Buying added years on final salary pension - how to know if it's a good deal?

bitsandpieces

I'm in a 1/80 final salary employer's pension scheme at the moment, but because my career has been a bit disrupted I don't have as many years' contributions as I might. I can now afford to put some extra money into a pension. I asked about making extra contributions to my employer's scheme - it looks like 15% of my gross salary will get me about 13 years of extra contributions over the next 40 years of my working life (by which time I'll likely be about ready to retire ).

Obviously, I've got the option of making AVCs through a private scheme, too. I've no idea how to judge how this compares to paying into my employer's scheme, though - any idea of what type of questions I should be asking?

longleggedhair

One key difference is you can guarantee what level of income (in todays prices) you can get by paying into your employers scheme, however the AVC's will provide no guatantee and will be dependant on investment returns. If I were you I would pay for extra years into your employers scheme.

bitsandpieces

Thanks - it's definitely a plus that paying into the company pension scheme is a lower risk option. Any idea how to judge the value of this against AVCs elsewhere, though?

atush

I agree that I would pay for extra years as the income is guaranteed and usually indexed linked.

bitsandpieces

Thanks - I know that the company pension scheme is lower risk, but I'm struggling to see if there's a way to weigh up the value against a higher risk place for my pension money.

longleggedhair

Its difficult to weigh up without seeing the figures, but with an avc you are betting on the returns of the stock market over the next 40 years and what annuity rates will be then hich is virtuallyy impossible to estimate.

The plus with you employers pension is you will know what you are paying in, what the added pension is and also that you have an inflation linker. Its possible you could do alot better with an AVC but you could also do alot worse.

bitsandpieces

Yes, it is hard to weigh up these things. Of course, it's not certain how much my salary will rise by over time, either, though hopefully this is a slightly more reliable bet than stock market performance.

dlorde

Having managed to retire on part FS pension and part AVC invested pension, if I could have bought extra years in the FS pension, instead of paying AVCs, I would have; it's guaranteed future income. The markets and annuity rates are unpredictable and out of your control, whereas at least your salary is a little less so; and it's unlikely to drop significantly, which gives you a basis for conservative estimates of pension income.