Advice/thoughts on pension scheme - new graduate

jamesfisher1989

Hi all,

My situation is that I graduated from University in July last year. I am starting on a graduate training scheme with a company in February. I have now received details of the pension scheme.

It is a salary sacrifice scheme with a minimum salary sacrifice of 5%. The employer makes no contribution. For a large company I think this is pretty poor. Anyway, I can't change that. Do people think it still worth paying into the pension without an employer contribution? Obviously I could make my own investments outside a pension, but is the reduction in tax from salary sacrifice worth more?

The scheme uses funds provided by Friends Life and I can invest in up to ten funds. I was just interested to hear thoughts on how I should split this. As I'm only 23, there are several years to retirement and so obviously ups and downs in performance are more acceptable.

The funds available are here: http://www.friendslife.co.uk/doclib/bpen258c.pdf

I'm not looking for people to say 'do this, do that' etc, just some thoughts on the fund split people would advise. I know the terms 'High Risk' and 'Medium Risk' are somewhat arbitrary but some advice on what others would do would be helpful.

James

jamesfisher1989

....If I don't choose the funds myself, the contributions go into the 'FL Stewardship Managed Fund'

Radiantsoul

If you have any credit card debt from university I would clear that first.

I think those funds all look quite expensive. Play around with a spreadsheet and you will see that charges matter(you pay the annual management charge on the entire balance every year).

The general rules of thumb are 40% bonds/60% share or your age in bonds and the rest in shares.

somethingcorporate

How much will you be earning?

The benefit of paying into a pension is enhanced if you are a higher rate tax-payer although granted it would be unlikely you earn this much straight out of uni.

If they are a large employer in the very near future they should be paying something into a NEST pension for you as part of the Gov's plan to get everyone into a scheme.

taktikback

Yes - I would be asking them how they intend to meet their legal obligation to pay an employer contribution, and will it be into the scheme they have proposed you join.

While you're at it -ask them what they propose to do with the savings they will make on employer NI contributions - will they be paying this into your plan?

You might even inquire as to why a large company such as theirs does not consider the long term financial security of their employees a priority. Perhaps they are aiming to achieve an expensive regular churn of employees - not a very sound approach to business, some might say. Or are they just discriminating against new graduates because they think they are less likely to ask awkward questions about such things.

(I appreciate, you can't really ask the last bit..,)

It's worth doing even with a small company contribution (even if just to shame them into increasing it at some point) - they pay your contribution so you don't pay tax or NI on that portion.

What you should investigate (because I'm not sure of the rules on this) is what impact it could potentially have on your student loan. If you salary sacrifice -that may impact your repayments (in a positive way)

Regarding risk - it depends on how you feel about these things, but you have plenty of time so I would be looking at a spread of equity funds -perhaps 60% spread across medium risk zonal growth funds - such as "European" and "North American" and say 30% in higher risk growth areas such as Far East, and the remaining 10% in a speculative fund such as special situations. Yes charges do matter - look at those, but look at the historical performance of the funds. No point in having low charges and terrible growth.

You have the flexibility to change things around if your circumstances change - if you can't take a risk at 23, when can you...

jamesfisher1989

I will earn £21k. Commission is uncapped so in theory I could earn enough for 40% tax, although it's probably unlikely in the first year. Any commission I do earn I'll try and put a bit into the pension.

So under the new pension rules employers will have to make a contribution to your pension? I thought it meant they simply had to make one available. Good news if so.

Interesting point about student loans, I suppose my repayments will go down. They were easily affordable without salary sacrifice anyway.

I've heard about other employers paying in NI savings into your pension but as this isn't mentioned anywhere in the literature I have to assume they're pocketing the savings...

So, my plan is as follows.
-Sacrifice 8% of my salary into the pension. If the employer starts making contributions, review my payments, aiming for about 12% of total salary being paid in.

The funds I was considering are as follows:

-First State Asia Pacific Leaders
-First State Global Emerging Markets Leaders

-FL Kames High Yield Bond
-FL Baillie Gifford Managed
-FL Baillie Gifford North American Equity
-FL BNY Mellon Long Term Global Equity
-Blackrock Market Advantage Strategy

Thoughts on this? I'm a complete novice at this, but have tried to keep a balance between equities/bonds and also geographically. Would appreciate anyone's comments.

doughnutmachine

tbh the tax advantages of a pension for a basic tax payer are still ok. contribute 2880 and the government rounds that up to 3600... i'd prob get a sipp though and forget about the company pension if there are no employer contributions.

best go to the library and get some books on investment

atush

I agree a pension is a good idea, but Iw ould ask your employers when tey will be making their contributon (as they will have to do soon).

I do agree, you should pay off any non Student loan debt first, and save an emergency pot alongside your contributions to pension.

I am very surprised any company hiring graduates like you aren't paying in. My son also graduated in july, and has a graduate job starting over 26K and gets 6% employers contributions. I thought all the big companies were doing so.

Good luck.

xylophone

http://www.icaew.com/en/technical/business-and-financial-management/pensions/workplace-pensions-reforms-auto-enrolment-and-compulsory-employer-contributions
http://www.nowpensions.com/compulsory-pensions/ When must your company comply?

jamesfisher1989

I think the savings in NI make this worth it over a SIPP. Also get life assurance and critical illness cover.

Only debt is an interest free overdraft which will remain so for a while and which I could pay off at any time.

Will try and save around 300 a month also. Have applied for a First Direct current account and if successful will use their 8% regular saver.

When I say big, they're not FTSE 100 big and are not a household name for most but have over 3000 employees worldwide. So I expected them to contribute something, especially as in their marketing spiel they talk about every employee being part of a 'family.' Haha.

jamesfisher1989

Well there's 3000 employees worldwide, I'm not sure about the UK figure. Should be sometime in mid to late 2013 by those tables. Although the company is split across 4 different businesses, I think these count as individual companies in their own right. I assume they'll use the total figure across all 4 divisions to work out the dates though?