PENSION closing, what now?...

Unclepetey

You are really asking the wrong question by saying "will my money work harder for me in a stakeholder".

The types of pension here are totally different. Your current scheme is a final salary or defined benefit scheme under which your ultimate benefits are calculated by using a formula made up of your salary, length of service and accrual fraction - i.e. the benefit is "defined". Accordingly, as someone said above, the company bears the vast majority of the cost (and therefore risk) of providing that pension to you. If you leave it where it is your benefit formula will be calculated using your salary and length of service when the scheme is closed. That benefit will then be deferred until your normal retirement date under the scheme - although you may be able to receive it early (normally with a reduction for early payment). The deferred benefit will be increased (probably in line with inflation subject to a cap) before it comes into payment.

The stakeholder scheme is very different. It is a money purchase or defined contribution scheme. Effectively it is just an investment pot that you and your employer pay into. To keep things simple, when you come to retire you will use that pot (which will hopefully have generated good investment returns) to purchase an annuity from an insurance company. Accordingly, there is no guarantee of the benefit you will get in the end - the only defined part of a defined contribution scheme are the contributions that are paid in.

You therefore need to think very carefully (and probably get independent financial advice) before agreeing to transfer an entitlement from a final salary scheme to a money purchase scheme. The reason that you would be offered less that 100% of the cash equivalent of your final salary benefits on transfer is because pensions legislation allows trustees to pay out smaller transfer values if the scheme is underfunded (because if they didn't the members left behind would be being prejudiced as those leaving would be taking more than their fair share given the funding of the scheme).

The short answer to your question - could my money work harder for me in a stakeholder? is "Yes, it could". But you would need very, very good investment performance in the stakeholder to match the deferred final salary benefit, and you would need annuity rates, interest rates etc to work in your favour at retirement as well. And by switching to the stakeholder you would be changing the burden of risk from the company to you.

Hopefully this helps. This is a complex area and you need proper financial advice on this and your own circumstances - attitude to risk etc before making decisions.

james3333

Unclepetey wrote: »

You are really asking the wrong question by saying "will my money work harder for me in a stakeholder".

The types of pension here are totally different. Your current scheme is a final salary or defined benefit scheme under which your ultimate benefits are calculated by using a formula made up of your salary, length of service and accrual fraction - i.e. the benefit is "defined". Accordingly, as someone said above, the company bears the vast majority of the cost (and therefore risk) of providing that pension to you. If you leave it where it is your benefit formula will be calculated using your salary and length of service when the scheme is closed. That benefit will then be deferred until your normal retirement date under the scheme - although you may be able to receive it early (normally with a reduction for early payment). The deferred benefit will be increased (probably in line with inflation subject to a cap) before it comes into payment.

The stakeholder scheme is very different. It is a money purchase or defined contribution scheme. Effectively it is just an investment pot that you and your employer pay into. To keep things simple, when you come to retire you will use that pot (which will hopefully have generated good investment returns) to purchase an annuity from an insurance company. Accordingly, there is no guarantee of the benefit you will get in the end - the only defined part of a defined contribution scheme are the contributions that are paid in.

You therefore need to think very carefully (and probably get independent financial advice) before agreeing to transfer an entitlement from a final salary scheme to a money purchase scheme. The reason that you would be offered less that 100% of the cash equivalent of your final salary benefits on transfer is because pensions legislation allows trustees to pay out smaller transfer values if the scheme is underfunded (because if they didn't the members left behind would be being prejudiced as those leaving would be taking more than their fair share given the funding of the scheme).

The short answer to your question - could my money work harder for me in a stakeholder? is "Yes, it could". But you would need very, very good investment performance in the stakeholder to match the deferred final salary benefit, and you would need annuity rates, interest rates etc to work in your favour at retirement as well. And by switching to the stakeholder you would be changing the burden of risk from the company to you.

Hopefully this helps. This is a complex area and you need proper financial advice on this and your own circumstances - attitude to risk etc before making decisions.

brilliant, thanks for your help........i think i might freeze the existing one and open the new one ( coz the company will still match my 5% payments) but just start from scratch then.......