Should i join a Final Salary Pension scheme?

sillystar

Hi there,

I am 22 and just starting my first 'proper' job after uni. I would like to start some sort of pension but i'm unsure whether my employers final salary scheme is the way to go.

I am unsure because I am not sure how long I will be with the company and it seems to me that if you are only there for a couple of years there's not much use?

I also don't really like the idea that I am putting in money but lose control of it and that I can't see how much I have 'saved' if you know what i mean (this may be more of a mental block than anything else). I know that the scheme provides good benefits such as life assurance but I am young with no dependents and don't really feel that this is necessary.

Another thing is that I would automatically be contracted out - is this o.k and can you contract back in if you change your mind?

Sorry about all the questions. As you can tell I'm new to this and very confused!

dunstonh

I am unsure because I am not sure how long I will be with the company and it seems to me that if you are only there for a couple of years there's not much use?

It doesnt matter if you are there 2 years or 20 years. Its still something towards your retirement.

I also don't really like the idea that I am putting in money but lose control of it and that I can't see how much I have 'saved' if you know what i mean (this may be more of a mental block than anything else). I know that the scheme provides good benefits such as life assurance but I am young with no dependents and don't really feel that this is necessary.

You have more control of your retirement income with a final salary scheme than you do with a money purchase scheme.

Another thing is that I would automatically be contracted out - is this o.k and can you contract back in if you change your mind?

Its not contracting out in the same way you contract out with a personal pension. Yes it is ok.

Sorry about all the questions. As you can tell I'm new to this and very confused!

Final salary schemes are hard to come by now. You should join ASAP as its too good to miss out on.

simonhgreen

Join the scheme!

FS pensions you can join are like hen's teeth these days.

Different schemes have different rules but the FS I'm in allows a refund of contributions if you leave within a nominal period.

Also, what if your next job is also a FS scheme? You will probably find it accepts FS transfers on a like for like basis.

I'm sure someone may think of reasons why maybe you shouldn't, but as a member of a FS scheme, even though my employer is looking at changing the T&C, I consider it as peace of mind over any MP scheme (I also purchase AVCs so if the stock market goes ballistic I will be able to join in).

HTH

EdInvestor

Sillystar

I would join it.The amount of money the employer puts into f/s schemes is usually over 10% of salary and often up near 20%. You won't notice the difference coming out of your pay now, but it's quite amazing what a few years when young in one of these kinds of schemes can produce when you're old.

It can quite easily amnount to a couple of thousand pounds a year inflation- linked. This may not sound like much, but it would cost you around 50,000 pounds to buy an income for life like that, nowadays.:eek: Definitely worth it

If you leave before 2 years are up they will normally give you your money back.

sillystar

Thanks for the advice everyone. Sounds like I will join but it says that my employer doesn't pay anything into it - just the cost of administration and charges. is that normal?

EdInvestor

Is it not a "final salary" scheme then? Rather a "stakeholder" scheme, perhaps?

sillystar

actually read it again and it says the group pays the balance of the cost of providing your benefits plus all the administratice and investment charges. I think my brain is frazzled. def a final salary pension. Thanks.

ReportInvestor

If the employees were funding all the costs of a final salary scheme they'd be paying 20%+ of salary .

Pal

From 6 April anyone with between 3 months and two years service in an occupational scheme is entitled to either a refund of their contributions (which puts them back in the position they would have been in had they never joined), or can take the transfer value of their benefits to another pension arrangement of their choice.

In other words, you can choose the higher of these two amounts, and will always benefit from joining the scheme.

Even if you leave within three months you get your money back, so you might as well join just in case.

MrChips

Actually, if you take a refund of contributions on leaving the scheme within 2 years, you can actually be better off as the contributions are only taxed at 20% as opposed to 22% ;-)

Pal

No you won't. You may be taxed less but you would not benefit from the benefits earned from the company's contributions, which are likely to be worth significantly more than the member's own contributions. For all except the youngest pension scheme members you would expect the transfer value to be significantly higher.


That said, there are some circumstances where the refund "might" be higher, in which case it is worth taking it and then paying the refunded amount into another pension scheme, rather than taking the refund. Or you could just spend it.