help pension buff needed

coolcol1

.................moneysaver-age 39-new pension started..................

i have 2 frozen pension schemes with previous employers neither was a final salary but money purchace or bonusbuilder
pension (1) has 4600 and pension (2) has 7700,both frozen,both of these amounts i could transfer in my new company scheme....(i have checked)..
the problem is that my new scheme is final salary and i cant understand how this is benificial or not once the guy was telling me about the best 3 years taken from the last 10 to calculate the amounts...he lost me......he was not a fiancial adviser,but a guy in the pensions dept who couldnt tell me what
best to do as it would be giving advice.......so im none the wiser,unless i pay for one-

both schemes (1)+(2) pay £500 a year each at 65 if growth continues
so if you are a pension buff i would be all ears

ReportInvestor

Hi cc1 and congratulations,

the problem is that my new scheme is final salary and i cant understand how this is benificial or not

There's no "problem" except one of communication by your HR department.

A final salary scheme is gold dust. Never let it go .

How much of your salary do you have to contribute to get this nirvana?

jonathon_hart

Right if you transfer into a Final Salary scheme there are 2 ways this can be done.

1. Is the money becomes a Money Purchase element within the pension scheme. This means that it essentially stays as it is (i.e invested in funds etc) except that it is now within the company scheme

2. It buys added years of service within the final salary section.

Your basic benefit is calculated as follows:

years service divided by accrual rate (normal 1/60 but check this) multiplied by your final salary (this is the bit about your best 3 years salary in the last 10 years)

If the transfer works this way your years service will be the number of years you worked plus the number of years "transferred in"

Hopefully this explains it better (not that I am giving you advice either!!). From what you wrote above it sounds like your pension works as in number 2 above.

If you decide to investigate the transfer in your company should tell you how many years service the transfer will buy - before you commit to the transfer. You can then work it out (you will have to "estimate" your future salary - or use your current salary if you prefer) to see if you feel it is worthwhile.

Thanks

Jonathon

coolcol1

thanks guys-

i do agree they are golddust but no knowing for sure to transfer or not -as (1)+(2) do pay £1000 at 65.like most,i know enough but not on pensions!

i think it does buy years as the pensions dept guys said yes to this,he said it would be priced up and asscessed.

i have sent all old frozen plans details to the pensions dept,but as i said he could not tell me what to do,

so basically guys i have to see if i get a year or two,and then price up against
say 20/60 (20 years service) then work out what each year would be worth

aint that easy-thanks for your time

jonathon_hart

Hi.

You need to take the number of added years, divide that by 60 and mulitply it by your Final Salary.

Obviously you will have to estimate your final salary to do this. Try it with a range of final salaries to give you an idea of the potential variations in what it is worth.

I am right in that both of your current frozen pensions are money purchase (defined contribution)? If so remember that the £500 per annum is only a projection and will depend on the performance of the fund.

Thanks

Jonathon

EdInvestor

Not all final salary schemes are the same and as some have found in recent years, they can turn into ordinary dust as the golden variety - thouygh this is less likely now..:(


Another problem with them is their inflexibility should you need to generate an income early than your official retirment date.

You may be better to transfer these two frozen money purchase schemes into a low cost online Sipp and then invest the resulting pot of money into a few high quality funds, or a portfolio of shares.

This would involve a modicum of study about investment, not a lot: you really need to reach a basic level of understanding anyway, otherwise you are a sitting duck for an advisor in ripoff mode