I want to stop paying into my pension

There are many reasons someone might think about stopping their pension contributions, especially during financially challenging times. But before making this important decision, it’s worth exploring the potential long-term impacts it could have on your financial future.

Why saving for your future matters

The average life expectancy in the UK is 82 which, for many savers, could mean decades of life after work to pay for without a regular income. It’s also important to remember that retirement might not always be optional, and unexpected expenses could place significant pressure on your finances. By building a pension now, you’re helping your future self stay financially secure. Why not try our life expectancy calculator to see how long your savings might need to last?

Can you afford to keep contributing?

If affordability is a concern, there may be other ways to adjust your budget without sacrificing pension contributions. Small changes to spending today could help you to keep investing in your future. Take a look at our money-saving tips for ideas to make your contributions more manageable, and explore Smart Rewards, our free savings and discount scheme for Smart Pension members. It can help you save on everyday essentials like groceries and clothing.

Missing out on "free money"

If you stop being a member of your workplace pension scheme, one of the biggest losses will be missing out on what is essentially “free money”. Employer contributions are usually around 3% of your salary and, when combined with tax relief from the government, can make a significant difference to your retirement savings. By opting out, you’re effectively turning down this free extra boost.

The true cost of not saving into your pension

Before deciding to stop contributing to your workplace pension, it’s important to think about the potential long-term impact. First of all, you’ll lose the tax efficiency of paying into a pension and you’ll no longer benefit from employer matching contributions. It’s also worth noting that by not paying into your pension, you are also slowing the potential growth of your savings which benefit from compound interest.

Other things to think about

Stopping payments into your workplace pension can create a pension gap. Even short breaks in contributions can impact your long-term savings, especially for women, who already face a gender pension gap. 

Another thing to consider is how quickly you can rejoin your pension scheme as it isn’t always instantly. Some employers only allow opt-ins on a quarterly or annual basis. Therefore, the earlier you start contributing again, the greater the potential for long-term growth.

If you’re on maternity or parental leave, many employers continue to make pension contributions on your behalf, so check with HR before opting out to ensure you don’t miss out on these valuable payments.

Another thing to consider is whether your employer offers a salary sacrifice pension scheme, under which your take-home pay could actually increase after tax and other factors. You may find that opting-out provides less of an immediate benefit. 

Final thought

Stopping contributions may feel like the right choice now, but it’s worth thinking about how it could impact your future self. If you do opt out, consider rejoining as soon as your circumstances allow, so that you can keep on building your retirement savings. If you’re a Smart Pension member and would like to know more about how to stop paying into your pension, you can read more here.

Find more ways to get help with your money today, here.