Hope this is a simple question .....

nearlyretired2004

I've always believed in pensions and they've done alright for me - as some of you may have read in other threads I'm now completely retired from age 55 with three pensions.

I'm trying to advise my son (age 27) who has the opportunity to join a company scheme where if he contrbutes 2.5% gross salary the company will contribute 5% - this will be invested in an AVIVA personal pension.

I realise that my pensions were FS pensions, but for the sort of schemes currently on offer, this would seem to be a no-brainer for me but 'other people' are advising him otherwise ......

Surely he should join the scheme? Anything to look out for in this sort of scheme?

Any input from anyone (especially those FA's out there ....Dunston!...) gratefully received.

stinktankcynic

I would pay 2.5% to get the employers 5%. It's not a final salary scheme though, but it's still money in the pot. A good start.

Spiderham

Does he like free money? His employer is offering to give him an extra 5% of his salary.

I think that really is the best way to present it is that to be honest.

dunstonh

I'm trying to advise my son (age 27) who has the opportunity to join a company scheme where if he contrbutes 2.5% gross salary the company will contribute 5% - this will be invested in an AVIVA personal pension.

FREE MONEY!!!!

Surely he should join the scheme? Anything to look out for in this sort of scheme?

Do you really need to ask? FREE MONEY!!!! (just in case you missed it first time)

Lets say his 2.5% equates to £100pm. Due to tax relief (assuming basic rate) it will only cost him £80. Plus, the employer will contribute 5% which equates to £200. So, for £80pm, he is getting £300pm put into his pension.

What else can you think of that turns £80 into £300 overnight?

FREE MONEY!!!!

nearlyretired2004

As I said it was a no brainer for me but REALLY good to get other opinions to show him ..... any more want to add anything? the fund will be AVIVA balanced managed ......

Also due to quarterly bonuses, he has just crept into the higher rate tax band - this makes it even more attactive if I understand correctly?

jem16

nearlyretired2004 wrote: »

Also due to quarterly bonuses, he has just crept into the higher rate tax band - this makes it even more attactive if I understand correctly?

Yes it does although he will only get the higher rate tax relief on the amount that he's crept into the higher tax band by.

atush

Yes, he should join pronto.

the problem is, if this is his first pension, paying in 7.5% of salary isn't enough- it should be more like 13%. So he should probably pay in more (unless he is saving up for deposit etc).

GhIFA

He's just crept into the higher rate band so he's earning a good salary at 27 years old. I expect he has aspirations to see that salary increase further in the years to come.

The employer is going to give him free money, and he is going to get tax relief.

Tell him to start thinking about the future now - without taking what is on offer now (and reviewing both the performance and the level of contributions he makes over the years) alongside making use of other saving and investment vehicles when circumstances allow, he is going to spend his retirement on a significantly lower income than he has now, let alone what he might aspire to in the future.

kidmugsy

Dear Sir, your son is a chump.

Judwin

Under current pension rules a 2-1 employers contribution is almost free money for a basic rate (20%) tax payer.

He pays £80 from nett salary. The tax man then pays £20 to gross it up to £100. And the employer pays in £200, so the total pension pot becomes £300.

Then when he comes to retire, he can take out 25% of the pot tax free (£75) leaving £225 in the pension to provide income.

So from his £80 contribution he gets £75 back tax free, AND a pension pot of £225. In effect the £225 pension pot will cost him £5.

IMHO tell him to join yesterday.

kidmugsy

A muttonhead, a nitwit, a buffoon ......