Contributing to company pension or savings account?

dunstonh

I think the most I can contribute is 5% and my employer will match this. Is this on top of the existing % they are currently paying (without my contribution)?

You should always aim to get the maximum "free money" from the employer. Nothing else will come close to matching free money.

This will work out to be £100 pm from my salary and I think that isn't too much if I think about the long term benefits.

As a basic rate taxpayer then net effect is actually £80.

I think my pension is currently in equities, is my money safe?

safe in what context?

investments are more volatile than cash but investing isnt risk on or risk off. Its a sliding scale. Plus, that is just investment risk. You also have shortfall risk and inflation risk. Indeed, cash savings can actually be more risky over the long term than equities.

Would there be a chance that in 40 years time my pension would drop alot in value and I would lose all that I had contributed?

If that happened it wouldnt matter. The world would be plunged back into the dark ages in that scenario.

investments zig zag. Its what they do. Short term volatility can actually be a very good thing for long term investing. Its just very bad for short term investing. So, as you get closer to retirement you reduce the risk of your investments.

This is what I'm really worried about as at least if I had saved it into a savings account, I won't have lost any of my money.

A savings account would probably lose more than equities in real terms.

Can anyone clarify? Is this what happened to the private pensions during the last recession?

Forget "pension". Pensions dont make or lose money. The investments within them do that.

In the last recession, equities fell in value. Although they have since increased. If you had a balanced investment spread of equities, fixed interest securities and property then chances are that even if you invested at the highest point prior to the recession, you would now be back in surplus and have a better return than you would have if you had stuck in cash savings (and thats ignoring the free money from the employer).

bigfreddiel

Dave101t wrote: »

im 28 and have been mulling over pensions for the last few years. not in company one.
the benefit is its not taxed when taken from wages, so your income tax will be reduced.

i have savings and a mortgage free house so im not bothering with a private pension, dont forget the government is setting up a 2nd 'universal' company pension scheme which will be automatic, in the next year or so which will act as a company pension itsself.

when i was 28 i felt exactly the same - and did the same - i'm 60 next week - i have £400k approx in isas ilscs ec , mortgage free, married - wife's pension £9k - my pension when I take it is £11k (plus a sp of £7k in 5 yrs time) (civil servant so i can retire any time after 60 - remember there is no retirement age any more - not to be confused with state pension age) - that all sounds quite good but in reality i wish i had paid more into a pension - pp or sipp - i tell you something -its only when you get to within the final few years of working that your mind focuses on retirement and the implecations

so pay into a pension now - don't stop - pay what you can and more = happy retirement -may even be early!


fj

hunsbury0

My company pension is worked out on 1/60th scheme. i.e. if I work for them for 20 years & my pay was £21k p.a., they would pay

20/60 x 21k = £7k p.a. which I can draw from the age of 60, but when I get to 65 they will deduct £5k from this, as that is what I will get from state pension at 65.

I personally would like to retire at 60 & I will have 18 yrs service which will provide me with 30% of my pay.
I have to pay 6%, but it was 4% I when joined the scheme. The company puts in the rest to pay out as per the above formula.
If they cannot sustain it, then they have a right for increased contributions from us.
It is a final salary scheme, but at the moment it does not mean much, as we do not get decent pay rises, but the company pension will be linked to rpi. I am 55 at the moment. I would like to retire at 60 & get a part time job to survive. I should also get about £4K pa. at 65 from another pension. Hopefully I should be mortgage free & down size to reduce council tax & energy consumption.

somethingcorporate

hunsbury0 wrote: »

20/60 x 21k = £14k p.a.

:S 20/60 * 21k = £7k p.a.

hunsbury0

somethingcorporate wrote: »

:S 20/60 * 21k = £7k p.a.

Sorry for the mistake in the calculations!!!!
now corrected.
14K was a bit optimistic !!!!!

Reaper

tashalove wrote: »

I think my pension is currently in equities, is my money safe? Would there be a chance that in 40 years time my pension would drop alot in value and I would lose all that I had contributed?

As has been said previously you don't have to lose much sleep over this. Over a 40 year period you ought to get some good growth. Just realise that there will be a number of stock market crashes along the way - that's normal.

What you can usually opt to do is start to move the money into safer areas as your retirement date approaches. It won't grow so well from that point onwards but it avoids the possibility that one of those crashes occurs just when you were about to take the money out. No need to worry about that for decades yet though.

theoretica

If half the money that went into your pension is 'free money' from your employer then the investments in your pension would have to slump by more than half before it is 'your' money that is being lost.

Reaper

theoretica wrote: »

If half the money that went into your pension is 'free money' from your employer then the investments in your pension would have to slump by more than half before it is 'your' money that is being lost.

They will be getting tax relief so boosting whatever they put in by another 20% compared to putting it in a savings account, on top of the 100% added by the company.