Where can I learn more about pensions?

Calfuray

Hello,

I'm graduating in June this year, aged 24. I have a graduate job lined up already, and have received a few details: they operate a Group Personal Pension Plan and will pay a base % of salary, 5% in this case. I know this is a type of defined contribution scheme, but that's about all I know.

I've read the MSE pension guide as well all of Marine_life's thread on here, but still think I have a lot to learn. I get confused by the terminology, and especially the numbers in ML's thread and how they get calculated. Does anybody have any good resources I could read up on?

Also, somebody said to me I should deposit the minimum possible into the work scheme and set up a personal pension and keep the fees low as the GPPP might not be the best option, does this sound fair?

Finally, I already have an emergency fund of cash saved up, and I've started investing into a S&S ISA.
Early retirement sounds nice but first I would just like the make sure I have enough provisions in place for normal retirement!

Thanks,
Cal

gadgetmind

A few questions (sorry!) -

Does the company match that 5%? Might they match if you pay more?
Can you pay that 5% by salary sacrifice?
Which pension company is the GPP with, what are fees like, and what are your investment choices?

These questions are critical to check the bumf for info or speak to someone knowledgeable, and not just a random mate.

Calfuray

gadgetmind wrote: »

A few questions (sorry!) -

Does the company match that 5%? Might they match if you pay more?
Can you pay that 5% by salary sacrifice?
Which pension company is the GPP with, what are fees like, and what are your investment choices?

These questions are critical to check the bumf for info or speak to someone knowledgeable, and not just a random mate.

No need to be sorry!

Unfortunately I've yet to receive my contract nevermind pension information, though I have asked.

The 5% is fixed, that is what they contribute, no matching to what I pay in. They don't offer salary sacrifice unfortunately.

As to the last three, I'm not sure the pension company, fees or investment choices! I'm not sure what the best investment choices would be, hoping to get myself into a position where I have enough knowledge to know how to proceed. I can't join the pension until I've been with them for 3 months also.

gadgetmind

5% from employer without needing any contribution from you is odd, but these things come in many flavours.

See what you can find out and report back. You really can't say "GPP bad, PP/SIPP good" as it really is all down to the details.

kidmugsy

Calfuray wrote: »

The 5% is fixed, that is what they contribute, no matching to what I pay in. They don't offer salary sacrifice unfortunately.

So it's a 5% pay boost that you will be able to realise when you are 57 ... or 60 ... or whatever. Yippee!

The lack of salary sacrifice means (to me) that making pension contributions yourself, as a newstart aged 24, is unlikely to be wise. You'd be better to defer saving into a pension until you get a better incentive than 20% tax relief. Keep building your cash savings: the interest on the (temporary?) interest-bearing current accounts is irresistible at the moment. If you can also afford to invest in S&S ISAs, lucky you. Maybe the savings and investment scene will change a lot in the next 15 months (there's an election coming) but perhaps not. Wait and see.

UPDATE: learning about pensions. A good source might be the web pages of the big insurance/pension companies - L&G, Standard Life, and so on. They were certainly a source of excellent info for me a decade or more ago.

Calfuray

gadgetmind wrote: »

5% from employer without needing any contribution from you is odd, but these things come in many flavours.

See what you can find out and report back. You really can't say "GPP bad, PP/SIPP good" as it really is all down to the details.

Sorry, I'll try and be clearer. I have to pay in according to current minimum rules (so I think I have to pay 1% rising to 4% when government rules change?) but the 5% of my base salary they pay is the same whether I pay in 1% or 10%. If that makes sense?

And ok, thank you, I will come back when I have the details.

kidmugsy wrote: »

So it's a 5% pay boost that you will be able to realise when you are 57 ... or 60 ... or whatever. Yippee!

The lack of salary sacrifice means (to me) that making pension contributions yourself, as a newstart aged 24, is unlikely to be wise. You'd be better to defer saving into a pension until you get a better incentive than 20% tax relief. Keep building your cash savings: the interest on the (temporary?) interest-bearing current accounts is irresistible at the moment. If you can also afford to invest in S&S ISAs, lucky you. Maybe the savings and investment scene will change a lot in the next 15 months (there's an election coming) but perhaps not. Wait and see.

