Final Salary pension v Higher Salary at another company with no pension scheme.

bennc7

Im after some advice. I currently work for a very reputable company, and earn a reasonable wage, but also get a final salary pension which I keep being told is worth its wait in gold.

I have been approached by another company and have been offered a position which is offering me a very sizeable 30K increase on my current salary, which is also not to be sniffed at. However they do not offer a pension. So I would have to take out a private pension.

I am totally torn, as I really enjoy working where I am, but a 30K increase is a hell of a lot of money and not something that I can walk away from lightly.

But my pension is sonething that is causing me concern, is it worth staying where I am for my excellent final salary pension, or does the 30K increase in my basic salary more than compensate for this?

I have read that indeed a final salary pension is only worthwhile if you plan to stay at the company for your entire carreer, which I thought I would do at my last company, but they screwed us over by selling us off to another company, so I am not ignorant to the fact, that could well happen again. Also im hearing that in 10 years time, the final salary pension will no longer exist anyhow. So is it really worth staying somewhere for a final salary pension? I have also only been a member of the scheme for 2 years at my current employer.

Also, what are the private pension schemes like?? Do you contribute tax free, and how much should I have to contribute to make it worthwhile.

I would be grateful if anyone could give me any advise, as im not an expert in the slightest on pensions, and am totally torn what to do in with regards to my jobs.

Many Thanks

MikeJones_2

Hi bennc7,

There's not enough information in your post to give any kind of authoritative reply. We need to know much more such as your age, current salary, pensionable salary, the formula for your current pension scheme, your attitude to risk, how much you currently contribute to your pension etc.

However, I'll set the ball rolling by asking the question: are you the type of person disciplined enough to start in the new job and make a significant contribution out of the extra £30k towards your retirement - in addition to the existing amount you currently pay?

And don't forget that in 2012, current proposals are that employers will have to contribute to a work based pension provision (Personal Accounts) where none exists already. This includes an employer contribution of 3%, so your new employer will be forced to make a pension contribution shortly, if the planned proposals do get off the ground.

Have you asked your employer if it will make a contribution to 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.

jamesd

The 30k increase in your salary will probably more than compensate.

The existing final salary scheme will probably still be there at the current company but they might freeze benefits, increasing payments only with inflation, and switch everyone to a money purchase pension similar to what you'd get at the new job. The pension earned before this under the current rules wouldn't be changed.

For pensions you start by setting a target income and then work out how much it'll take in contributions to get there.

Your age is a key factor. The older you are, the more valuable the final salary scheme is to you compared to a money purchase scheme. That's because the shorter time to retirement decreases the time that investments in a money purchase scheme have to grow, while in a final salary scheme this just doesn't matter much, it's just a number of extra years that set how much of your salary you get, without needing to care about investment performance.

CLAPTON

On a straight money basis you need to invest at least 25% of your salary to get the broad equivalent of a final salary scheme. Obviously it may be more depending upon the premise benefits of your current scheme (especially if it allows early retirement without acturial reduction), your age, death in service benefits etc.

so i would suggest before its worthwhile the increase needs to be 25% for pension plus 15-20% for disruption etc

bennc7

My current basic pensioable salary is 50K plus London allowance, which is not pensionable and then I get a yearly bonus. To my pension I contribute the first 2% of the first 30K and then 6% on remaining balance. Retirement age is 60. I am currently 34 years old.

The other offer I have is basic of 80K, but with no pension offered by the company at all. Again I would get a bonus based on company and personal performance.

The company I work for are a very reputable worldwide company offering lots of oppurtunities, however due to pay scale sctructures would never get such a rise of 30K, and the one I would be moving to are a huge Indian compnay on a big adventure and are set to expand rapidly, but are just at the beginning of their new adventure.

Really not sure what to do for the best. But certainly the fact the other company do not provide a pension is of concern, especially as the one I currently have is one of the best out there.

sheslookinhot

How long would you foresee this big adventure lasting for you?

bennc7

Well its a permanent position and sounds quite exciting to be part of something from the beginning. But if im honest, if my current company offered me the same deal I would stay where I am. But as I have said before I would never get the same basic where I am, which is why im trying to evaluate the whole package as a whole.

smerch1468

bennc7 wrote: »

My current basic pensioable salary is 50K plus London allowance, which is not pensionable and then I get a yearly bonus. To my pension I contribute the first 2% of the first 30K and then 6% on remaining balance. Retirement age is 60. I am currently 34 years old.

The other offer I have is basic of 80K, but with no pension offered by the company at all. Again I would get a bonus based on company and personal performance.

The company I work for are a very reputable worldwide company offering lots of oppurtunities, however due to pay scale sctructures would never get such a rise of 30K, and the one I would be moving to are a huge Indian compnay on a big adventure and are set to expand rapidly, but are just at the beginning of their new adventure.

Really not sure what to do for the best. But certainly the fact the other company do not provide a pension is of concern, especially as the one I currently have is one of the best out there.

As someone else pointed out that final salary schemes depending on their accrual rates (eg 1/60th of final pensionable salary times number of years service) can cost an employer between 20-25% of your salary to fund.

So if you take the new role, to fund for a similar proportion of your final salary as pension would take a contribution of up to a quarter (possibly more) of your salary. You are also taking the investment risk now and therfore whilst you will be putting hundreds of thousands of pounds into pensions over your lifetime, you are at the mercy of the performance of the underlying investments within your pension fund. You should therefore take appropriate independant advice and have your position reviewed regularly to ensure you will be on target to acheive your goals.

Im not sure if you have a private or public sector pension plan, but I have been to many seminars with a certain steve bee who is a highly respected pensions expert. He expects final salary schemes to diminish possibly to zero in the future. So you would possibly end up in a money purchase pension plan anyway.

Aegis

Take whichever job you'd prefer to do, work out the pension issues once you've decided where to be.

Just my view... Maybe I'm too naive in this matter though

zzzLazyDaisy

Remember also that in the first 12 months you have little employment protection, which means that if things don't work out for any reason, they can terminate your employment and you will have little redress under the law. So you need to make sure that your new contract has a long notice period (the longer the better) which will give you a cushion if things don't work out as planned.

I have no wish to dampen your enthusiasm but I know someone who was headhunted from a household name to a fledgling company for big rewards. They picked his brains, used his talent and contacts to get the company off the ground, and just before the 12 months, terminated his contract. The credit crunch had hit by then and 6 months later he is still out of work.

jamesd

£30,000 will more than cover the 25% of current £50k income that is required to match a final salary pension so it seems like a reasonable choice on that basis, assuming that you expect to pay something like £15,000 of the money into a personal pension each year. If you don't need the income now, putting in 100% of your higher rate income while the markets are down would probably be a good long-term move.