Pension question

samandmillie

I have the option of joining my work final salary pension scheme. I have around 35yrs to work before I can retire and no pension currently. I can pay either 6 or 8% of my gross pay. 8% is for 1/60th and 6% for 1/80th. It is paid through smart pensions and with tax relief. My employer will contribute 10.3%. Firstly is this a good scheme? What happens to pensions if you leave the company? Many thanks

R_P_W

yes join it asap!

redfox

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redbuzzard

samandmillie wrote: »

I have the option of joining my work final salary pension scheme. I have around 35yrs to work before I can retire and no pension currently. I can pay either 6 or 8% of my gross pay. 8% is for 1/60th and 6% for 1/80th. It is paid through smart pensions and with tax relief. My employer will contribute 10.3%. Firstly is this a good scheme? What happens to pensions if you leave the company? Many thanks

Yes, it's a good scheme.

You will earn annual pension entitlement every year you work of 1/60 or 1/80 of your qualifying final salary (there are various ways of working this out, it isn't usually just the last year worked).

If you leave, the pension you have earned ('accrued') will be deferred until the scheme's normal retirement age. The deferred pension will be revalued annually by some formula in the rules - for example, the lower of RPI or 5%. So in real terms, it should mostly keep up with inflation.

You can if you wish, should you you cease to be an active member before retirement, take a cash transfer to another scheme such as a personal pension or a SIPP. In general this would be a bad idea. I have made a couple of such bad decisions, decades ago, when it was commonly thought to be a good thing - the main reason I have reasonable pension prospects now is because I have deferred final salary/defined benefit pensions from my last two employments.

Join as soon as you can, and don't ever transfer it without fully understanding what you are doing - in today's conditions, it's hard to imagine it would ever be a good idea.

The beauty of a final salary scheme is that what you will be entitled you is "defined", and guaranteed by the employer; even if the contributions you and the company are making now turn out to be insufficient to provide the benefits. That is why final salary (and other types of defined benefit schemes) are now hard to find outside of some blue chip companies and the public sector.

samandmillie

Many thanks for the replies. Does anyone know if there's a simple calculator I could use to work out what my take home pay would be per month once I've paid into the scheme? Thanks again

Jack_Griffin

That is a top scheme, there are so very few final salary schemes left, get in it without delay & the 1/60th option is the best in my opinion.. if you stick it long term then you'll end up on 35/60th of whatever your salary becomes (though I suspect there will be some averaging over a few years) plus the £145pw pension.. (indexed up)

Anyway, I personally missed out on good schemes in my 20s/30s and now at 57 I'm regretting it now as I've had to put a huge percentage of income into a personal fund which is such poor value in comparison to the scheme you are able to join, don't make the same mistakes I did.

Jack_Griffin

Does this fit the bill?

http://www.listentotaxman.com/

redbuzzard

It'll reduce your take home pay by the 6% or 8%, less your marginal rate of tax and NI. The exact figure will depend on your wage. If you earn under £40,000 then the 8% contribution will reduce you take home pay by about 5.5% of your gross wage.

For every net £1 it costs you, about £3.30 will go into your pension. And your defined benefit will be worth more than you could expect to buy for that too. That's why it's a good deal.

E&OE. I don't have a calculator or the current NI limits at hand. Your employer should be able to tell you.

samandmillie

Thanks for the additional replies. I am also in the childcare voucher scheme and have the max £243 deducted from my wage each month. Would my pension contribution be worked out on my salary before the childcare voucher is deducted? Also, my employer would put in 10%, I guess that's per year and not month?? Thanks

jem16

samandmillie wrote: »

Would my pension contribution be worked out on my salary before the childcare voucher is deducted?

It would be worked out on your gross salary so yes.

Also, my employer would put in 10%, I guess that's per year and not month?? Thanks

10% per month and 10% per year adds up to the same thing. However it doesn't matter what your employer pays in with a final salary scheme. The benefit is worked out on your number of years service and your final salary.

kidmugsy

jem16 wrote: »

However it doesn't matter what your employer pays in with a final salary scheme. The benefit is worked out on your number of years service and your final salary.

jem's right: your employer quoting what it pays is just a reminder from the employer that it has to pay a lot; perhaps it hopes that having a figure to quote will help recruitment and retention.