New employer - New pension but which one - Final Salary or Money Purchase.

spookmeister

I am starting a new job tomorrow and have a choice of pension schemes to join.

I have a choice of a Defined Contribution (Money Purchase) scheme or Defined Benefit (Final Salary) but how do I know which is the right choice to make.

-The money purchase scheme is 5% contribution matched 1.5 times by the employer.

-The final salary scheme is currently 10.48% contribution matched 1.5 times by the employer.

I think that I read recently that you should always go for a final salary scheme one is offered but I'm not sure if this was correct. I also thought I'd read that a final salary scheme comes with less risk but again I'm not sure if that is the case. On top of all that 10.48% of my salary seems to be a lot to give up - especially if most of it goes in to paying admin cost or whatever they call it.

I also have the option of making my own arrangements.

Any guidance is welcome.

Thanks,

S.

spookmeister

In case the question may depend upon my age - I am 38 on Tuesday (14th October).

Cook_County

I assume this is a TOC. How secure is the employer/what defecit does the scheme have currently?

Paulina_Fortune

In my opinion, the final salary scheme is always the best option.

It costs more because you get more. You are very lucky to have the option.

Paulina.

sparkymark_3

Final salary is better because the pay out is gold plated, the other scheme will invest in things like stock market - no one can predict this !

spookmeister

Cook_County wrote: »

I assume this is a TOC. How secure is the employer/what defecit does the scheme have currently?

Hey CC. What is TOC? I believe the company is secure - as secure as they can be in this climate. Please explain the last question about the scheme defecit.

Thanks.

S

downshifted

A final salary scheme promises to pay you a proportion of your salary in retirement. The employer takes the risk of the investment not providing enough funds to do this - he still has to meet the promise. If the employer goes bust the Government protect your pension up to about 90%.

In a money purchase scheme, you bear the risk of the investment not growing sufficiently to provide the pension you expected.

Hope this helps

downshifted

MrMonkey

Difficult to advise without numbers, but in general a final salary pension scheme is hard to beat. The FTSE 100 has lost massive amounts of value in the past year. If your pension fund was in there, and you were due to retire soon, you could have lost out big time.

sparkymark_3

TOC = train operating company eg First Great Western or Virgin trains or Chiltern trains for example .

Dick_here

I fully agree that Final salary is better than Money Purchase, but remember there is no guarantee that Final Salary will always continue. Ours became Career Average almost overnight (with benefits accrued to that point protected as Final Salary).