Final salary or employer's scheme - which to pay into?

kidmugsy

No wonder people have difficulty understanding pensions when the literature is as badly worded as that.

Anyway, am I right in understanding that that describes a "salary sacrifice" arrangement?

Craig_W_2

kidmugsy wrote: »

No wonder people have difficulty understanding pensions when the literature is as badly worded as that.

Anyway, am I right in understanding that that describes a "salary sacrifice" arrangement?

Yes, kidmugsy. That's correct.

I'm wondering now if I've totally misunderstood what the NT pension offer is?

Elsewhere the NT brochure says:

"Your commitment: to reduce your contractual right to pay by 3% or greater, in return for the Trust making an employer contribution of this amount." (My underlining - CW)

Does the use of "this amount" here refer to the 3% figure or any amount I choose to contribute? Or does this simply mean that I forego part of my salary and the Trust pays it to a pension for me while contributing nothing?

But what about this:

"The Trust will make an additional contribution to your Pension Scheme equal to the contribution you choose of at least 3% as a normal pension contribution up to a maximum of 90%." (My underlining - CW)

Do these sentences not mean what they appear to mean? If not, what the heck do they mean?! :think:

I'm confused!!

I will give them a ring tomorrow and let you know what it all means. Until then, any guesses?

Loughton_Monkey

Craig_W wrote: »

.... one is with a county council who pay 5.9% of my salary into the Local Government final salary pension scheme....

I wonder if you have misinterpreted this one too?

There is no way you get a Final Salary scheme with nil contributions from you, and only 5.9% from your employer.

Craig_W_2

Loughton_Monkey wrote: »

I wonder if you have misinterpreted this one too?

There is no way you get a Final Salary scheme with nil contributions from you, and only 5.9% from your employer.

You're right, LM.

On my pay slips it says 5.9% is my contribution. Having checked the LGPS website I see that the employer's contributions vary and are not simply a set percentage. I'm learning a lot here!

jamesd

Craig W., that means that for 1%, 2% or 3% they will match that percentage. Above that they don't match but you can put in up to 90% of your salary.

The LGPS is probably offering more money but it's not going to be available at age 55 while a defined contribution scheme will be. The LGPS employer contribution is likely to be around 20%.

If the NT one is matching up to 90% it's remarkably generous.

If you happen to be a higher rate tax payer one potentially interesting option is to use the NT one for your higher rate income and the LGPS one beyond that. That'll get you the best tax relief/flexibility combination.

Stargazer57

jamesd wrote: »

Craig W., that means that for 1%, 2% or 3% they will match that percentage. Above that they don't match but you can put in up to 90% of your salary.

Why are the words "at least" there then? And where does it say that the pay foregone goes into the scheme, other than via the employer contribution? I think Annisele's interpretation is much more likely to be correct: This is a salary sacrifice scheme where all the contribution comes from the member with a minimum contribution of 3% and a maximum of 90%.

Assuming you are already a member of LGPS (and you would be mad not to be) and paying 5.9% employee contributions, your choice is between the NT salary sacrifice scheme, making AVCs into LGPS, buying added years from LGPS or saving in some other way.

Added years give you the chance to buy an index-linked investment which may look expensive but could be worthwhile if you will need more income in retirement.

Otherwise, assuming you are a basic rate taxpayer, the conventional wisdom is that the modest tax relief offered on pension saving is not worth the restrictions entailed. If I were you I would put your new savings into a stocks and shares ISA instead.

Craig_W_2

Just off the phone from the National Trust pensions bloke.

As suspected, Annisele, Stargazer and others are correct: the Trust do not match any contributions I make. They merely pay to the pension scheme on my behalf any amount that I choose to forego as a salary sacrifice. However, they do also make their own contribution of 7% of my gross salary.

My question now is, is this 7% contribution a better deal than making extra contributions to my LGPS pension? I presume it is (afterall, as dunstonh would say it is "free money") but I find it difficult to compare the different schemes from my very limited understanding of them.

Any final views before I fill out the NT pension form?

Stargazer57

Craig_W wrote: »

Just off the phone from the National Trust pensions bloke.

As suspected, Annisele, Stargazer and others are correct: the Trust do not match any contributions I make. They merely pay to the pension scheme on my behalf any amount that I choose to forego as a salary sacrifice. However, they do also make their own contribution of 7% of my gross salary.

My question now is, is this 7% contribution a better deal than making extra contributions to my LGPS pension? I presume it is (afterall, as dunstonh would say it is "free money") but I find it difficult to compare the different schemes from my very limited understanding of them.

Any final views before I fill out the NT pension form?

I'm still not completely clear what your current pension position is. I think you are a member of LGPS, paying 5.9% of your salary. I think you haven't joined the NT scheme but that if you did, you would have to pay 3% of your salary there, and NT would pay 7%. You could pay more, but NT's contribution wouldn't increase.

You say you have a little spare money, and are asking what pension arrangement to pay it to.

If my summary is correct I would recommend you join the NT scheme at the minimum level, in order to get the benefit of the 7% employer contribution. If you can afford to save more than that, and assuming you are a basic rate taxpayer, neither LGPS or NT offer a deal which is much better than you would get from a stocks and shares ISA.

Craig_W_2

Thanks for that, Stargazer.

Apologies for my vagueness. You're assumptions are all correct:

- I'm currently paying 5.9% to the LGPS
- I'm not yet a member of the NT scheme
- the NT scheme requires a minimum 3% contribution from me
- the NT will pay 7% if I join the scheme, regardless of what I pay in
- I'm a basic rate tax payer

If you can afford to save more than that, and assuming you are a basic rate taxpayer, neither LGPS or NT offer a deal which is much better than you would get from a stocks and shares ISA.

You will be unsurprised to learn that I know nothing of S&S ISAs. Any tips? What are their advantages over, for example, AVCs?

Stargazer57

Craig_W wrote: »

You will be unsurprised to learn that I know nothing of S&S ISAs. Any tips? What are their advantages over, for example, AVCs?

Rather than start from the beginning with tips, there's plenty of online advice for you to help yourself starting here https://forums.moneysavingexpert.com/discussion/375217.

The main advantage over AVCs is that you don't have to buy an annuity, so can get the money out when you want without penalty.