Pension advice

lb1993

Hi im 19 and currently have an apprenticeship in engineering.. My company has a scheme in which they also pay in if i pay 5% of my wage . is it wise to join the scheme even if I dont know how long im going to be at the compny?

CLAPTON

basically yes

they are giving you 'free' money; how much do they pay?

in addition, you save tax on your 5% so your take home will on change by 4%

even if you change companies you can either kept it where it is a build up several pensions or transfer it to another pension scheme (depends on knowing the full details)

dtsazza

I agree with Clapton - it's generally "free money", assuming that you're planning on saving for retirement at all.

The only times it might not be worth going for a company pension, are situations where the scheme is poor quality (i.e. high charges) and doesn't allow transfers out (or involves penalties such as the company reclaiming its contribution). If you keep your money in a high-fee pension for many decades, you could end up being worse off even taking the company's contribution into account.

But these are rare (and possibly even not allowed these days?). In general, the immediate 100% boost you get from the company will more than make up for any weaknesses in their chosen scheme. And when you change companies (or perhaps periodically if you stay with them for a long time) you can transfer the pension pot to somewhere more favourable.

dunstonh

My company has a scheme in which they also pay in if i pay 5% of my wage . is it wise to join the scheme even if I dont know how long im going to be at the compny?

What you are asking is should you accept the free money or turn it down.

Many people that say they will only be with company for a short period end up begin there few years or even their whole working life. Even if you do only manage a short period, you just take the pension with you (either by leaving it in the existing pension or transferring it to your new one or another). You keep the free money you were given.

at 19, 5% matched contribution for working life would set you up in retirement.

martinsurrey

dunstonh wrote: »

at 19, 5% matched contribution for working life would set you up in retirement.

While I agree that I would grab the free money with both hands I wouldn’t be too optimistic.

I'm in a good company defined contribution scheme, fees paid by company and for my 5% they put in 7.5%, and my forecast is for just under 1/3 of my current pensionable salary (with 40 years+ of contributions by then).

While getting started early is great, and should be done by everyone, even 10% for a whole working life in most cases will not end with a generous pension.

atush

Join the pension, it is free money and your contributions will have many decades to grow before retirement.

A wise move at 19, good going.

dtsazza

martinsurrey wrote: »

I'm in a good company defined contribution scheme, fees paid by company and for my 5% they put in 7.5%, and my forecast is for just under 1/3 of my current pensionable salary (with 40 years+ of contributions by then).

While getting started early is great, and should be done by everyone, even 10% for a whole working life in most cases will not end with a generous pension.

Your situation only seems likely if you've recently taken a large salary increase (so your previous contributions were much less than 1%).

Let's take the 10% example, and ignore salary changes for now - let's say you earn £100 a year forever, to keep the maths simple. If you put £10 away every year, and the money grows at 2% above inflation, then you'll have £7344 after 40 years. That's 73 times your salary, so even with today's terrible annuity rates you should be able to easily get two to three times that £100 salary as an annuity. (And since the growth was inflation adjusted, these figures are as well.)

That's with a fairly modest estimate of returns as well. Even though someone's salary will (hopefully) increase faster than inflation throughout their working life, there's a lot of slack in that figure. If they increase their contributions to maintain that 10% ratio, I think it's exceptionally unlikely that they wouldn't be able to match their salary when they retired.


In your particular case, it sounds like you say you were contributing 12.5% for 40+ years? If so, and you don't mind sharing, what has the investment performance been like? As in, how much has been paid in in total, and what is the pot worth now?