Can I opt out of my pension?

Should I opt out of my pension scheme?

Opting out of a pension is a decision that’s different for everyone, so it’s one only you can make. It depends on factors including:

• when you plan to retire and what sort of lifestyle you’d like when you get there
• how much you’ve already got saved and how much you still need to save
• how much you can afford to put into your pension just now.

In our Rewirement podcast episode, ‘Staying financially healthy as the cost of living rises’, financial adviser Sarah Astley shares her insight into the impact of opting out:

“Everyone has to think about how they spend the money that comes in. And something that people repeatedly ask is: ‘Shall I reduce my pension provision now that I’m paying in? Save a little bit of extra money?’

“Ultimately, if you do decide to reduce the amount you put into your pension, you’ve got to consider that it might impact on the amount you ultimately have at retirement. So you may have a reduced lifestyle as a result. You might have to continue working for longer, or you may have to pay in more to your pension at a later date, so it’ll cost you more to cover that shortfall.”

Can you opt out of a workplace pension?

Yes. It makes no difference whether it’s a workplace pension or personal pension. You can opt out of any pension scheme. But remember that opting out doesn’t mean that you cancel your pension. Any money you’ve already saved into your pot will stay invested.

Why you might want to opt out your pension

The main benefit of opting out of a pension is having some extra cash in hand every month. That can be very useful if you’ve made new financial commitments, or changed your spending priorities. You can usually opt back in if you want to. So opting out doesn’t have to be a long-term change, though you might have to wait a few weeks or months before you can start paying in again.

Possible impacts of opting out of your pension

If you opt out of a pension, your take-home pay after tax might not go up by very much.

• Sometimes paying into a workplace pension can reduce your National Insurance contributions or any student loan payments. When you stop paying into it, they can go back up, cutting down any gains you’ve made. Make sure you check exactly how much your pay will go up by before making any decisions.

Also, your money won’t work as hard for you.

• Tax relief usually makes paying money into your pension more tax efficient than taking it in your salary. Your employer might also match what you’re paying, so you’ll be getting some extra money from them. You’ll lose that if you stop contributing. And they might stop all contributions to your pension – not just their matching ones. Again, be sure to check before committing yourself.

Any money you take as cash might not grow along with the rest of your pension savings.

• The earlier you invest in your pension the greater potential this gives your savings to grow. Opting out can slow it right down.

You might also have to wait to opt back into the scheme.

• Some employers only review opt-in requests quarterly or annually, so you could miss out on months of payments. You could end up with a bigger contributions gap than you’d planned. Make sure you visit your scheme website or check your pension documents before you opt out!

Any period of opting out from your pension will create a new gap or make an existing one worse.

• For example, the gender pension gap is a real problem. It’s the difference in income between men’s and women’s pensions. It begins at the very start of a woman’s career, with a gap of 16%. At every age bracket after that women usually have lower pension pot sizes. By retirement age, the average size of a man’s pension pot is twice that of a woman’s.

If you opt out for too long, you might end up having to fill the gap by working for longer, later on in life.

What happens if I stop paying into my pension?

When you stop paying into your pension, the money you’ve already put into it stays invested. You can access it once you turn 55. It’ll hopefully go up in value, but as with any investment there are no guarantees – its value could go down too.

If you leave within a month of being auto-enrolled into your employer’s pension scheme, you’ll get back any money you’ve already paid into it. And you’ll probably be able to start paying back into it at any time. But as we said above, you might have to wait for your employer to ok that. Again, make sure you check before you opt out.

Finally, if you opt out of a workplace pension and after three years are still with the employer that set it up, they’ll automatically opt you back into it. They’ll write to you beforehand to let you know the details. You’re free to opt out again if you’d like to, though you should check what that'll mean for any contributions they're making.

To read more about the benefits of paying into a pension, our article ‘How much should I be saving into my pension?’ has lots of information about

• how they work
• why it's best to start planning for your retirement sooner rather than later.

How to cancel your pension contributions

To cancel your personal pension contributions, you’ll have to tell your provider. That's usually it. To cancel workplace pension contributions, you'll need to let your employer know. 

What’s next?

• Think through the implication of your pensions opt-out decision, from the difference it’ll make, to how much you save, to how quickly you can opt back in.
• If you’re not sure how much you’ll need for your ideal retirement lifestyle, visit the Retirement Living Standards site.
• If you’re over 50, you can book an appointment with Pension Wise, a free pension guidance service from MoneyHelper.
• If you feel you need a financial adviser, you can visit the Unbiased website.