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Auto Enrolment Query

My wife has been offered what of the face of it seems a good deal by her employer under auto enrollment where she will pay in 8% of her salary and they would put in 16% of her salary into her pot.
She would come out of SP2 where she has built up quite a good second state pension My main concern is that as she only has 2 1/2 years until she retires the final pot will not be be very large so will she be better off opting out and staying in SP2????

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  • hugheskevi
    hugheskevi Posts: 3,785
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    She would come out of SP2 where she has built up quite a good second state pension

    She can only do that if it was a Defined Benefit scheme.

    What you have described above sounds like a Defined Contribution scheme.

    What are the exact terms of the pension - something must make it a Defined Benefit scheme, perhaps it is some sort of cash-balance scheme?
  • I have just looked at the paperwork again and there are 3 different levels only the one I have described (the top level) is a DB scheme
    the pension is accrued at 1/60 average earnings so she will only build up 2/60 of earnings which is not a lot!
    She can opt for this screme or take the other options where she can pay between 1% & 4% of salary into a DC account
  • Linton
    Linton Posts: 17,066
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    killerkev wrote: »
    I have just looked at the paperwork again and there are 3 different levels only the one I have described (the top level) is a DB scheme
    the pension is accrued at 1/60 average earnings so she will only build up 2/60 of earnings which is not a lot!
    She can opt for this scheme or take the other options where she can pay between 1% & 4% of salary into a DC account

    It sounds like with DB over 2 years she pays in 16% * 0.8 (taking into account tax relief) = 12.8% of her salary.

    In return she gets back 3.33% * 0.8 annually = 2.67% of her salary. So it pays for itself in about 5 years. And that is ignoring the benefits of inflation rises.

    Looks like a no brainer to go for DB if my maths is correct unless she has some reasonable expectation of not living to enjoy the 20+ years of retirement the majority of people can expect.
  • Linton wrote: »
    It sounds like with DB over 2 years she pays in 16% * 0.8 (taking into account tax relief) = 12.8% of her salary.

    In return she gets back 3.33% * 0.8 annually = 2.67% of her salary. So it pays for itself in about 5 years. And that is ignoring the benefits of inflation rises.

    Looks like a no brainer to go for DB if my maths is correct unless she has some reasonable expectation of not living to enjoy the 20+ years of retirement the majority of people can expect.

    I have done some very rough calculation (not my strong point !!) it looks like she will put in around £3000 and get back a pension of about £550 a year so as you say pay for it's self in around 5 1/2 years hopeful she will live longer than that ! ( also just realized it will pay out a 50% spouse pension as well ) So yes will join.
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