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Can I opt out of my workplace pension?

Opting out of your workplace pension seems tempting; you could have more money in your pocket or save for retirement privately.

But is it a sensible idea? And how exactly do you go about opting out of your workplace pension? 

We explore everything you need to know about opting out of your pension below.

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What happens if you opt out of your pension?

The main difference is that your pay will increase slightly.

It won’t go up by the amount you were contributing, as the money will now be taxed as part of your income.

You’ll be opted out for three years and your employer will automatically re-enrol you after this period, unless you opt out again.

Legally, employers must check with you every three years to see if you’ve changed your mind about contributing.  

While you won’t notice a huge difference at first, opting out of your pension with no backup savings plan can seriously impact your future.

You may have to delay retirement, make bigger contributions as you get older or even move house once you stop working to account for the loss of income.  

Opting out of pension contributions doesn’t mean you’ll lose your savings to date, as any past contributions will generally stay in your pension pot.

You can take this out once you’re 55, or 57 from 2028. Some pension schemes refund contributions of those who opt out, but there may be tax penalties if you choose this option.  

Benefits of opting out of a workplace pension

Opting out of your workplace pension can sometimes be a smart decision.

You may plan to use the funds to contribute to a self-invested pension pot (SIPP) which has stronger growth potential or better aligns with your values.

Or you could use the extra money to help clear any existing high-interest debts so, a year down the line, you’re able to actually save more for retirement.  

The number of pensioners in debt and poverty has risen since 2012, so clearing debts you know you’ll struggle with once you stop working is sensible.

If you stop contributing to your pension, set up direct debits or automatic savings transfers to make sure you don’t fall victim to lifestyle inflation and fail to reach your goals.  

Cons of opting out of a pension

Crucially, stopping your pension contributions is only wise if it’s going to help you strengthen your financial future.

If you’re in your 20s, you might not see the point in saving for retirement yet.

The small yet significant amount that’s taken off your paycheque could help you save for a house — but here’s why saving for retirement early is a savvy choice.   

Saving just £200 per month from the age of 25 could get you an income of around £20,000 per year if you retired at 65.

And that’s without any top-ups from your employer. Wait until you’re 35 and you’d need to save £332 a month for the same outcome. At 45, that skyrockets to £638 per month.

You can find out more about how much you should be saving for retirement by using our pension calculator.  

Also, as your pension contributions are taken out before tax, you wouldn’t receive the entire amount in your pocket, as it would now be taxed first.

Let’s say you put £200 per month into your pension pot. For the average taxpayer, you could lose up to £64 of it if was added to your take-home pay instead.  

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How to opt out of a pension

It’s pretty simple to opt out of your pension. Generally, you’ll just need to contact your pension provider and get a form that opts you out of auto-enrolment.

Your employer legally has to give you the provider’s details if you ask for them, so speak to your HR department if you’re not sure where to find them.

If you opt out less than a month after you were auto-enrolled, you’ll get any contributions back.  

Should you opt out of a pension?

Generally, it’s not ideal to opt out of your pension.

A workplace pension is a pretty unique, tax-free vehicle that also gets topped up by your employer.

Some private employers and public bodies offer incredibly generous packages that make it easy to save for a comfortable retirement.

It’s best to exhaust other funds first, like your savings, before taking the decision to stop contributing to your pension.  

If you’re in your 20s or 30s and decide to pause your contributions for a year to clear a debt or help with an infrequent expense like buying a house, the impact will not be as great.

But if you’re closer to retirement, or decide to stop contributing indefinitely, you may seriously eat into your retirement income.

We’d recommend exploring other money saving options first, and opting out of your pension as a last resort.  

If you’re looking for more financial advice, find a trusted adviser right here at Unbiased. 

If you found this article useful, you might also find our article on what to do if your employer hasn't paid your pension contributions informative, too.

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About the author
Our team of writers, who have decades of experience writing about personal finance, including investing, retirement and pensions, are here to help you find out what you must know about life’s biggest financial decisions.