Many of us think that once a person has enrolled into a pension, they will continue to remain in the scheme as it helps them to save money for retirement with minimum efforts from their end.
We’d like to think that there is no reason why a person would think about opting out of their pension scheme as it has so many benefits to offer such as tax relief and employer contributions.
But you may be surprised to know that many people residing in the north of England are quite likely to stop their contributions towards a Workplace Pension.
NOW pensions conducted a research which found that nearly 8.2 percent of people in Cumbria, 3.5 percent of people in Bedfordshire and 3.2 percent of people in Northamptonshire are considering to opt out of their workplace pension.
Following are some common reasons why people decide to opt out of their workplace pension scheme:
Contributions are Unaffordable
Out of all possible reasons that people give to stop their contributions, if there is one that has any merit it has to be this one. That being said it is still possible that those citing this reason may be overestimating the amount that they are actually putting aside each month.
Based on an employee’s full salary or their qualifying earnings, the amount of contributions that can be made is calculated. The minimum amount of earnings for which contributions are made is £6,032 and it goes upto £46,350. It means that if the value of earnings falls above the higher limit or below the lower threshold then contributions are not made.
Consider the example of a 22 year old who earns the minimum salary of £10,001 which qualifies an employee for automatic enrolment. The minimum contributions of 2 percent from the employer and 3 percent from the employee, amounts to just £7.96 per month. To add to this, there is a tax relief of £1.98 and also an employer contribution of £6.62 which brings the total to £16.54.
No need to worry about pension yet
Being young certainly doesn’t give us the excuse to not plan for the future. Contrary to this belief, those who begin to set aside money from an early age are likely to better off when they reach retirement age. This way you will face lower levels of stress when you can no longer delay the process of retirement planning.
Another way to look at it is that you will be able to collect more ‘free money’ if you begin to save from an early age. The free money that we refer to here is the one that you will earn through tax relief and employer contributions. It also gives your fund more time to grow in which time you will also earn greater interest.
Lack of Trust
There may have been people in our earlier generations who had a bad experience with pension providers or may not have got the results that they were hoping for.
Listening to their opinion on this matter may have influenced your view of pension schemes. But there is little reason to be discouraged from one such instance, which may not be completely justified, when so many people are being benefited by the scheme.
Every investment comes with a certain amount of risk. However the level of risk involved in workplace pension has lowered considerably owing to automatic enrolment and pension freedoms. These schemes have made the concept of saving for retirement more attractive and also feasible for those who have retired and also those who are still working.
For instance, the Pension Freedom reforms which have been recently introduced allow people above the age of 55 to access their pension funds with greater flexibility than earlier. Previously there was a cap on the amount that a retiree could withdraw from their pension but with these reforms there are more options around how retirement income is structured.Workplace Pension is a good way to secure your financial health in retirement and you can add more layers of security to it by writing a Will using a Will template.