Company pension scheme questions

Avi_2

Hi guys,

After graduating from university a while back, I joined a large blue chip company and have been here for about 2.5 years. I joined their pension scheme when I first started, after reading Martin’s post on pensions and coming to understand the benefits they bring.

However, it took me some time to get my head around exactly what I was buying with the deductions from my wage packet every month, and I’d like to post some details of the scheme here for some expert analysis from you fine forum-goers. What I’m wondering is essentially whether you think it is a good deal or not.

My pension is based on both a Final Salary and Money Purchase scheme, and consists of two parts.

The first part is called the ‘core pension’, and is linked to my basic salary when I leave the scheme. It builds up at 1% of my final salary for each year that I am a scheme member.

The second part is called the ‘retirement account’, and is a money purchase scheme. Here the company pays 2% of my basic salary each year into a investment account managed by the board of trustees, which can be taken as a lump sum or used with the first part above to contribue to my total pension. I can also make extra voluntary contributions here if I wish.

The scheme costs me 4% of my basic salary per month. At the moment this is around £90.

Because I am so new at understanding pensions, it took me a while to realise that this £90 I invest is not what I get out, silly as that may seem. I now understand how it merely goes into the overall company pension fund.

My company also currently has a large pension deficit. I don’t have the exact numbers to have but can dig them up.

Many thanks for the help,

Neil

atush

the deficit will I think only cover the FS part of your pension. The MP sections hould be ringfenced and funded.

90 isn't what is going into your scheme. If you are a taxpayer, it will be uplifted w.in the scheme by basic rate tax so it will be more than 90, and you may save on NI too. And you may be able to 'direct' the funds in this pension yourself and choose the funds, so have a look at the pension paperwork you have on this or chat to your HR dept.

Avi_2

atush wrote: »

the deficit will I think only cover the FS part of your pension. The MP sections hould be ringfenced and funded.

90 isn't what is going into your scheme. If you are a taxpayer, it will be uplifted w.in the scheme by basic rate tax so it will be more than 90, and you may save on NI too. And you may be able to 'direct' the funds in this pension yourself and choose the funds, so have a look at the pension paperwork you have on this or chat to your HR dept.

Ah right, thank you. And yes I understand that if I was to drop out of the scheme, I wouldn't recieve an extra £90 in my pay packet, as it would be taxed.

I've had a good read through the paperwork and there is a small variety of funds to choose from, managed by Standard Life. There are 13 individual ones and two 'lifestyle' profiles which require less management. I picked one of the lifestyle profiles, which starts off investing in an higher risk index tracker (as I'm fairly young), and as retirement approaches, automatically ramps things down to consecutively safer investment choices.

atush

Higher risk early is the way to go, and I am still foarly higher risk in part of my finances. So have a look at the funds in the lifestyle and see how they performed and if some of the others look more inviting to you.

You can change them every year of you like (or just change them for new contribs and leave the old in the lifestyling). You may even be able to increase your contribs which I recommend, esp if you are already saving in cash and equities outside your pension as well.