I didn t contribute to it because I don t want my money to be locked for 20 years until I can withdraw
Interesting. My understanding is that most UK FIRErs would do well to divide their stache into pre-pension-age and post-pension-age and save accordingly. I think I personally am in the small minority that would not particularly benefit tax-wise from saving into a SIPP (I may be wrong about this! But I don't think I am) but I save a small amount there anyway because it feels like a hedge against risk.
You get the 20% credit even if you're a non-taxpayer. Even if you have no earnings, you can still pay in £2880 per tax year (and that would be grossed up to £3600 inside the pension). Even the fact that it can't be touched for decades can be an advantage in some circumstances. Money in a pension fund doesn't count for assessing whether you can receive certain benefits (unlike ISAs) and has some protections e.g. if you get sued or go bankrupt.
There are a few cases where a pension might not help with trying to achieve FI status.
- You intend to retire before the age of 33 or so.
- Your taxable income in retirement will be enough to put you in the 40% income tax bracket
- You don't expect to live past 58 and you have no dependants or anyone who you're leaving the money to.
Needing the money to avoid/get out of debt, is of course, a good short-term reason to avoid pensions.
I suppose theoretically there might be people who think they can achieve a better rate of return on things which can't be held in a pension wrapper (e.g. a new system for beating the house at Monte Carlo or something).
I intend to FIRE between now (I'm 37) and 40. So it's not 33 but it's not that far. I know it's very beneficial but I just can't justify locking my money for so long. I highly value flexibility and who knows why might happen between now and when my pension will be available.
So many reasons not to keep:- I could have completely moved to another country to live in and changed my tax regime (for the better or worse)
- I may have found an amazing deal (Maybe could buy a house in cash?) needing cash that would be unavailable otherwise
- I could have an idea to create a new business and need cash to bootstrap it
- Gov could have changed the law by then and increase withdrawal taxation as well as retirement age to get it.
- Gov could have decided to create a tax on wealth to pay for the deficit. How could I escape?
- I may have used a big chunk of my non-pension cash and would need some of it to pay for my lifestyle? (Hopefully, this wouldn't happen)
So for these reasons, I'm happy to lose my 30% tax gain... which is enormous but that's the price to pay for flexibility.