Convincing son not to opt out of pension Options

[stamfordman]

My oldest, who's started his first job, in the NHS, wants to opt out of the pension scheme as he just wants more cash. I've told him that's mad as the NHS employer contribution is huge - now about 20.7% - but I'm failing to convince him as he just doesn't see retirement at his age of course. His contribution is 9.3%.

Any arguments that could work?

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[southpaw82]

It’s free money? If he doesn’t start now, he will have to contribute (a lot) more in future due to compound interest?

[Slapdash]

Assuming his 9.3% is 186 quid that will add about 130 quid to his pay packet.

Or its 600 quid into his pension.

It s an absolute no brainer really.

[The Rookie]

Don’t forget to remind him he’ll only get 68% of whatever he puts in the pension scheme as the rest will be deducted for Tax and NI. So effectively he’ll be only giving up somewhere around 5% of his take home (as a chunk is untaxed anyway).

Once that employer contribution is gone, it’s gone forever. 20.3% would be nice, my employer does 6%.

[speedfighter23]

20%!? No wonder the NHS needs so much money!

[DancingDad]

When you are into your 50s or 60s, it is a no brainer.
I am sure many of us regret not investing in a good pension earlier then we did.
Or, as in my case, investing in a company pension scheme that went bust (ouch)

Not sure what arguments to use that would convince a 20 something year old who sees retirement as something a long time away.

[stamfordman]

A lot of young NHS employees are opting out - it's because salaries are low. A higher salary and less generous pension is probably more useful for them now, and my son also thinks he'll not be working for the NHS all the time anyway.

He hasn't a clue about pensions - he keeps texting me questions such as 'how do I get this money if I leave in 5 years' time'. The NHS is partly to blame - they should teach people about the scheme and we should have some civic education too.

[Lodesman]

He is being very unwise.

An old adage was that, for a given pension if you started in your 20s it was 20% contribution, in your 30s it was 30% in your 40s it was 40% and so on.Impossible to achieve unless you start early.

You really should get someone to explain this to him, once it is coming out of your pay-packet regularly, you never miss it and get all the benefits later on.

You can spend a long time drawing your pension and in later years this is immensely reassuring. The OAP is useful for the groceries but he won't get fat on it.

His pension scheme sounds bombproof and he should grab it with both hands.

"Ah, the callow and foolishness of youth"

A lot of young NHS employees are opting out - it's because salaries are low. A higher salary and less generous pension is probably more useful for them now, and my son also thinks he'll not be working for the NHS all the time anyway.

He hasn't a clue about pensions - he keeps texting me questions such as 'how do I get this money if I leave in 5 years' time'. The NHS is partly to blame - they should teach people about the scheme and we should have some civic education too.

Suspect most of us started on low incomes.

[DancingDad]

.........Suspect most of us started on low incomes.

This.
And lived within our means.
May have taken out small loans that we could afford but if we didn't have something, we didn't have it.

Mind you, we could buy serviceable cars for peanuts, repair them ourselves and a mobile phone was the call box on the corner.

[stamfordman]

Mind you, we could buy serviceable cars for peanuts, repair them ourselves and a mobile phone was the call box on the corner.

I'm tempted to launch into the 4 Yorkshiremen sketch at this point but will desist except to say: luxury.

My son's position which I have some sympathy with is that he's started as a junior doc at about £27k, but is 24 and this is his first earnings after 6 years hard graft at med school. He has an expensive girlfriend (travel involved) and likes his electronic gadgets. There is also the matter of about £65k of student debt.

His serviceable car though was bought for him by me for £900. Plus a new clutch and a few other costs... such as a PCN.

This post has been edited by stamfordman: Wed, 25 Sep 2019 - 17:45

[oldstoat]

dont bother trying. The way the world and pensions are working, he will be able to die in penury no matter what he does. Best to live hard and rely on others to support him in old age or die before he needs to rely on the state.

