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. Every time you make a payment into your account your employer will make a payment as well as the tax man.
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.
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. Free money
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.
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.
It is also worth taking into account the fact that your pension provider will also aim to grow your pension fund over time although the value may increase or fall depending on how your investment fund performs.
3. 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.
4. 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.
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.
Managing Director of Smart Pension, Will Wynne, and Anne- Marie O'Leary, editor-in-chief of parenting site, netmums.com, discusses auto enrolment on Sky News and in particular, how it will affect employers who hire home help such as nannies, and don't consider themselves to be employers.