What should I ask potential new employers about pension?

nccrow · 1 July 2008 at 11:37AM

Hi,

I'm changing careers (having been a university researcher until now), and have just had an offer of a job from a small company. In my previous job I was a member of the Universities Superannuation Scheme (USS), a good final salary scheme (14% employer contribution, 6.35% employee). I worked there for 3 years, and am now 30 years old.

I was wondering if people could give me some advice about what questions I should ask my potential new employers about their scheme? All they've told me so far is that it's a "6% non contributory pension". Is this a good level of contribution? What more should I know about it to inform my decision-making about whether or not to accept the job offer?

I'm also applying for public-sector jobs (such as in the Houses of Parliament), which I presume would have better, more secure schemes, so I would also like to have some way of comparing the two.

Thanks in advance for any advice.

Alex

whu · 1 July 2008 at 12:08PM

it seems that they will put in 6% without you having to put anything in (I think this is about standard)- i would ask how what % you can put in/which company the pension is with so you can see which funds the pension is being invested in

MikeJones_2 · 1 July 2008 at 2:38PM

The USS is indeed a good scheme and is part of the public sector Transfer Club. This is important, if as you say, it is likely that you may get another job in the public sector. Transfer between public sector schemes that are part of the Transfer Club have preferential terms when you transfer from one employer to another.

Moving onto your question in point:

I was wondering if people could give me some advice what questions I should ask my potential new employers about their scheme?

Question 1 to ask: Is your new employer's scheme a defined benefit scheme (e.g. a 'final salary' scheme is one type of defined benefit scheme) or a defined contribution scheme (commonly called a 'money purchase' scheme) ?

Further questions depend upon your answer to this.

Mike Jones
I work in the field of Pension Education and Pension Guidance in the UK. I am a current member of the Specialist Pensions Forum as well as being a Voluntary Adviser for The Pensions Advisory Service. I have previously been an Independent Financial Adviser specialising in employer sponsored pension schemes. The views expressed by me in this thread are my personal opinions. You should seek professional advice from an appropriately experienced and qualified adviser.

EdInvestor · 1 July 2008 at 4:37PM

a good final salary scheme (14% employer contribution, 6.35% employee).

You misunderstand the way a final salary (defined benefit) scheme works.The employee's contribution is specified but the company will contribute only what is required to pay your eventual pension after you retire.

If the employer's contribution is specified this is normally an inferior defined contribution (money purchase) scheme.

Find out what kind of scheme the smaller company is offering.

CLAPTON · 1 July 2008 at 5:02PM

the important bit to realise that to get the equivalent of a governement type 'final salary' pension scheme requires investing something like 20- 25% of salary... so depending upon what the employers scheme is make sure you fact that into any job change decisions.

nccrow · 1 July 2008 at 6:30PM

Thanks very much for all the replies - they're all very helpful.

EdInvestor is right that I don't really understand how a final salary scheme works, but I was actually taking my information from the USS website: they specified the contribution levels (14% employer, 6.35% employee), but also say that the retirement benefits are life pension of 1/80th of pensionable salary for each year of pensionable service and a lump sum of 3/80ths of the same. So surely it is a defined benefit scheme, as well as a one with defined employer contributions?

I might post back with some more questions after I've got answers to the above points...

Thanks again,

Alex

nccrow · 3 July 2008 at 11:50AM

Ok, I've now heard that it is a defined contribution pension (unsurprisingly), handled by Norwich Union (he thought) but available to be self-invested in a SIPP if you wanted. And employees can therefore contribute what they choose to it, as well.

Any thoughts on this, or any other questions I should ask?

Many thanks,

Alex

EdInvestor · 3 July 2008 at 1:56PM

nccrow wrote: »

EdInvestor is right that I don't really understand how a final salary scheme works, but I was actually taking my information from the USS website: they specified the contribution levels (14% employer, 6.35% employee)

Note that they say the "current" contribution level is 14%. If the value of the fund fell below the amount needed to pay the final salary-based retirement benefit, then you would see that contribution level rise. In a final salary pension it is the benefit that's fixed not the contribution - the latter can rise (and fall, if the fund's investments do particularly well). The risk is with the employer.

In a defined contribution scheme there is no fixed final benefit, only a fixed contribution from the employer. The eventual size of your retirement benefit depends on how successfullly the fund's investments have performed.The risk is with you.

What should I ask potential new employers about pension?

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