The abolition of the pensions lifetime allowance next year means there are now even fewer reasons to opt out of workplace pensions, but there are some circumstances when it can be justified.
There is still a pensions annual allowance, which is usually £60,000 or the value of your earnings, whichever is lower. But triggering the money purchase annual allowance or having your annual allowance tapered because you are a higher earner can reduce this to as little as £10,000. The amount by which you've exceeded the annual allowance is added to the rest of your taxable income for the tax year and your income tax bill is recalculated based on this higher figure. So the excess pension contribution, in effect, is subject to income tax at your marginal rate.
Even when this is the case, it can sometimes be worth maintaining your contributions, and therefore the accompanying employer contributions, if you still get more overall than if you opt out. And if the tax charge is over £2,000 it may be able to be paid out of your pension rather than directly by yourself, although this would reduce the pot's value. “This way, you have still received the benefit of the employer contribution into your pension, albeit potentially subject to a tax charge on the aggregate excess,” says John Corbyn, pensions specialist at Quilter.