How do company pensions work?

King_Mustard

I'm 26 and I've worked for 10-15 companies since I was 16, and many seem to have pensions available. I've never understood what they're about, so I always opt out.

It's about time I spent some time finding out how company pensions work!

I just started a job. Let's assume I opt in to their pension and leave the company after 3 months:

• Is it only worth joining if I work full-time and for many years? Or is it still worth it if I work 1 day per week and leave after a few months?
• What happens to the money after I leave?
• Will I get the money I paid in, as part of my government pension when I retire? I mean: since I paid into a company pension, will I get a bit more money each week when I take out my government pension?

Eellogofusciouhipoppokunu

I've never worked for a company for longer than 4 years, but I have had a pension with every one of them (I've worked for about 7 companies over a 20 year period).

When I left one company I used to transfer the old pension to the next company along. However I now have a Self Invested Personal Pension and when I leave a company I move the company pension into the SIPP and start a new pension with the new company (I have better investment options in my SIPP and can manage my money better).

The SIPP currently has a value of £107k, which does not include the pension I have built up in my current company (worked here for 3.5 years but just about to move on). Very little of that £107k is my money - the bulk is tax rebate and employer contributions.

It's always worth joining a company pension if the employer contributes. Many people see it as turning down 'free' money, but I see it as turning down part of your salary package, albeit a deferred salary.

King_Mustard

Eellogofusciouhipoppokunu wrote: »

I've never worked for a company for longer than 4 years, but I have had a pension with every one of them (I've worked for about 7 companies over a 20 year period).

When I left one company I used to transfer the old pension to the next company along. However I now have a Self Invested Personal Pension and when I leave a company I move the company pension into the SIPP and start a new pension with the new company (I have better investment options in my SIPP and can manage my money better).

The SIPP currently has a value of £107k, which does not include the pension I have built up in my current company (worked here for 3.5 years but just about to move on). Very little of that £107k is my money - the bulk is tax rebate and employer contributions.

It's always worth joining a company pension if the employer contributes. Many people see it as turning down 'free' money, but I see it as turning down part of your salary package, albeit a deferred salary.

Most of that confused the hell out of me.

I'm not a career person - I'll probably continue having 1-6 month jobs.

I'll probably just stick with my state pension. Less complicated for someone like me who moves jobs a lot.

Eellogofusciouhipoppokunu

King_Mustard wrote: »

Most of that confused the hell out of me.

I'm not a career person - I'll probably continue having 1-6 month jobs.

Pensions aren't as difficult to understand as people make out. You just join one with your new company. When you move to a new company you join their pension scheme and apply for your old pension to be transferred to your new pension. Easy peasy.

King_Mustard wrote: »

I'll probably just stick with my state pension. Less complicated for someone like me who moves jobs a lot.

Then you'll probably end up living in poverty in your old age.

King_Mustard

Eellogofusciouhipoppokunu wrote: »

Then you'll probably be living in poverty in your old age.

Well I'll open a savings account next to my current account and put money in there.

Lokolo

King_Mustard wrote: »

Well I'll open a savings account next to my current account and put money in there.

Without tax relief then, you should then be thinking about putting 20% of your net income away for retirement.

Eellogofusciouhipoppokunu

King_Mustard wrote: »

Well I'll open a savings account next to my current account and put money in there.

Good luck with that.

King_Mustard

See, this is all so confusing! So many terms and plans - no wonder young people don't bother.

Lokolo

King_Mustard wrote: »

See, this is all so confusing! So many terms and plans - no wonder young people don't bother.

The basics -

State pension is currently around £5600 a year. If you want more in retirement you need to invest or save.

Pensions are a form of wrapper, inside this you can have many different forms of investment. The same with ISAs. So a pension is like a Chrismtas Prenset, ISA is a Birthday present, both can contain similar (if not exactly the same) investments.

Pensions give you tax relief, so if you are a taxpayer, you deposit £80, it gets topped up to £100. However, you cannot access your pension until 55.

Depending on how much you want to retire with, you will want to put a certain % away for as long as possible.

Companies sometimes match contribution, so if you put in 5%, they will also put in 5%.

You can also have a pension outside of company, such as a SIPP (Self Invested Personal Pension).

You can also make use of your ISA allowance and put money into Cash and Stocks and Shares ISA. However, this money is accessible so if you plan on having it for you retirement then you need a lot of self control.

Russe11

Lokolo wrote: »

The basics -

State pension is currently around £5600 a year. If you want more in retirement you need to invest or save.

Pensions are a form of wrapper, inside this you can have many different forms of investment. The same with ISAs. So a pension is like a Chrismtas Prenset, ISA is a Birthday present, both can contain similar (if not exactly the same) investments.

Pensions give you tax relief, so if you are a taxpayer, you deposit £80, it gets topped up to £100. However, you cannot access your pension until 55.

Depending on how much you want to retire with, you will want to put a certain % away for as long as possible.

Companies sometimes match contribution, so if you put in 5%, they will also put in 5%.

You can also have a pension outside of company, such as a SIPP (Self Invested Personal Pension).

You can also make use of your ISA allowance and put money into Cash and Stocks and Shares ISA. However, this money is accessible so if you plan on having it for you retirement then you need a lot of self control.

what about Housing Benefit, council tax benefit, pension credit, winter fuel allowance, bus pass, social care and so on... £5600 is just the cash element.

realistically you would need to build up a very large pension pot to exceed the means tested elements.. HB, CTB and pension credit. The HB can be ignored should you own a property.

now the govenment guidlines when I was 20 was £300 a month, not 8 years later the advice is £400 a month...

currently I wish I worked for a company that would 5% match.

somethingcorporate

Russe11 wrote: »

what about Housing Benefit, council tax benefit, pension credit, winter fuel allowance, bus pass, social care and so on... £5600 is just the cash element.

realistically you would need to build up a very large pension pot to exceed the means tested elements.. HB, CTB and pension credit. The HB can be ignored should you own a property.

now the govenment guidlines when I was 20 was £300 a month, not 8 years later the advice is £400 a month...

currently I wish I worked for a company that would 5% match.

And what about the enormous deficit that the current government has to cut?

Considering today's benefits for a future that is 40+ years away and planning to live on just the state pension is lunacy.

Pensions are just long term savings and well worth doing and anything is better than nothing.

You enjoy your £5,600 cash a year and I will enjoy my reasonable pension because I have been sensible all my life.