Enough contributions

maddapple

I currently have a company pension which requires a 3% contribution from myself, in return for this the company contributes 20%. I have the option to increase the contribution by a further 3% which the company will also match.

My question is - Is the standard contribution sufficient or should I top my contributions up?

MikeJones_2

Hi maddapple,

Although you haven't said 3% of what (i.e. is your salary £25,000, £50,000, £100,000?) it would be regarded at the lower end of a sensible pension contribution to a money purchase scheme if it were the only contribution going in (assuming it is a money purchase scheme).

However, if your employer is making a 20% contribution this is well above average for an employer contribution to a money purchase arrangement.

If you can afford to pay the extra 3%, then the additional 3% that your employer matches is 'free' money towards your retirement provision.

Mike

I work in the field of Pension Education and Pension Guidance in the UK. I am a member of the Specialist Pensions Forum as well as being a Voluntary Adviser for The Pensions Advisory Service. I work with scheme members, employers, trustees, scheme administrators and advisers on most things to do with 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. I am not an IFA.

whu

Normally it would be atleast 6% - the 20% contribution from your firm is a very good rate

dunstonh

I currently have a company pension which requires a 3% contribution from myself, in return for this the company contributes 20%.

Blimey. Can I have that pension. A 20% contribution is very large. Figures around the 4-5% are more common.

I have the option to increase the contribution by a further 3% which the company will also match.

Go for it. Your contribution is only 3% gross (2% net unless higher rate tax payer) to begin with which is very low. To get another 3% for a net 2% (again assuming basic rate) is worth taking.

Free money is always worth taking. It could set you up very nicely if you are young enough. However, it would need to be taken in context with the level of earnings you have and your age.

baby_boomer

whu wrote: »

the 20% contribution from your firm is a very good rate

That's one of the understatements of the year!

maddapple

Hi Mike

My salary is currently £31K, so you would recommend me topping up my contribution, even though my company are contributing 20% of my salary?

MikeJones_2

Hi maddapple,

Re: would recommend me topping up my contribution, even though my company are contributing 20% of my salary?

Absolutely, and for all the reasons given previously, assuming you can afford the extra, and that there are no other material financial factors (such as you have no significant debt on a high interest rate).

Clearly, we don't know your full personal situation but on the face of what you've posted, the advantages outweigh the disadvantages.

Mike

I work in the field of Pension Education and Pension Guidance in the UK. I am a member of the Specialist Pensions Forum as well as being a Voluntary Adviser for The Pensions Advisory Service. I work with scheme members, employers, trustees, scheme administrators and advisers on most things to do with 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. I am not an IFA.

bendix

I'm rather incredulous that an employer is contributing 20% on top of the salary to a pension - I've never heard those figures before. Is the OP sure that's right?

I thought mine was generous. I'm contributing 20% from my gross salary and my employer is adding another 9% on top, plus there's a bit of extra being thrown in from extra NI savings.

Would the OP be prepared to indicate what sort of company he/she works for?

ffacoffipawb

bendix wrote: »

I'm rather incredulous that an employer is contributing 20% on top of the salary to a pension - I've never heard those figures before. Is the OP sure that's right?

I think it's possible. When we were TUPE'd from a final salary scheme to a CIMP scheme, our employer contribution was half your age, minimum 20% and maximum of 25% so a 43 year old gets a 21.5% employer contribution. This was independent of any employee contribution (suggested 5% to make up for the loss of final salary partially offset by gaining S2P by being contracted in in the replacement scheme). Unfortunately I invested in an index tracker .... :mad: (but at least I am buying cheaper units now).

The new joiners got 5% plus matching 5% which was far less generous but not too mean.

MikeJones_2

Hi bendix,

I'd suggest that there are very many sponsoring employers of defined benefit schemes in the UK that would be delighted to reduce their employer contribution down to only 20%.

Ffacoffipawb's situation is a good example I have to say, of how TUPE is dealt with by some employers.

Mike

I work in the field of Pension Education and Pension Guidance in the UK. I am a member of the Specialist Pensions Forum as well as being a Voluntary Adviser for The Pensions Advisory Service. I work with scheme members, employers, trustees, scheme administrators and advisers on most things to do with 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. I am not an IFA.

maddapple

I'm not sure of the relevence of the type of company that I work for, but it is a Bank.