Should i join a Final Salary Pension scheme?

purplepatch

Pal wrote:

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.

Think Mr Chips meant that you'd be better off if you left with a refund than you would be if you never joined the scheme in the first place due to the tax relief saving compared to the 20% tax that gets deducted from a refund of conts. There would also be a state deduction taken off the refund, but that only equates to the NI savings made from contracting out of SERPS.

To the OP, definitely join that scheme! Until recently I worked in Final Salary admin and used to get lots of people asking me why the employer didn't contribute like they do in Money Purchase schemes. There is a real lack of understanding of how FS schemes work. Far better to have a guaranteed amount of pension at retirement than a pot of money that will be converted to pension depending on annuity rates at the time and investment return between now an then. The huge cost of funding a FS scheme is precisely the reason why open Final Salary schemes are becoming such a rarity as they cost the employer so much more to run than Money Purchase arrangements.

Oompa_Lumpa

Here is an illustration which shows just how good a typical final salary scheme is:

In our company final salary scheme, employees pay either 5% or 7.5% depending on whether they want to be in a true final salary scheme or one based on their current salary (but increased for inflation), and the company pays 18%.
As well as that the company tops up the current shortfall to the tune of about £1k per member per annum, which amounts to approx another 7%.

So in conclusion, if you can get in a final salary scheme, grab it with both hands.