Which company pension - DB, Saver or 10% cash?

jay_girlsgirlsgirls

Hello,

We are having some changes to our companies pension, and we have to make choices between which pension we'd like.

Choices are:
- 1/80th accrual DB (costing 9% employee contribution)
- 1/60th accrual DB (5% employee con.)
- Defined Contribution plan (Pension Saver - company pays 10% of salary in)

What do you think? I earn around £36k, and am mid 20's... so I think the accrual could be good, as if I opt for that then I can de-grade later. The catch is if I switch from the DB, I cannot go back!

Thanks,
Jay

jem16

jay_girlsgirlsgirls wrote: »

Hello,

We are having some changes to our companies pension, and we have to make choices between which pension we'd like.

Choices are:
- 1/80th accrual DB (costing 9% employee contribution)
- 1/60th accrual DB (5% employee con.)

Is that round the correct way? You are paying less for a better accrual rate?

- Defined Contribution plan (Pension Saver - company pays 10% of salary in)

What do you think? I earn around £36k, and am mid 20's... so I think the accrual could be good, as if I opt for that then I can de-grade later. The catch is if I switch from the DB, I cannot go back!

Thanks,
Jay

I would always choose a defined benefit scheme as there is no investment risk to you.

real1314

Assuming the contributions have been reversed:-

1/80th for 5%
1/60th for 9%

£20K Salary; 45 Years.

1/80th:
Contributions 5% x £20k x 45 = £45k
Pension = 45/80th x £20k = £11,250

Each £1 of contribution gives £0.25p of pension per year.
After 4 years of pension, you would have gained back everything paid.
After 10 years (75?) you have received £67.5k more than paid in.
After 20 years you have received £180k more than paid in.


1/60th
Contributions 9% x £20k x 45 = £81k
Pension = 45/60th x £20k = £15,000

Each £1 of contribution gives £0.1852p of pension per year.

On the basis of pension per year, you might think it's a worse deal; but...

After 4 years you would have paid in (£20k) more than you got out...
After 10 years you would receive £69k more than you paid in (£1.5k more than the 1/80th)
After 20 years you would receive £219k more than you paid in.

What do you think your life expectancy will be? In both cases after 10 years you are getting more than you paid.

This all ignores the time value of money, and treats inflation as 0%.

One key issue you haven't disclosed is the basis of the defined benefit - is it career average, final salary or something else?

:cool:

somethingcorporate

It's a no brainer - grab the 60ths scheme before it disappears!

atush

I agree, the 1/60ths is better than the 1/80ths.

StephenM_2

I'm pretty certain you work for the same company as me. I started this thread on this subject back in May.

https://forums.moneysavingexpert.com/discussion/3241872

I chose the 1/60th scheme. Note that the 1/60th scheme will be 7% in 2012, and 9% in 2013. Note also that if you choose the 1/80th you can't ever go back to 1/60th.