If you’re working and living in the UK, you may have pondered the necessity of contributing to your pension pot.
Paying into your pension could safeguard your quality of life in retirement, even if it’s just a small monthly deduction automatically set aside.
If you’re on the fence about halting these contributions, this article can help you make a more informed decision.
Why contribute to the national pension scheme?
Typically, when you work in the UK, you’re automatically enrolled in a pension scheme.
Contributing to your pension ensures you’ll have a steady income post-retirement, the longer you contribute, the more you accumulate.
Usually, your employer and you kickstart contributions from your first month of employment, clearly outlined on your payslip.
Can you stop contributing to your pension?
Yes, pensions allow you to opt-out voluntarily, and once you do, you’ll notice your payslip no longer reflects deductions.
If you’ve contributed for a while before opting out, you may not access the savings in your pension pot immediately.
We understand young individuals might prefer using this money for daily expenses to enhance their quality of life.
However, persisting with contributions could potentially benefit your retirement years if you plan to stay long-term in the UK.
The drawbacks of stopping contributions midway
Some may temporarily halt contributions for various reasons, resulting in potential losses.
Typically, pausing work or pension contributions may decrease the overall pension pot.
Research suggests young earners with a £25,000 annual salary could accumulate around £460,000 if they consistently contribute.
Halting contributions for three years could lead to a reduction of £36,000 in the pension pot.
These predictions mainly affect those planning retirement in the UK. If you’re planning to retire elsewhere, stopping contributions could be a viable option.
Drawbacks of stopping contributions
If you’re contemplating leaving the pension scheme, you’ll face:
– Your employer ceasing pension contributions
– Potentially higher income tax payments
– Missing out on any benefits you may be entitled to post-retirement
– No weekly pension income post-retirement
Our accounting team advises careful consideration of the pros and cons before making any decisions, as administrative processes may require a considerable timeframe.
If you are self-employed or don’t know if you need to contribute to a pension, it is best to consult our team first.
Reversing your decision, if you change your mind, may take longer than anticipated.
