Pension or shares?

marathonic

Yeah, transfers would be the main issue and it looks like they may not be allowed.

If this is the case, picture leaving the scheme with 30 years left to retirement with £160,000 in this scheme paying 2.5% or £50,000 in a private scheme paying 7% (the £50,000 is entirely personal contributions but an extra £110,000 is the employer contributions in this scheme).

The £160,000 would grow to £335,610.

The £50,000 would grow to £380,612.


The op is only 25 so lets see the figures with an increase in time to retirement to 40 years:

The £160,000 would grow to £429,610
The £50,000 would grow to £748,722

It looks to me like the scheme is best suited to those who intend to remain with Morrisons until at least 25 years before drawing benefits, i.e. if you can draw benefits at 67 and you intend to leave Morrisons before the age of 42, you're probably better investing elsewhere.


Note: In reality, you're likely to leave the company with more than 5/11ths of the possible total in a personal pension as you are likely to have attained higher growth rates

grey_gym_sock

i think the logic is that, if you are currently (say) 40 years from being able to draw this pension (age 27), and you do intend to stay with morrisons until you're (say) 10 years away from it (age 57), you should still make your own pension provision now.

but when you get older, you should opt into it. marathonic suggested at 25 years from drawing benefits (age 42). i was going to suggest at 20 years from drawing benefits (age 47).

this is assuming you can opt out and later in again. and that other details are as describe in this thread.

taktikback

yes -I just read the scheme details. I'm astounded that a company would waste an 11% contribution on such a poor scheme. The answer is that the payout is a known quantity for them (with a CPI hedge..) and their "guarantee" won't cost them anywhere near 11% even with the most inept investment performance.

What I cannot fathom is why they just don't contribute the 11% to a DC scheme and leave the investment risk to their employees. Perhaps they paid silly money to consultant who recommended the present scheme on the basis that most of their punters would be totally risk adverse (and stupid). Corporate stupidity is the bigger crime...

jamesd

andy013 wrote: »

Unfortunately no. I emailed Morrsisons about this very thing a few days ago but I am yet to hear back. Perhaps I will phone them if they don't respond soon. It does say in the information provided that you can transfer out after 3 months in the scheme. I'm not sure of the T&Cs though.

Please do let us know, and whether you get the full 16% if you transfer out or not. If you can't transfer out almost the full value, it's one of the very few work pension schemes where those who are far from retirement age are better off not joining a workplace pension scheme.

What you should do depends greatly on that.

You're relatively young, so what other plans do you have that might need the money? Maybe a home deposit? If so, it might be better for you to delay the pension for a while.

atush

I have another thought.

another reason to opt into this scheme, is if you Don't opt into any scheme incl ISAs or PP with your contribs.
Many who turn down the employers scheme dont invest anywhere and just spend.

2.5% with 11% employers boost is worth more than not saving anything at all in anyone's money

jamesd

Yes, it's more than nothing but a simple global tracker fund inside an ISA would be way better for a 25 year old if most of the value can't be transferred out into a more decent pension scheme.

andy013

Just something I noticed when looking at some of the SIPP providers. Many of them seem to have a minimum amount you can transfer from another pension (e.g. £5000) which might even make the transferring not worth it, since by the time £5000 has built up several years will have passed and interest lost.

jamesd

It's OK to take that loss for a few years. Still leaves plenty of time to get ahead. The employer part covers a fair bit of that, just that after a while it can't keep up with better investments.

kidmugsy

andy013 wrote: »

"You contribute 5% of your pensionable pay and every year you build up a guaranteed pension of 1.5% of your pensionable pay. This is adjusted each year in line with inflation. "

I'm not exactly sure what that means. Why would getting just 1.5% be good if I contributed 5% ?

Why? Because for 5% of your pay you get an entitlement to 1.5% of that pay as pension PER ANNUM. Suppose you survive for 20 years in retirement. 20 x 1.5 = 30. 30 is much, much bigger than 5.

andy013

kidmugsy wrote: »

Why? Because for 5% of your pay you get an entitlement to 1.5% of that pay as pension PER ANNUM. Suppose you survive for 20 years in retirement. 20 x 1.5 = 30. 30 is much, much bigger than 5.

Oh, is that what it means? I didn't get that from "every year you build up 1.5%". It doesn't sound like it's talking about after you retire.