I’m 27 Earning £43,000 But Can’t Afford To Pay Into A Pension. My Mum’s Doing It For Me

Like an increasing number of young people, Lucy Horsman opted out of her workplace pension two months ago.

The 27-year-old earns more than the national average – £43,300 per year compared to around £38,000.

But she said the large amount of tax she pays means she can’t afford to think about retirement right now.

And so she has opted out of paying into a pot for her later years, even though this means missing out on tax relief, and contributions from her employer.

Speaking to The i Paper, she said: “Because of the cost of living crisis, the money that would go away each month into a pension would be far more useful now than later on in life.”

Lucy, from West Yorkshire, used to work two part-time jobs and during this time, she did pay into a pension. Since starting a full-time role in November last year though, and despite being paid more, she has now opted out.

Her take-home pay after tax, national insurance and other contributions is £33,840 per year, which she said some might think is “a lot” for someone her age, but with bills to pay, mortgage repayments to her parents – who bought her property – and a car to run, she isn’t left with as much as she would like.

She says she does not want to lose any extra money up front.

Paying into a workplace pension is a good deal for most people. Automatic enrolment rules requires employers to automatically place most staff into a workplace pension scheme and if the staff member pays in 5 per cent of their earnings, the workplace must top this up with an extra 3 per cent.

The staff member also gets tax relief on their contributions at their marginal tax rate – which would be 20 per cent for Lucy as a basic-rate taxpayer.

But Lucy has opted not to pay in for now, forgoing the employer contribution, and also says she has scaled back her £1,000-a-month contributions into her ISA, because she can no longer afford this either.

At the moment, her only pension saving is coming from her mum, who is paying into a savings pot for her.

Recent research by St James’s Place found that more than 15 million UK parents fear their children will never be able to retire.

Many, like Lucy’s mum, are bracing themselves to support their children financially for longer, as worries over getting on the property ladder, stagnant wages and the prospect of inadequate retirement savings weigh on their minds.

A quarter expect to dip into their own retirement savings to help their children, whilst 15 per cent anticipate releasing equity from their homes to provide support. As a result, 31 per cent worry they will have to delay their own retirement.

It is possible to pay into someone else’s pension and still get tax relief. For an adult paying into another adult’s pension, the same rules apply as with normal retirement savings. Contributions are treated as if paid by the member, with the payments getting basic rate tax relief of 20 per cent.

Higher and additional-rate relief can also be claimed back too.

Lucy, who works in marketing, said: “Retirement at this stage is something I’m not even thinking about honestly. Lots of people I knew died before even been able to enjoy retirement so I’m trying to build up my stocks and shares ISA so I can hopefully retire earlier in the future.

“In this current climate, I don’t see how the cost of living will improve and if I was just relying on a workplace pension scheme, I think I’d be working well past the retirement age.”

She can’t see herself contributing to a pension scheme in the future, even if her financial situation changes, she said.

How much you can pay into your child’s pension and still get tax relief

Under 18 – You can pay up to £2,880 per year into a junior self-invest personal pension (SIPP). The government adds tax relief, making it £3,600 total. Money is locked away until minimum pension age (57 from 2028).

Adults – If the recipient does not work, you can contribute £2,880 a year to their pension and still get tax relief. If they work, you can contribute up to 100 per cent of their earnings, capped at £60,000 a year.