Goodbye public sector pension. What now?

Cautiousiscool

Hi - I'm new to the Money Saviing Forum and I'd be really grateful for some advice. I'm 41, I've just taken voluntary redundancy and so I shall not be able to continue contributing to the fabulous public sector pension that I paid into for 16 years. My understanding is that that will simply sit dormant until I'm 65 and then I'll get my rather small pension from it. I have two questions though... 1) I was also paying into a related AVC for about 7 years. What happens to that? What are my options and is it worth keeping this dormant until I'm 65 too or would I be better off cashing it in if that's an option? 2) What do I do about continuing to save for my retirement now? Do I need some sort of stakeholder pension? Pensions are a bit of a mystery to me, as you can probably tell. Any advice MUCH appreciated.

Just_Some_Guy

The defined benefit pension will just sit there (growing with inflation) until you retire. Don't touch this unless you really know what you are doing. Inflation could quite easily double the amount you'd get.

Your AVC money will be locked away until retirement. You can move it around pension schemes as you please but you can't cash it in until you retire.

For your future pension saving you will need a stakeholder pension or one of the alternatives (e.g. a self invested personal pension). Some people use stocks and shares ISAs. There are a myriad of providers each offering something slightly different but what differentiates them is the choice of investment funds offered, the ease of making contributions and changing investments, and the fee structure. Spend some time reading the guides on this site and elsewhere on the internet to get a feel for everything. It could be the case that your current AVC provider gives you the best deal (often they get lower investment charges) and they may let you continue to pay into it.

Once you have found a pension product you like, or maybe some combination of things that suit your needs, then you start paying money in to it, maybe transferring your AVC pot into it to get the ball rolling if the AVC doesn't look like such a good deal. When you get to retire you can either cash the whole thing out, taking 25% as a tax free lump sum and buying an annuity with the remaining 75%, or go into income drawdown, or some combination thereof. The DB pension you have will mess with the calculations a little but you can sort that out in 24 years.

Generic investment advice usually looks like: stick half your age as a percentage of gross salary into it (so 20.5% in your case). This includes any employer contributions you would get and is on a par with the overall funding cost for defined benefit schemes. When you start investing for the future you want to be in all sorts of investments, gradually shifting to less volatile products as you get closer to retirement. Also, taking investment advice off internet forums is risky, go see an IFA if you're unsure about anything!

Cautiousiscool

So, I guess I just need to find out now a) whether its possible to continue contributing to my AVC and b) whether that would be better than starting a new stakeholder pension.

Thanks for the advice :-)