New job new pension

Empty_pockets

Hi,

I briefly had a company pension a few years ago which I paid a total of about £200 into. I still get annual statements saying it's worth basically nothing. That is the only private pension I've ever paid into.

I'll be starting a new job soon on the railways. It's a good wage (40% tax), they have two pensions they can offer me. I've read through the documents but really have no idea who to speak to or where to start.
One is a defined benifit arrangement based on career average pensionable pay, the other is a defined contribution (money purchase) arrangement???

I've recently turned 29. I'd like to retire at 55 or 60. Can anyone give me any advice whatsoever on the pro's and con's of each?

Can't see how to attach a document so have uploaded a scan to photobucket




Off to work now, will check replies this evening. Thanks.

dunstonh

I've recently turned 29. I'd like to retire at 55 or 60. Can anyone give me any advice whatsoever on the pro's and con's of each?

Neither will enable you to do that by themselves. Your state pension age is 68. So, you need to be planning to fund retirement from 55 until the scheme pension age and the gap until the state pension age. That will mean paying more in than either of the defaults on the above schemes.

Final salary schemes are often a no brainer to join. However, career average can be a bit of a downer and for some it can make them less attractive than the money purchase scheme. Your career prospects and speed of progress may influence that decision.

Empty_pockets

Thanks for your reply, but i'm no further on to which is best for me.

Who would be the best person to speak to? I'd want to talk figures with someone who knows what they are talking about. Recommendations?

sandsy

Given the rate at which defined benefit schemes are being closed down, I'd probably go for the defined benefit. I'd be very surprised if any DB scheme lasted for the next 30 years!

Empty_pockets

Thanks again all. Ive mailed an IFA so hopefully they'll phone be back this morning for a free chat.

From reading up this morning it seems the Defined contribution is a savings scheme.
It seems the CARE is a final salary scheme?

I've gone for the CARE. The charge is 7.2% of pensionable pay. It does ask if I want to make additional voluntary contributions. What is this for? I thought it was a set amount in (7.2) and a set amount out???


I note the age is 65 without reduction. Reading the other threads and using the calculator, If i could save say £200 in an ISA pm that would easily allow me to finish at 60 as I'd hoped.

marklv

Empty_pockets wrote: »

Hi,

I briefly had a company pension a few years ago which I paid a total of about £200 into. I still get annual statements saying it's worth basically nothing. That is the only private pension I've ever paid into.

I'll be starting a new job soon on the railways. It's a good wage (40% tax), they have two pensions they can offer me. I've read through the documents but really have no idea who to speak to or where to start.
One is a defined benifit arrangement based on career average pensionable pay, the other is a defined contribution (money purchase) arrangement???

I've recently turned 29. I'd like to retire at 55 or 60. Can anyone give me any advice whatsoever on the pro's and con's of each?

Can't see how to attach a document so have uploaded a scan to photobucket




Off to work now, will check replies this evening. Thanks.

Go for the defined benefit one - don't touch the money purchase scheme with a bargepole! The latter is basically a glorified gambling scheme where your money is invested on the stockmarket - designed to make money for the provider and leave you sometimes even worse off than you were before. Retiring at 55 is very ambitious but not impossible - you will really need to have paid off your mortgage by then, but you are young enough to do this. Bear in mind that with any form of early retirement your payout, as well being smaller because of fewer years of service, will also be actuarially reduced (by around 6% for every year before official retirement age) to take account of your having more years left to live. if your official retirement age is 65 I would not consider leaving before age 62 at the earliest.

EdInvestor

Empty_pockets wrote: »

From reading up this morning it seems the Defined contribution is a savings scheme.

Investment not savings.Most money would be in equities (stocks and shares).

It seems the CARE is a final salary scheme?

No, career average salary,so final pension is likely to be lower than with a f/s scheme, which is based on the last year of employement.But still no risk for the employee, unlike the D/C scheme.

I've gone for the CARE.

Good choice.

It does ask if I want to make additional voluntary contributions. What is this for? I thought it was a set amount in (7.2) and a set amount out???

AVCs are for making extra pension provision via an outside provider, but an ordinary pension will be better these days.

barny_100

marklv wrote: »

Go for the defined benefit one - don't touch the money purchase scheme with a bargepole! The latter is basically a glorified gambling scheme where your money is invested on the stockmarket - designed to make money for the provider and leave you sometimes even worse off than you were before. Retiring at 55 is very ambitious but not impossible - you will really need to have paid off your mortgage by then, but you are young enough to do this. Bear in mind that with any form of early retirement your payout, as well being smaller because of fewer years of service, will also be actuarially reduced (by around 6% for every year before official retirement age) to take account of your having more years left to live. if your official retirement age is 65 I would not consider leaving before age 62 at the earliest.

Sure in this case the DB scheme is probably a clear winner but for the vast majority of people now a DC scheme is the only choice.

In relation to the bold part I'm interested in how you expect people to grow their money if not via investments?

marklv

barny_100 wrote: »

Sure in this case the DB scheme is probably a clear winner but for the vast majority of people now a DC scheme is the only choice.

In relation to the bold part I'm interested in how you expect people to grow their money if not via investments?

Indeed, and regrettably, this is now the only option for most people. I am not saying that it is a bad move in itself, if there is no other choice, but it is very high risk - no certainty as to your returns. This risk can be mitigated by spreading the investments across a variety of different investment vehicles, but lower risk also means less gain. Therefore, in this comparison, the guaranteed salary linked pension wins handsomely.

bendix

The irony being, of course, that such defined benefit schemes are being phased out right across the board in the private sector as being unaffordable - I would suggest the likelihood of such a scheme lasting until the OP retires is next to nil, and that at some point in the very near future (3-4 years, perhaps?) the accrued benefit will be given a cash value and transferred into a money purchase scheme.

The same will happen to the public sector, much to marklv's chagrin.

marklv

Bendix - of course you have a crystal ball and can see years into the future, right?