Company Group Pension - Yea or Nay?

Valley_Bluenose

First post from a long time 'lurker' - please be gentle!

I am 50 years old and recently left the Armed Forces with a pension of approx. £16,000 per year, index linked from age 55. We own our home outright and have approx. £40k in saving, all invested in line with Martin's 'money fountain'.

I have started a new job, with a salary of £20k per annum and have been asked to join the company Group Pension Plan. I can contribute up to 6% of my salary and the company will match my contribution. The company cash is clearly 'free' money and their are the obvious tax advantages from joining the scheme.

However, I plan to retire at 60 (at the latest) so would only be in the scheme for a maximum of ten years - probably building up a 'pension pot' of about £25,000 to purchase an annuity. This would, I believe, only buy me a monthly pension of about £65 - before tax - small fry in comparison to my Forces pension!

So, with that in mind, do I join the scheme - or do I save/invest elsewhere knowing that at least I would then have access to my capital, which in itself would bring in a tidy sum in interest?

I would be most grateful for anyone's views on this.

Many thanks.

dunstonh

However, I plan to retire at 60 (at the latest) so would only be in the scheme for a maximum of ten years - probably building up a 'pension pot' of about £25,000 to purchase an annuity. This would, I believe, only buy me a monthly pension of about £65 - before tax - small fry in comparison to my Forces pension!

Who says you have to take it at 60. Whilst you may retire at 60, you dont have to take benefits at 60. You could leave the pension invested upto age 75. If you die before then, the full value of the investment is paid to your spouse. If you survive, it will act as a pension "top up".

So, with that in mind, do I join the scheme - or do I save/invest elsewhere knowing that at least I would then have access to my capital, which in itself would bring in a tidy sum in interest?

It's not going to bring in more than 6% though is it and its not going to get tax relief and even if you bought an annuity at age 65, that is closer to 7%. Savings accounts arent going to get you anywhere near that.

I would be most grateful for anyone's views on this.

Take the matching payment but no more. Put any extra you want into ISAs. Remember the pension is an investment and treat it as such. Invest it properly and look at the funds available in detail and dont just pick one for convenience (like most people who end up picking the duff one more often than not).

EdInvestor

You will be able to take 25% of the fund as tax free cash to add to your existing 40k, so on balance I'd say take the free money, though I do understand your irritation about access to the fund and would agree that any extra saving should be outside the pension.

Later you may like to look into income drawdown, the alternative to an annuity, which enables your fund to stay invested and keep growing after retirement while you take an income from it.

Valley_Bluenose

dunstonh/EdInvestor - I was hoping you would be amongst those who replied as I have noted your excellent advice in the past. Thank you both - you devote a lot of your time to us, rest assured it is much appreciated.

As you say, it seems best to put as much as I can into the GPP - up to the limit that will be matched by the company, i.e. 6%. Sadly, the plan is with Standard Life (Group Personal Pension Flex), whom I gather do not have the best of reputations on this Forum!

Nevertheless, if I do as you suggest, I would probably look at splitting my investment as follows:

30% UK equities
30% Overseas equities
20% Property
20% Bonds

This would give me a balance of 'safe' investments with some risk thrown in (or so I am told in the literature they sent!).

Would you consider this appropriate for someone in my position? Even with a reasonable pension already in issue I'm not sure I would be prepared to take any more risk.

I had forgotten that I would have the opportunity to take 25% lump sum tax free and would certainly want to do that. I will also investigate further the 'income drawdown' route - not too familiar with that I have to say.

Thanks again to both of you.

dunstonh

the plan is with Standard Life (Group Personal Pension Flex), whom I gather do not have the best of reputations on this Forum!

The SL Personal Pension is not a bad plan if the group scheme allows access to the full SL fund range for personal pensions. If its restricted then it can be of lesser quality. Whilst I wouldnt use SL for individual pension plans on new business (Hybrid SIPPs/full SIPPs can offer better value), for Group plans, they are fine.

Would you consider this appropriate for someone in my position? Even with a reasonable pension already in issue I'm not sure I would be prepared to take any more risk.

We cannot advise you on here about that sort of thing. However, as a conversation point and a hypothetical spread, its not a bad medium risk allocation providing you spread the overseas locations around.

EdInvestor

Let me suggest a slightly difference approach, since you are already basically set up for pensions.

Standard Life is IMHO a rather fortunate choice in that it has been reorganising itself in advance of the demutualisation with a new approach.It's now the only insurance company with a range of A-rated funds which can compete with the big boys like Fidelity or Invesco or Artemis on performance.:)

So rather than just choose an ordinary fund split,I'm going to suggest you pick these A-rated funds and go for performance with this extra pension.

The top funds are:

UK Smaller companies (higher risk, same as foreign funds) AA rated
UK Opportunities (medium-high risk growth fund) AAA rated
UK Equity Income (low-medium risk income fund) AA rated

Plus Property (low-medium risk fund)

25% in each would prpobably be close enough to your attitude to risk, but if you want to reduce the risk further put more money in the Property and Equity Income funds.

Fund ratings are here:

https://www.citywire.co.uk/Funds/home.aspx

Valley_Bluenose

Many thanks to both of you - your advice, as ever, is most appreciated.