Here's why you should NEVER opt out of a workplace pension

Young women in an office looking at a piece of paper

Here’s why it’s way better to have a workplace pension than to opt out and take the cash instead.

By Rachel Picker, a financial adviser

If money were in plentiful supply, it would be easy to keep ourselves in fancy dinners and purple velvet coats while also saving for the future. 

But towards the start of our career — while paying off uni and/or the unpaid internship that sure felt like a real job — it’s natural to pause for thought about your workplace pension (a saving plan that you and your generous/legally-bound employer pay into, which you can start taking from age 55 onwards). After all, you’re forgoing some of the money that you need to stave off scurvy in order to prepare for the unimaginably distant future.

Rachel Picker
Rachel Picker is a financial adviser who helps people plan for their retirement.

While a workplace pension is organised automatically when you join a company, you have the right to opt out of it. But truly, pensions are the money-savvy thing to do, even at the start of our careers. 

Not convinced? Here are seven reasons to opt in. 

1. It’s the most legit form of tax relief

You don't need a tucked-away bank account in the Cayman Islands to get clever with your taxes — a workplace pension does the same job for you. That's because of that all-important tax relief. It means putting £100 into your pension only costs you £80 if you're a basic-rate taxpayer (or just £55 if/when you pay the highest tax rate). 

2. Your employer tops it up

Not only does a pension turn £80 into £100, but your employer has to contribute at least 3% of your pay on top.

Companies factor in this benefit when they employ you, so opting out is effectively like saying ‘no thank you, you can keep the extra salary you’re trying to give me’. 

3. You won’t miss what you don’t have

‘Tis a wise life philosophy. Because the funds are whipped away at the same time as your tax and National Insurance contributions — i.e. before you’ve had a chance to become accustomed to a certain lifestyle — you won’t even notice a difference.

It’s way more doable than transfers into a savings account, where you can feel the money prised out of your tensed-up hands.

4. The earlier you start, the easier life gets

Paying into a pension might not be at top of your list the moment you start working — or even a few years in. But it's worth asking yourself whether living off £179.60 a week (that's the current State Pension) will be enough for you. If the answer's no, it means you've only got another 30-odd years to save for another 20-odd years, which is a big ask. 

Instead, saving at least a teeny amount over a longer course of time is more manageable. You could opt for a career break, go part-time or start up your own business, knowing that you’ve started a pension and it’s simmering away. Lovely.

5. The patriarchy

Ladies: there’s even more reason to save into a pension as much as possible. Contributions are based on earnings, so the gender pay gap of around 15% 1 means that women tend to contribute less to their pension. There’s also the issues that pensions are often left out of divorce arrangements and more women are economically inactive 2.

The cruel irony is that women live longer, so a less-than-ideal pension amount means a less-than-ideal pension amount for a longer time. The flipside is that if you have a decent wedge, you’ll reap the rewards for a longer time. Take that, patriarchy. 

6. You stay in control of your money

Even if you only stay in a job for short time, you won’t lose your pension. In fact, you can easily amass lots of tiny pensions into one chunky pension to make life a bit easier. You can also pick what kind of schemes you invest in — like Aviva’s ethical range of investments. The value of a pension can go down as well as up. You could get back less than invested.

You can often manage your pension online. With our MyAviva app, you can keep an eye on how much you’re saving and what that means for your retirement, which helps in keeping up the motivation. 

7. ‘Future You’ will thank you

At retirement age, Future You will want to go back in time and give Current You a big pat on the back: your wise choices and efficient use of your money will help massively in retirement.

You’ll have more choice about when to retire, and the guaranteed income means not only will you spend your days free of work duties, but you can do it in some comfort. And that pay-off seems worth the sacrifice.  

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