[nigelbb]

The NHS pension is a very large chunk of his salary deferred until retirement age. For each year the accumulation is 1/54 of salary so in simple terms if he earns £27K it's £500/year for say a retirement of 25 years ie nearly 50% more on top of what he receives now.

[Incandescent]

My oldest, who's started his first job, in the NHS, wants to opt out of the pension scheme as he just wants more cash. I've told him that's mad as the NHS employer contribution is huge - now about 20.7% - but I'm failing to convince him as he just doesn't see retirement at his age of course. His contribution is 9.3%.

Any arguments that could work?

The arrogance of youth !!
When we're young, retirement seems another world away, but they key difference between now and when I started on the railway in 1971, is that I was automatically enrolled to the railway pension scheme and one could not opt out. So it was just a deduction from your salary, and the very high income tax rates meant the cost was not all that much because the contributions were tax deductable.

I would try to convince your son that rather than getting more money, he is actually throwing it away, as if he opts out he loses the NHS contribution, his own is low a 9.3%. My last years in the railway scheme I was paying in 11.5% !!

You might also ask him what he is going to live on when he finally does have to retire. In addition, if he later gets married, the scheme provides widow and dependent pensions so his loved ones will be taken care of.

Many years ago, when I was at school, and pensions were far rarer, I used to see adverts from a pension provider with photos of a man at various ages.

20s - Bright and cheerful - "No, the job doesn't have a pension"
30s - Still cheerful - "Unfortunately the job has no pension"
40s - Not cheerful - "I'm a bit concerned that the job has no pension"
50s - Gloomy - "The lack of a pension is really worrying me"
60s - Very gloomy - "Without a pension I really don't know what I will do"

If your son gives up this pension then he is a fool, that is the truth of it.

[mickR]

On the other hand he may have a point. with the environmental issues we are being boarded with, he will more likey not reach retirement due to frying from global warming, suffocating from pollution, drown from rising sea level, starve from lack of food thru crop failiure, and get nuked by a nutter living thousands of miles away.

[Aretnap]

Tell him that speaking as a taxpayer, I definitely think he should opt out.

[The Rookie]

My son's position which I have some sympathy with is that he's started as a junior doc at about £27k, but is 24 and this is his first earnings after 6 years hard graft at med school. He has an expensive girlfriend (travel involved) and likes his electronic gadgets. There is also the matter of about £65k of student debt.

If he's on 27K he'll barely be paying anything off the SL at the moment.

The MSE has a good page explaining pensions
https://www.moneysavingexpert.com/savings/discount-pensions/

Guidance is to put away half your age as a percentage, although I don't buy into that as your mortgage should be done and dusted by retirement, so about 0.35 would then be right with the NHS contribution he would get ahead of the game (allowing early retirement or a drop later when he gets a mortgage).

[DancingDad]

Pay the pension, drop the girlfriend.
Be far better off now and in the future.


If he is a junior Doc, why would he not be staying with the NHS ?

This post has been edited by DancingDad: Thu, 26 Sep 2019 - 09:35

[Lodesman]

You don't stay a junior doctor for ever.

At the other end a family members private procedure (involving the possibility of the big C and time was important) cost £1200 for the surgeon's bit of the bill.

He did four of these between 0800 and 1400 and then went home.

Tell him to hang on in there !!!

As an aside, all went well and there were no signs of cancer.

This post has been edited by Lodesman: Thu, 26 Sep 2019 - 13:54

[stamfordman]

If he is a junior Doc, why would he not be staying with the NHS ?

Well I think he wants to work abroad at some point and also he may also take a non-doctor job too - the days of all people doing a job for life are long gone.

[nigelbb]

I was in the NHS pension scheme for just under five years over forty years ago but when I left under the rules at the time I was repaid my contributions & re-enrolled in SERPS for those years. At the time I was happy with a windfall of about £800. Now that I am drawing my state pension the few extra quid I get from SERPS would have been dwarfed by my NHS pension earned in those years. Annoyingly the rules were changed subsequently & it's now only after less than two years of contributing to the scheme that contributions must be returned.