Don't understand all this pension stuff

lisa701

Surely I'm not the only person who doesnt understand pensions? I took out a personal pension plan in 1996 because I was advised to start something but was unable to join the company scheme due to being a temporary worker. In 2004 I stopped paying anything into it because my financial circumstances changed for the worse.

Now my employers are talking about auto enrollment and I'm starting to think what would be better for me. I cannot afford to pay into the auto enrollment scheme, or the existing company pension scheme, but I believe the provider of my existing personal plan would allow me to make smaller contributions. Yes I know this isnt ideal but surely something is better than nothing?

I've got lots of questions but don't know who to turn to for advice. There isnt a CAB anywhere near me (they closed a while ago), and I cannot afford to pay an independant financial advisor.

Where else can I turn to for advice?

Lokolo

The first question you need to ask yourself is, do you want to retire?

If the answer is yes, then you need to start contributing. You don't say how old are you but the auto enrolment is quite good because its going to force employers to contribute.

The current rates means if you contribute 1%, the employer will also contribute 1%. Are you saying this is too much for you?

JoeCrystal

Or in the other words. If you contribute to auto-enrollment, you will pay 0.8% net to get 2% in the pension fund. If you decide to opt-out because you believe that it is cheaper to pay into your personal pension scheme instead, you pay in 0.8%, it will become just 1% (or less if you cannot afford 0.8% in the first place).

So you will lose your employer's contribution if you opt-out.

Cheers,
Joe

dunstonh

Now my employers are talking about auto enrollment and I'm starting to think what would be better for me.

Typically, it is a no-brainer. One option has employer contributions and the other does not. Do you want free money or no free money?

but I believe the provider of my existing personal plan would allow me to make smaller contributions.

That could be false economy. Plus, your provider may not allow it once they become aware that you are an opt out. For cases retailed via advisers (which yours may well have been originally), the rules were changed in October last year to include occupational pensions. If you opt out of the works scheme you would be treated as an "opt out" and some providers and most adviser cases will not allow you to join an individual scheme.

surely something is better than nothing?

Not really. Paying peanuts will get you peanuts. How you spend your peanuts is more important.

There isnt a CAB anywhere near me (they closed a while ago), and I cannot afford to pay an independant financial advisor.

The IFA will tell you to join the occupational pension. CAB dont give regulated financial advice and will tell you to use an IFA.

Contribution levels into auto-enrollment are very low. If you cannot afford that then you should take a look at your wider finances as it could indicate a problem with your finances and spending habits.

atush

If you cannot afford to pay 0.8% into a pension, you need to look at slimming down your budget in other areas until you can do. You need a pension, and the best one to go for is one that contains an employers contribution.

lisa701

Firstly, I'm 38 and yes I would like to retire at some point in time. I really have no wish to be working until the day I die.

Auto enrollment sounds like a good idea, but what my employers offer is very poor in comparison to the existing scheme.

Auto enrollment
Employee 3% - Employer 3% this year
Employee 5% - Employer 1% next year and going forward
No life insurance

Existing scheme
Employee 3% - Employer 4%
Life insurance = 3 times annual salary

Keep in mind my partner also needs to start paying into a pension again, depsite cutting back on everything possible for us to be paying out 6% of our income (or more depending on the schemes we go for) is not possible at present.

Now I don't mind putting a few quid away each month until my finances improve, but neither of the offerings from my employers would allow this, but the personal plan I have does allow for smaller payments / lump sum payments. I just don't understand all the wording in the paperwork.

In fact all three options only offer me a maximum of £1000 a year pension which is pretty cr*p. I'm wondering if it would be better to put what I can into a savings account on a regular basis until the day I choose to give up work.

lisa701

atush wrote: »

If you cannot afford to pay 0.8% into a pension, you need to look at slimming down your budget in other areas until you can do. You need a pension, and the best one to go for is one that contains an employers contribution.

My employers will not allow us to pay as little as 0.8% into the auto enrollment scheme they are offering

lisa701

I got a quote from my employers pension scheme company and they said that at 38 years of age I personally would need to pay in a minimum of £400 per month in order to get back around £200 per month pension when I retire.

That might not sound much to some people but remember I have to take into account my partner also paying into a pension scheme. If we both have to pay around the same amount thats basically all his wages just going on payments into pensions.

lisa701

dunstonh wrote: »

Typically, it is a no-brainer. One option has employer contributions and the other does not. Do you want free money or no free money?



That could be false economy. Plus, your provider may not allow it once they become aware that you are an opt out. For cases retailed via advisers (which yours may well have been originally), the rules were changed in October last year to include occupational pensions. If you opt out of the works scheme you would be treated as an "opt out" and some providers and most adviser cases will not allow you to join an individual scheme.

Thanks, I will call them tomorrow and confirm that.

If that is the case, then I will have no other choice but to put my money into a savings account each month as there is no way I can afford to loose 5% of my wages from next year onwards for my employers auto enrollment scheme.

jem16

lisa701 wrote: »

Firstly, I'm 38 and yes I would like to retire at some point in time. I really have no wish to be working until the day I die.

Auto enrollment sounds like a good idea, but what my employers offer is very poor in comparison to the existing scheme.

Auto enrollment
Employee 3% - Employer 3% this year
Employee 5% - Employer 1% next year and going forward
No life insurance

Are you sure you have this correct? I can't see the employer offering 3% this year and then only 1% next year.

Existing scheme
Employee 3% - Employer 4%
Life insurance = 3 times annual salary

You really should be trying to join this scheme. You are effectively throwing away 4% of your salary as well as the valuable Life Assurance. With tax relief that 3% is really only 2.4%.

In fact all three options only offer me a maximum of £1000 a year pension which is pretty cr*p. I'm wondering if it would be better to put what I can into a savings account on a regular basis until the day I choose to give up work.

Where are you getting this maximum of £1000pa from?

As to a savings account instead, it will not even come close.

atush

Why can't you join the current scheme as it is clearly better?

My comment of 0.8% was based on a 1% employee contribution which is the min under NEST I believe. given you didn't tell us any details until after I posted, your comment on my post was premature, and you could of course just multibly it by 3 ie 2.4%

2.4 % is a sum you should be able to afford, and you should cut back on other things until you do.

Investing in a PP and forgoing the free money form your employer is a pretty mad choice.