Okay, thank you!

jamesd

The work scheme might or might not have lower or higher fees than the alternatives, they vary. If the work scheme uses salary sacrifice that would be a significant advantage for it because of the National Insurance saving.

There are really only two workplace schemes I know of where minimum or no contributions are usually appropriate:

1. NEST. Bans transfers out, has significant per-payment costs and limited investment options. Best to pay in just enough to get full employer match and put the rest somewhere else.
2. Morrisons. The scheme discriminates based on age, substantially favouring older employeers. Even though the employer adds significant money the lack of growth means that employees younger than 40 and perhaps even 50 or sometimes older are better off not joining this scheme but using a personal pension instead. Those in their 60s, most of the 50s and sometimes younger would be better off joining. The differences depend in part on the investments that the employees would use outside this scheme, hence how long it takes for typical growth to exceed the value of the employer's theoretical contribution.

For other schemes it just depends on the specific terms and that can be good or bad. It's usually best to at least put in enough to get the full employer match. If the investment choices or costs are bad you can probably transfer out at some point in the future, possibly while still an employee, possibly not or possibly having to opt out, transfer, then opt back in.

It's likely that you'll end up buying a home at some point in the years before you reach 57, the replacement for 55 for taking pension benefits for people of your age. This means that S&S ISA is probably a better choice than pension for money that doesn't get employer matching.

Calfuray

jamesd wrote: »

The work scheme might or might not have lower or higher fees than the alternatives, they vary. If the work scheme uses salary sacrifice that would be a significant advantage for it because of the National Insurance saving.

There are really only two workplace schemes I know of where minimum or no contributions are usually appropriate:

1. NEST. Bans transfers out, has significant per-payment costs and limited investment options. Best to pay in just enough to get full employer match and put the rest somewhere else.
2. Morrisons. The scheme discriminates based on age, substantially favouring older employers. Even though the employer adds significant money the lack of growth means that employees younger than 40 and perhaps even 50 or sometimes older are better off not joining this scheme but using a personal pension instead. Those in their 60s, most of the 50s and sometimes younger would be better off joining. The differences depend in part on the investments that the employees would use outside this scheme, hence how long it takes for typical growth to exceed the value of the employer's theoretical contribution.

For other schemes it just depends on the specific terms and that can be good or bad. It's usually best to at least put in enough to get the full employer match. If the investment choices or costs are bad you can probably transfer out at some point in the future, possibly while still an employee, possibly not or possibly having to opt out, transfer, then opt back in.

It's likely that you'll end up buying a home at some point in the years before you reach 57, the replacement for 55 for taking pension benefits for people of your age. This means that S&S ISA is probably a better choice than pension for money that doesn't get employer matching.

No salary sacrifice I'm afraid, but I'll look into the fees and so on once I get the paperwork. Thanks for the info!

We actually already have a house, got the mortgage when I was 19, but may have to move in the future. I'm not sure what you mean with: "the replacement for 55 for taking pension benefits for people of your age"?

AlanP_2

Calfuray wrote: »

No salary sacrifice I'm afraid, but I'll look into the fees and so on once I get the paperwork. Thanks for the info!

We actually already have a house, got the mortgage when I was 19, but may have to move in the future. I'm not sure what you mean with: "the replacement for 55 for taking pension benefits for people of your age"?

Current age is 55 for accessing pension pots, traditionally 10 years below State Pension Age.

Your SPA will be 67 so likely to be 57 by the time you get there as opposed to 55 - or maybe later if SPA moves out a bit.

jamesd

At the moment you can take money out of pensions from age 55. This government has announced that by 2028 that will be increased to 57 years old. So given your age you need to plan for something between 58 and 60 before you'll be able to get money out of even a private pension. The S&S ISA is the main rival to use for that. Even today it's the thing to use for those who want to retire before 55.

OldBeanz

My favourite article http://www.telegraph.co.uk/finance/personalfinance/investing/10742396/When-saving-for-10-years-pays-more-than-saving-for-40.html