Please help, this is what I have been offered.... 14 August 2004 at 8:25PM edited 30 November -1 at 1:00AM in Pensions, Annuities & Retirement Planning 7 replies 2K views

loveboat1234

I know this is gona be long but I just received a letter from my employer who offers me a pension scheme, and no much info with the letter. Can you please help me in deciding if to accept this or which question I need to ask and what (if) there is anything wrong whith the offer?

At ***** we want to offer you the best emplyee benefit package possible. This includes providing a company Pension Scheme. In counjuction with our Financial advisers "Global Financial" and Scottich Equitable to be our pension scheme provider. Under this scheme you will have your own personal persion plan into which contributions will be paid and you will benefit from:

• 
  a simple joining process-we make all the arrangements for you

• a regular contribution of 3% of your salary (mine is 25000)

• your contribution being deducted directly from your salary and paid to scottish Equitable
  • tax relief on all contributions you make
  • tailor made investment of pension contributions to suit your requirements
  • all we need to become a member of our scheme is:
  • mandate from us ( authorize us ) to submit an application on your behalf
  • give us the authority to pass personal information to scottish equitable and advisers in connection with your plan
  • agree that we can deduct your contributions fom your salary and them pass them to S.E
    Please fill in the form ( looks a bit weird ) and you will receive a plan details document and a member information pack directly from scottich Equitable in due course. It is important that you read these documents carefully. The form should be returned by 20.08.04
    
    FORM:
    
    it says that : This applicaton will be for me to join the Group arrangement and the Scottish E. scheme underlying it and for Schottish.E to issue to me a policy or policies in connections with the Group Arrangements. I understand that this will involve me in accepting important terms . These will be sent out for me by S.E and if I do not cancel the policy or policies in line with the cancelltion right that will be given to me then I shall be bound by those declarations ( and all other terms relatins to the policiy and the Group Arrangement )
    • 
      I authorize the Employer to deduct from my earnings any contribution due by me under the Group arrangemetn and thereafter for it to be sned to S.E to be applied under the agreement.
    • 
      I understand that I shall be given details of any policy to be issued and a right to cancel. If i do not cancel then
      I am bound by the terms of the Group arrangement
    I agree this is irrevocable.
    
    I am 31 and would like to get it right , and if need ask the right questions before signing anything. Any help is greatly appreciated.
    
    To all of you : Have a nice week-end
    
    Thanks

dunstonh

That 3% appears to be what you would pay in from the wording. What does the employer pay?

loveboat1234

the employer will pay 3 % thats all I know.

Pal

3% is not a lot, but it is still free money, so it is probably worth taking out the scheme. Ideally you want to be paying 15% of your salary into a pension plan, which means you should be aiming to pay about 12% yourself if you can, with your employer paying their 3%.

Ask your employer why the contribution rate is so low, and check out whether it rises at any time in the future. Many of these arrangements have contribution rates that rise as you get older.

DiggingOut

This is a salary sacrifice scheme, which means that your salary is reduced by your contribution. This is better than paying into a pension directly, because it means that you not only do not have to pay any income tax on your contribution (you would normally have that benefit anyway) but you also do not have to pay any national insurance on your contribution (you would have to pay national insurance if it was part of your salary which you then contribute).

So on your salary, every £100 that you contribute reduces your take-home pay by only £67 -- not too bad. It also means that any tax credits for which you qualify may be a little higher as well.

Any contribution you make, since it reduces your salary, also saves your company 12.8% NI. You should ask them to top up any contributions you make by the amount of NI that it saves them. They may not do it, but it is worth asking. If they do, your £67 net contribution will give you a pension fund of £112.80. This definitely makes it worthwhile to build your pension fund as much as you can.

isasmurf

DigginOut, I don't see how you've come to the conclusion this is a salary sacrifice scheme. I can't see anything to suggest that. Can you expand?

Pal

I can't see how you have reached that conclusion either. Do you know something we don't?

3% would be a very low contribution for a salary sacrifice scheme. Too small an NI saving to be worth the employee communication hassle.

I reckon it is just a cheap employer. 3% is the minimum you have to pay to avoid designating a stakeholder.

DiggingOut

your contribution being deducted directly from your salary and paid to scottish Equitable

OK, maybe it isn't clear. This could mean deducted from gross salary, or it could mean deducted from net salary. I would get clarification.

Why would they NOT structure it as a salary sacrifice, and deduct from gross salary? That is surely beneficial to both the employee and employer?