much And The Benefits Are Significant

Pen pounds calculator

The minimum contribution levels are quite low. The employee minimum currently stands at 0.8% of your salary. If you remain opted in, then the government will contribute an amount equal to 0.2% of your salary and your employer will contribute an amount equal to 1.0% of your salary. So as a result, you contribute 0.8% and the government and your employer will collectively more than double it.

From 06/04/18 to 05/04/19, minimum contributions are increased. Employees must contribute 2.4% of their salary, the government will contribute an amount equal to 0.6% of your salary and your employer will contribute an amount equal to 2.0% of your salary.

From 06/04/19 you will contribute 4.0% of your salary to your pension. The government will contribute an amount equal to 1.0% of your salary and your employer will contribute an amount equal to 3.0% of your salary. This will mean the government and your employer will double the amount that you contribute to your pension.

It is also worth taking into account the fact that your pension provider will also grow your pension fund, therefore you will receive compound interest on your contribution, your employer's contribution and the government's contribution to your pension fund.

3. Free Money

As demonstrated above, the greatest strength of the auto enrolment scheme is the amount of money that your pension pot receives absolutely free from both your employer and the government. From now until 1/10/17 your contribution will be more than doubled. After that it will be slightly less than doubled, and then from 1/10/18 your contribution will be doubled once again.

In many cases your employer will match your contribution should you choose to increase your contribution. The earlier you start saving into your pension scheme, the more you will be taking advantage of this generous pension deal.

Pension pot spill

4. Pension Freedoms

When you reach the age of 55 you will be able to withdraw some of your pension if you wish. Also, you will receive 25.0% of the amount you withdraw tax free. If you take the money now as your salary then you will pay income tax where applicable. Therefore if you choose to take the money in the short term, you will be sacrificing the tax free benefit you could have had on that money.

5. Protection From Bankruptcy

If you save into your pension but you go bankrupt in the future, then the money in your pension will be safe and cannot be used to pay off your debts.

Conclusion

In conclusion, there are benefits to staying enrolled and contributing to your pension. The reality is that even if you contribute the minimum then you will still be significantly better off when you retire. However the most important thing to think about when making the decision whether to opt out is that if you stay opted in, you may be able to retire earlier with the money that you have contributed to your pension. And the more you choose to contribute to your pension, the earlier you may be able to retire.

If you would like to opt out please sign in and click here.

To increase your pension contributions please sign in and click here.

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