Final salary pension

dale123boy

I am about to start a new job with a company which still offer a final salary pension scheme. The options are as follows,

3% salary = 1/75ths pension
5% salary = 1/60ths pension
9% salary = 1/50ths pension

I have opted to pay 5 %. I am 31 years old and have had a pension since I was 18.

Is this pension scheme much better than a stakeholder type scheme and also is it crazy not to pay in at the 9% rate?

jem16

dale123boy wrote: »

Is this pension scheme much better than a stakeholder type scheme

Yes it is much better - a final salary pension with no stockmarket risk is like gold dust.

also is it crazy not to pay in at the 9% rate?

I would go for the 1/50ths scheme - you will get a higher pension.

DaisyNelson

If you can afford it, go for the 9% option. Also agree with jem16; these pensions are like gold dust now. Not often offered to new employees.

dunstonh

9% will not actually mean 9% of your take home pay. Its 9% of your gross pay. So, if you are a basic rate taxpayer, its the equivalent of 7.2% of your take home pay. There will likely be less NI to pay as well.

1/50ths means less years to get a maximum pension on that scheme effectively. However, you need to check how the lump sum is paid in each case. Is it 1/50ths plus lump sum or 1/50ths with a reduction if you take lump sum?

ffacoffipawb

dunstonh wrote: »

9% will not actually mean 9% of your take home pay. Its 9% of your gross pay. So, if you are a basic rate taxpayer, its the equivalent of 7.2% of your take home pay.

No, it will be pretty much 9% (not 7.2%) of take home pay as take home pay will be approximately 9% lower ....

Suppose salary = £20,000

Assuming £6,000 tax free and NI free (though NI allowances slightly different) and the next £14,000 taxed at 20% and 11% NI gives a take home of

6,000 + 0.80 * 14,000 - 0.11 * 14,000 = £15,660

If paying 9% then salary (net of pension contribution) is £18,200 and take home is then

6,000 + 0.80 * 12,200 - 0.11 * 14000 (if not salary sacrifice) = £14,220

14,220 / 15,660 ==> 9.1%

MrChips

I think what Dunstonh meant was...

Contribution of £1,800 (9% of £20,000), but net pay reduced by £1,440 (7.2% of £20,000). I.e. some of the contribution is subsidised so net pay won't fall by £1,800.

bendix

Given that the days of staying in the same job for 35 years are long gone, I dont understand what happens when the OP, for example, leaves for a new job in 4-5 years time?

Can someone explain please?

CLAPTON

bendix wrote: »

Given that the days of staying in the same job for 35 years are long gone, I dont understand what happens when the OP, for example, leaves for a new job in 4-5 years time?

Can someone explain please?

normal options apply subject to the rules of the scheme

-he can normal just keep (freeze) the old scheme which typically will have the benefits index linked until he reaches retirement age
-he can transfer the benefits to a new scheme

MrChips

If the OP were to leave, (s)he would leave a deferred pension in the Scheme (assuming more than 2 years' service - less than this and the Scheme isn't obliged to retain the benefits and either the member would have the contributions refunded, less tax, or be offered a transfer value). This would be calculated as Salary x Service / Accrual Rate.

This would be required to be revalued between the date of leaving and the Normal Retirement Age at least in line with RPI (subject to a maximum compound rate of 2.5% pa or 5% pa for benefits accrued before 6 April 2009).

Alternatively the member could transfer the benefits to another arrangement.

Peelerfart

bendix wrote: »

Given that the days of staying in the same job for 35 years are long gone, I dont understand what happens when the OP, for example, leaves for a new job in 4-5 years time?

Can someone explain please?

I've been in the same job for 34 years .Are you trying to tell me something ???
:rotfl:

dale123boy

Thanks for your advice on this everyone. I now have several small pensions due to changing jobs, and wonder as to what is the best thing to do with them. For example I have a private pension (Brittanic) that I paid £60 a month into for 7 years, a 1/60ths final salary pension I paid for four years and my most recent 2 year at £70 per week defined contribution pension. I wonder if it would be "neater" and easier to manage if I were to pool all these together into ne fund, but then am I putting all my eggs in one basket??