Workplace Pension Confusion

MissSea

Hi,

I'm a little confused by workplace pensions - and since auto-enrolment is beginning soon for me, I thought it's the right time to start thinking about whether to join my workplace pension scheme.

I'm 22 and work for The Co-op Group, so what they've got on offer seems pretty good (pensions.coop if anyone can help decipher).. I don't fully understand the pension promises, and just know that my Dad who has a private pension has lost so much money that it seems crazy to join a pension scheme.

I don't know whether to start putting money into a cash ISA that I'll label 'my pension fund', or join the complete pension scheme my work offer - I put in 8%, they put in 16%. Ultimately though, can anyone help me understand whether workplace pension schemes are worth it? On the face of things they look brilliant, but am I risking my hard earned cash by paying into one of these instead of an ISA?

Help!!

mania112

MissSea wrote: »

they put in 16%

That's why pensions are the best way to save for retirement.

Pretty simple really, free money.

I highly doubt your dad really did lose loads of money. I'd be interested to hear how he managed that.

ISA's are the next best thing after Pensions, so if you can afford to do both, then that's ideal.

mulronie

MissSea wrote: »

I don't know whether to start putting money into a cash ISA that I'll label 'my pension fund', or join the complete pension scheme my work offer - I put in 8%, they put in 16%.

That employer contribution is fantastic - every £1 you put in turns into £3 in the pension fund thanks to free money from your employer. It will be a very cold day in hell before you find another investment product that gives you an immediate 200% return! Do you think it makes sense to turn it down?

Not to mention, of course, that every £1 you contribute will actually only cost you ~£0.70 in takehome pay, as it is paid from your gross income, thus avoiding income tax and National Insurance.

sandsy

Honestly, you HAVE to join the pension scheme. Your employer contribution is too generous to even think about turning down. Why take an effective 16% paycut when you don't have to?!

Investments inside a pension go up and down in value in line with the stock markets. Over the long term, they are generally expected to give a positive return. And there are ways to lock in that return as you get nearer retirement with the options available within most pension schemes.

A cash ISA won't give anything like the same return. A stocks and shares ISA will perform exactly the same as a pension - but without the added contribution from your employer.

You have a wonderful opportunity - seize it with both hands!

dunstonh

just know that my Dad who has a private pension has lost so much money that it seems crazy to join a pension scheme.

How has your Dad lost so much money? There isnt any conventional investments out there which should have lost so much money. Even if he put a single amount in at the peak of the markets prior to credit crunch/global recession he should be in surplus. So, if he is losing money, then its not the pension that is at fault but his choice of investments.

I don't know whether to start putting money into a cash ISA that I'll label 'my pension fund', or join the complete pension scheme my work offer - I put in 8%, they put in 16%.

A total no brainer of a decision. Pension walks all over the cash ISA.

Lets say your 8% contribution is £100pm. Co-op put in £200pm on top of that. You pay less tax as pensions get tax relief. So, your net contribution is only £80.

So, for £80pm you immediately get £300 put in your pension. If you went with Cash ISA, you would only have £80.

If we multiply that over 46 years then your cash ISA at 5% p.a. would have £166,289 in it. The pension on the same basis would have £623,585.

I suspect your dad hasnt lost money or he has made his own bad investment decisions and is blaming the pension. A pension is just a container for investments of your choice.

Southend1

8% contribution rate sounds like the "pace complete" scheme? This is a 1/60th DB scheme. You can't lose money. If the scheme investments lose money the employer makes up the difference. You'd be mad (or stupid) not to join.

bigadaj

You ideally want both, your emergency cash fund can be held ina cash isa as well as contributing to the pension, might be difficult if your salary is low though.

In relation to your fathers pension then older personal pensions could have had very high charges and not very good returns, things have changed somewhat in the last few decades and it always pays to keep an eye on investments and change them if there ate better options out there.

MissSea

Thanks for all your help, all the explaining has really helped me get my head around it. We had a pensions talk but it was all a bit overwhelming really, plus I always worry that companies aren't telling the truth when they want you to do something.

But if my money will definitely be safe and invested, then I will go for it. And don't worry, I'm also burrowing cash away into an ISA.

And my dad took out a private pension that was 'sold' (verbally..) to him nigh on 30 years ago that he's paid a lot of money in to and he was promised this would result in a good pay out in his OAP years. As of recent years, they've basically told him he's getting nothing back with their 'recalculations' - he's furious he joined a private pension now though. It's the same with my boyfriend's dad, he isn't getting back what he was promised from his private pension after about 40 years of paying in, so I was worried about pensions in general.

jem16

MissSea wrote: »

Thanks for all your help, all the explaining has really helped me get my head around it. We had a pensions talk but it was all a bit overwhelming really, plus I always worry that companies aren't telling the truth when they want you to do something.

Perhaps read up on it? Is this the scheme?

https://www.pensions.coop/your-pension-scheme/pace-complete

And my dad took out a private pension that was 'sold' (verbally..) to him nigh on 30 years ago that he's paid a lot of money in to and he was promised this would result in a good pay out in his OAP years. As of recent years, they've basically told him he's getting nothing back with their 'recalculations' - he's furious he joined a private pension now though.

That wouldn't make any sense at all. How much is the pension pot?

It's the same with my boyfriend's dad, he isn't getting back what he was promised from his private pension after about 40 years of paying in, so I was worried about pensions in general.

Nothing was promised. All that he would have got were projections. Again though how much was paid in and how much is he getting?

atush

We have 4 pensions, some of them many decades old. NONE are worth less than they paid in, all are worth more. Most substantially more by many times.

I am sorry to say, your Father and OH father dont know what they are talking about I am afraid.

they got 'projections' not promises. And the projections given might have been somewhat reasonable if conditions had remained the same. but they didn't.

xylophone

As of recent years, they've basically told him he's getting nothing back with their 'recalculations'

This is very hard to believe - what kind of pension did/does he have and with whom? How much has he paid in? What is the current value?