pension advice needed please !

james3333

Hi all,
i joined my company pension about 8 years ago.
when i first joined i paid into it about £50 per month... over the years, as my pay has increased, i now pay £137 per month.
the pension is a ' final salary pension' ( whatever that means!???!!??).
On my documentation it also says its a defined benefit scheme ( whatever that means???!!??)
i feel really stupd knowing so little about somthing iam putting hundreds of pounds a year into, but i was only 20 when i joined and was more concerned with making sure i had somthing, no matter what!
now iam wanting to make sure its the right thing to be doing, or would i be better off putting this cash into an ISA or somthing else.
if i leave the scheme, the whole thing is locked and i cant get anything until i retire.
the company holds 92.7 million in the sheme and needs 114 million to provide benefits, which means a it has a shortfall of 21.9 million
the company is paying 1.8 million towards removing this shortfall per year.

the company puts in 8.7% of my pensionable pay to the scheme

can anyone advise on trhis matter ?

thanks everyone.

james.

ReportInvestor

You are in the best type of pension scheme. There are people who would kill to be as lucky as you. Effectively the scheme adds 8.7% to your pay packet .

But even better, when you paid a measly £50 pm it was buying you the same top quality benefits. And if your salary continues to rise, you will continue to benefit disproportionately well when you retire.

The "defined benefit" = a pension related to your final salary, guaranteed by the company which carries the investment risk.

Lesser mortals have to make do with "defined contribution" schemes. They then have to take on board investment risks and mortality risks instead of the company, and invariably end up worse off.

Shortfalls are quite normal, and now that the government has put in place the pension protection fund you have less to fear should your company go bust. The horror stories in the press relate to companies that have gone bust before the PPF come into play.

Which company is it?

oldfella

sounds good - keep on paying
the shortfall probably isnt as worrying as it sounds

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the company puts in 8.7% of my pensionable pay to the scheme

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you do mean they are contributing 8.7% ?

Mike

james3333

thanks you guys, thats JUST WHAT I WANTED TO HEAR!
GREAT!
the company i work for is OTTO UK. ( a catalogue chain... iam a graphic designer for the company)

thanks loads!

:money:

p.s what exactly is my 'pensionable pay"?

ReportInvestor

To complete the picture, the PPF would pay out 90% of entitlement should OTTO ever go bust, but with a £25K pa ceiling at age 65 for individuals.

And it's in OTTO's interest to keep the deficit manageable, because if it doesn't its annual insurance levy to the PPF increases.

Shortfalls are quite normal

Average deficit for a FTSE 100 company pension scheme is £360 million :eek:

Pensionable pay = gross pay. Your own pension contributions are also deducted before tax.

james3333

report investor a.k.a ' mr. knowledge'...
its great to hear its a good scheme, thanks again for ther good advice!

still dont quite know what i can expect when i retire, but as long as its 'ok' and i cant do 'much better' i will be happy!



cheers

james.

Mrs_pbradley936

Do not come out of a final salary scheme - they don't offer that now.

james3333

well, you guys have convinced me to stay in it!
cheers.

james.

p.s any way i can calculate a rough figure, if say my wage went up to 50-55k by retirement

Andy_L

Yes, look at the scheme rules. You have an accrual rate, typically 1/60th, which means for every year of service you receive 1/60th of you final salary (or sometimes best of last few years or a career average) as a pension. eg work for them for 30 years receive 30/60ths pay as a pension

james3333

brill!
good stuff
cheers

so, with it being a final salary scheme (defined benifits) it basically means for every year of service i get a 60th of my final salary, eg if i left on 25k and had been here 10 years... the company will have given me.... £4,500 for free?
( WOULD I EVER GET THOSE INTEREST RATES IN ANY ISA OR HIGH SAVINGS ACCOUNT)????

CHEERS

Andy_L

Assuming it's a 1/60ths scheme then yes, although you only get that £4.5k when you reach the schems retirement age (typically 60-65)

It's not for free - your employer will have estimated the costs and allowed for it in your total renumeration package ie they pay you less salary to make up for the pension, which in you case would be about 7-15%.