Basic Company Private Pension query

darkvader

Evening members,

Posted an earlier query on savings and investments and was advised to post specifics on pensions on here. Apologies up front as I am completely new to this and want to make sure I dont make obvious mistakes

My company states, based on age banding, to pay 5% on top of the 2% I pay towards the pension. This is a percentage of my Pensionable Salary and going through previous threads, I believe I should confirm with the company what that is and how they have calculated it.

Coming to my questions
1. Opting out of S2P - Is this wise? Pension plan states it will reduce NI contributions and this will sit as a separate account within the pension under Protected Rights Contributions
2. If I leave within 2 years of service, then I get the entire amount I invested back less taxes - this is clear. However, what will happen to the S2P amount that sits under the Protected Rights Contributions account? If they close down my pension plan if I leave inside 2 years, will I be given the money in the S2P or will this go back to the govt to manage?
3. So there are these 2 components of the Pension Account - Regular contributions and Protected Rights contributions. The 3rd one is Additional contributions - I believe I can add to this as much as I want however there must be a cap for tax relief. What is this cap and how best can additional contributions help reduce tax cuts and increase pensionable income?

Finally, anything else I need to be wary of or clarify before I sign up for the pension. I am aware of all the investment options and further educating myself on what to go for once I sign up

Thanks
DV

dunstonh

Basic Company Private Pension query

Whilst we try to avoid terminology, its often unavoidable with pensions as there are many different types and some phrases can mean different things with different types of pension (as will become clear in this post). In your title you have stated company and private pension. Whilst the word "private pension" doesn't actually exist, it tends to refer to be used by people when referring to personal pensions and not company schemes.

1. Opting out of S2P - Is this wise? Pension plan states it will reduce NI contributions and this will sit as a separate account within the pension under Protected Rights Contributions

You dont get a choice with a defined benefit occupational pension. It is being abolished with defined contribution schemes next year and the last chance to decide to be contracted in or out has gone. ( opt out means not joining the occupational scheme. Contracting in/out of S2P is the correct term)

What you describe doesnt sound quite accurate for either defined benefit or defined contribution. It looks like a bit of both which is not possible.

2. If I leave within 2 years of service, then I get the entire amount I invested back less taxes - this is clear. However, what will happen to the S2P amount that sits under the Protected Rights Contributions account? If they close down my pension plan if I leave inside 2 years, will I be given the money in the S2P or will this go back to the govt to manage?

It is unusual for defined contribution schemes to refund contributions if you leave within 2 years. Some schemes do, but most do not. The most common type of scheme that does this is defined benefit. However, you make reference to "invested". Yet you do not invest in a defined benefit scheme. With a defined benefit scheme, if you elect to your contributions returned, you lose the benefit built up with the company contribution (i.e. no monetary value applied to it) and you have to pay tax and NI on the refund of contributions. This will contract you back in to S2P for that period.

3. So there are these 2 components of the Pension Account - Regular contributions and Protected Rights contributions. The 3rd one is Additional contributions - I believe I can add to this as much as I want however there must be a cap for tax relief. What is this cap and how best can additional contributions help reduce tax cuts and increase pensionable income?

There is a cap for tax relief. 100% of your earnings or £50,000 whichever lower. It is possible to use carry forward relief to pay more potentially.

Finally, anything else I need to be wary of or clarify before I sign up for the pension.

At the moment, its not clear what type of pension you have access to. What type of pension is it?

Zelazny

I was under the impression that Money Purchase schemes can contract out (although this will be abolished next year) and that this saved you money on your NI (and it seems from http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/BeginnersGuideToTax/NationalInsurance/PayingreducedrateNationalInsurance/DG_190081 that it earns you an additional rebate from the government based on age and earnings) and that the savings have to be used to provide Protected Rights.

dunstonh

Depends on whether it is a GPPP, COMP or a defined benefit scheme.

darkvader

Thanks Dunstonh, while a lot of it just flew over the top, here are some clarifications

1. Yes this is a company occupational pension scheme. Managed and run by the company investing in a lot of various funds mostly L&G and HSBC trackers
2. Contracting out of S2P is what I was talking about and as it will be stopped from next year onwards, it makes no sense to contract out for a year
3. Returning only contributions made by me subject to taxes and NI, losing all company contributions and any interest that may have accumulated is what I will get if I leave service inside of 2 years.

So there is a regular contributions pot to which the employer and I will add money and additional contributions pot to which i can whenever i have surplus

My question is this
1. The only reason to invest is the 'free' contributions from my employer else this is very similar to a pension I can manage on my own.
2. Makes no sense to put additional contributions in the same basket. Id rather put these in a SIPP so I have 2 sources to rely on incase of any problems later down the line

DV