Company Retirement Savings Plan Questions

TheGame7

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jem16

TheGame7 wrote: »

Hi,

Having graduated, I have been working for a few months and now have a moment to sit down and set up my pension plan.

However, I have limited finance knowledge so was hoping for some advice:

1) What does it mean to be "contracted out of the State Second Pension Scheme (S2P) and understand that Protected Rights contributions will be deducted in addition to the percentages [of member and company contributions]"

It means that you will only get the basic state pension when you retire and not any additional (S2P) pension. You can read more about it here;
http://www.hmrc.gov.uk/faqs/nicqcoeg.htm

]2) There are a variety of options available to me but I am unsure what they all mean:

Lifestyle Funds (with varying commence and complete ages)

Towards the end of your pension payments your funds will be switched automatically into lower risk funds. This can vary in time from 10 years before retirement till about 3 years.

a combination of Passively and Actively Managed Funds

Passive managed funds track an index such as FTSE 100, FTSE All-share etc.

Actively managed funds aim to beat the index.

You basically choose the funds yourself or seek the help of an IFA to choose for you.

Anyone able to explain them and if the current market should influence my decision?

Regards.

Your pension is long term. Current market conditions don't really come into it.

yelf

I would avoid life styling funds: they trabsfer your funds at set ages and do so ireespective of recent markets. Look at the huge drops there have been in the past 18mths - some in lifestyle funds have been switched out of equity funds and a very low point, and as such will have no hope of re-couping the losses. best leave it to you

dunstonh

I would avoid life styling funds: they trabsfer your funds at set ages and do so ireespective of recent markets. Look at the huge drops there have been in the past 18mths - some in lifestyle funds have been switched out of equity funds and a very low point, and as such will have no hope of re-couping the losses. best leave it to you

Thats a bit of a strong statement. Personally, i would not like to be in a lifestyling fund but we have to consider that some people dont want to monitor their investments and would have no intention of keeping them under review. In those cases lifestyling can be highly beneficial.

They dont just move out of the market in one go. They do it in stages and there are different ways of doing it over different periods. Some start 10 years before. even if someone was to suffer a lifestyle switch now on the conventional 20% p.a. over 5 years scale, its only 20% of the fund. Not 100%.

Lifestyling is not about making more money but trying to protect what you have from it going down by even more. Sometimes leaving it will earn you more. Sometimes lifestyling will earn more. However, it depends on your atttitude to risk and whether you can afford to take risks with the stockmarket in the last couple of years before you commence benefits.

yelf

yes lifestyling is about protecting against losses as opposed to aiming for larger gains as you approach retirement, but the strict movements mean that you could well compound paper losses.

whiteflag_3

yelf wrote: »

I would avoid life styling funds: they trabsfer your funds at set ages and do so ireespective of recent markets. Look at the huge drops there have been in the past 18mths - some in lifestyle funds have been switched out of equity funds and a very low point, and as such will have no hope of re-couping the losses. best leave it to you

What , are you nuts ? You cant say things like that

EdInvestor

Like forced annuitisation at a certain age, lifestyling can have the opposite effect of what was intended. As usual in these cases it's better to try to understand the issues and either do your own switches into safer assets (as you see it) at the time or at least monitor what's done on your behalf in case any really serious errors are committed.

TheGame7

TheGame7 wrote: »

After posting this thread, I opted out and now the money I would have been taxed is being put into "protected rights".

I have been told that the company's pension scheme must do this - so are they taking the money that would have gone into my second state pension and investing it into the private one? What would happen if I did not sign up for my company pension scheme? Would I have opted in to the second state pension by default and have been taxed this extra amount?

I still don't understand why I have taken this option and to what benefit. Any help much appreciated.

Anyone able to answer my new query?

jem16

TheGame7 wrote: »

After posting this thread, I opted out and now the money I would have been taxed is being put into "protected rights".

I have been told that the company's pension scheme must do this - so are they taking the money that would have gone into my second state pension and investing it into the private one?

Yes they are.

What would happen if I did not sign up for my company pension scheme? Would I have opted in to the second state pension by default and have been taxed this extra amount?

Unless you contract out you stay in the S2P automatically. If you contract out your NI rebate is paid to the company/private scheme.

I still don't understand why I have taken this option and to what benefit. Any help much appreciated.

Some company schemes are always contracted out - usually final salary pensions as they provide spouse benefits within the pension. The protected rights part of the private pension go to giving that spouse benefit and that is where the NI rebate for those contracted out goes.

Whether or not you benefit from contarcting out depends on you age.

jh2009

If this query relates to a money purchase scheme then i would add that contracting out for money purchase schemes ends on 5 April 2012.

At that point no further contracting out applies. Existing protected rights are kept invested as they are (though conditions will probably get relaxed over time) but the option of opting in or out of the state second pension will no longer be relevant (everyone in money purchase schemes will simply be opted in) so i wouldnt lose sleep over this point.

If this member has joined a final salary scheme contracting out is usually a condition of membership and will carry on post april 2012.