how secure is my pension?

james3333

hi again debt_free_chick
as i mentioned in a previous post...

"mine used to be a final salary, but it changed to a 'salary sacrifice'
and basically, my final pension is based on what i have earned over the years ( like a progressive scale) rather than my final salary.
i contribute to it and so do the company.
i 'sacrifice' some of my pay, basically i take home more, because the company pay it for me and i have reduced NI."

its just really weird that the whole pension issue is such a 'grey area'
i mean if the government want people to start pensions.. THIS IS NOT THE WAY TO GO ABOUT IT
NO INFORMATION IS AVAILABLE, NO 100% GOVERNMENT BACKING INCASE OF LIQUIDATION..
why would i not just whack £250 per month into a 99.9999% secure mini cash ISA

ok i would not get the same return, but at least i know i will have secure savings earing interest all the time.....
at this rate i might end up paying thousands into a scheme and get NOTHING!!!!!!!!!
SHOULD I PULL OUT LOOSING THE 8.7% CONTRIBUTION AND PLAY ITR SAFE WITH A CASH ISA.
the government never ceace to amaze me with stupidity and lack of commitment for honest, hard working people.
instaed they want to make prisons ( they few we have) like holiday camps for 'human rights' for !!!!!!s who rob and kill people.
!!!!!!! labour, they are a joke.
when are a government going to 'reward' hard working, honest people for a bloody change!!!!

Debt_Free_Chick

james3333 wrote:

hi again debt_free_chick
as i mentioned in a previous post...

"mine used to be a final salary, but it changed to a 'salary sacrifice'
and basically, my final pension is based on what i have earned over the years ( like a progressive scale) rather than my final salary.
i contribute to it and so do the company.
i 'sacrifice' some of my pay, basically i take home more, because the company pay it for me and i have reduced NI."

Salary sacrifice is a way of financing pension contributions - it's not a type of pension scheme.

What does the company promise you by way of a pension? A proportion of your salary? Or just that you will build up a retirement fund and use that to buy an annuity?

Can you name your employer so we can look for information for you?

its just really weird that the whole pension issue is such a 'grey area'
i mean if the government want people to start pensions.. THIS IS NOT THE WAY TO GO ABOUT IT
NO INFORMATION IS AVAILABLE, NO 100% GOVERNMENT BACKING INCASE OF LIQUIDATION..

People lose their jobs and customers lose their money if the order hasn't been fulfilled. Why should employees pensions be 100% protected? Are you happy to pay more in tax for this 100% government scheme? Nothing is guaranteed.

why would i not just whack £250 per month into a 99.9999% secure mini cash ISA

Because your employer wouldn't contribute and the total amount being paid into your pension is probably more than the ISA limit.

Cash is not secure. It's value is eroded by inflation. The bank could go bust and you are still not guaranteed to get 100% of your money back. (You only get 100% of the first £2,000 and then 90% of the next £33,000. If you've got £100,000 in there - you're stuffed!).

ok i would not get the same return, but at least i know i will have secure savings earing interest all the time.....
at this rate i might end up paying thousands into a scheme and get NOTHING!!!!!!!!!

Please re-read my posts - there is now less chance of you getting "nothing" than ever before.

SHOULD I PULL OUT LOOSING THE 8.7% CONTRIBUTION AND PLAY ITR SAFE WITH A CASH ISA.

You don't think it's worth risking some of your contribution in order to get the company's contribution? Do you really want to refuse the company's offer to pay 8.7% of your pay into a highly regulated pension scheme?

the government never ceace to amaze me with stupidity and lack of commitment for honest, hard working people.
instaed they want to make prisons ( they few we have) like holiday camps for 'human rights' for !!!!!!s who rob and kill people.
!!!!!!! labour, they are a joke.
when are a government going to 'reward' hard working, honest people for a bloody change!!!!

It's not for the government to reward hard working people - that's down to the employer. Personally, I think we have enough interference and nannying from the government. It's one of the reasons that pension is such a bl00dy mess.

james3333

Debt_Free_Chick wrote:

Can you name your employer so we can look for information for you?

this is where the grey area is.
i work for grattan PLC. but grattan is owned by Otto plc
now otto plc is a MSASIVE world wide multi-Billion pound company but iam unsure wether my pension is under a grattan name/scheme or under the massive otto name?
what ya think?

i say this coz otto could sell us at any time and if no buyer grabs us ( and this is very likely) what happens?

otto website.....
http://www.ottogroup.com/otto_group_welcome.html

EdInvestor

james3333 wrote:

mine used to be a final salary, but it changed.... my final pension is based on what i have earned over the years ( like a progressive scale) rather than my final salary...i contribute to it and so do the company.

Sounds like a "career average" defined benefit scheme to me.This type of pension is arguably safer, because the company has taken steps to make it so.It gives you a lower pension, but you are more likely to be sure that the money is actually there at all times.

With final salary schemes, the company doesn't know what it has to pay you until you either leave or retire and your final salary is clear.So when it puts money away to cover the liability, it has to guess. This is risky: not only might the company's actuaries get it wrong (as they did, big time) , there is a temptation to guess that the amount needed is less than it should be - there are always much better things to do with spare money than put it into pension schemes, you understand...;).

But with the career average type, the company knows exactly how much money you earn each year, so it also knows exactly how much it needs to reserve to cover the liability to provide the bit of your eventual pension that is based on that particular year.

There's no guesswork or opportunity to fudge the issue. So at the end, when you retire or leave there should be money in the kitty to cover the known liability for every year accumulated along the way, to provide the pension based on the average of those years.

It should be a lot safer and more realistic all round.

Debt_Free_Chick

EdInvestor wrote:

But with the career average type, the company knows exactly how much money you earn each year, so it also knows exactly how much it needs to reserve to cover the liability to provide the bit of your eventual pension that is based on that particular year.

But the eventual pension for any particular year is then increased - usually in line with RPI (probably with a ceiling i.e. LPI)

There's no guesswork or opportunity to fudge the issue.

Other than future projections of RPI. What's the betting that projections made two years ago are now "wrong"?

So at the end, when you retire or leave there should be money in the kitty to cover the known liability for every year accumulated along the way, to provide the pension based on the average of those years.

A career average scheme that is only 80% funded is no better than a final salary scheme that is only 80% funded.

All the career average does is to introduce a lower benefit. The ultimate liabilities are still an unknown quantity and they're funded on the same basis as a final salary scheme.

One might argue that the benefit has been lowered - but the "risk" hasn't.

EdInvestor

If you think the inability to predict inflation is likely to cause the end of pensions as we know them, then we might as well all pack up and go home right now.

In fact, defined benefits pensions will die as they have in other countries, because they are too expensive for the companies that provide them, especially in the new low inflation, low interest rate environment, combined with the new (alleged) longevity forecasts.

The main problem with the change is not so much the increase in one type of risk, because it is balanced by a reduction in another type of risk.

Rather it is the major decrease (in most cases) in company contributions to the scheme ,which are usually halved at least.The lesson for employees is to push for the biggest possible employer contribution to the new money purchase scheme as they can.

And then to make sure they learn the basic principles of investment and put them in practice, so as to be able to make sure their pension performs.

james3333

cheers guys, getting it a bit clearer in my head now....
still not 100% safe though... slightly worrying.

cheerfulcat

Nothing is 100% safe! But if you want more security for your retirement plans, have other savings alongside any company pension so that you are not reliant on any one source of income.