Pension vs Mortgage overpay?

WickyWickyWa

Slowly becoming clearer but still dont fully understand. Here's full figures:

My estimated DB (Final Salary) pension already built up is £7545 a year.
My State pension is predicted to be £6029 a year.
On the final salary, death benefits for spouse will be £3772 a year.

On the proposed DC pension at age 65 the predicted forecast based on the 10% company contribution is £3330 a year.
With a 10% contribution from me (which I dont think I will afford) its £6680 a year.
5% contribution from me (again doubt i would afford) its £5000 a year.
3% contribution from me is £4340 a year.

The proposed death benefits are if I die in service partner will get 10 times my salary (the 10 times is paid regardless of whether I pay in or not) plus the money in the DC pot.

The Cushioning will be £3023 a year until I retire. This can be put in the pension or used for other benefits to be decided (possibly green car scheme, etc).

I have asked the employee representative about the 10%, etc and the reply was that if I take the the 10% as salary I should take off 43% to account for national insurance and tax which seems to tie in with some of the figures above.
I have calculated that taking the 10% (I will seek to get this confirmed) and the cushioning I would recieve an extra £307 a month.

Hopefully this helps - going to send something similar to this to the company HR and I will let you know their response.

jamesd

I hope that you're not planning to use the pension illustration values to compare with mortgage overpaying gain?

There are at least three massive problems if you try to do that:

1. Pension incomes are given in today's money. Mortgage overpayment calculator savings are given without any inflation adjustment at all, so £1 saved in 15 year is treated the same as £1 saved today.
2. Pension income projections assume that the money is spent to buy a dual life inflation-linked annuity. A very unpopular product that is very poor value for money, typically paying well under half of what deferring the state pension with the money would pay.
3. The investment growth and inflation assumptions used tend to be punitive.

All three of these factors for pension projections have the effect of making pension accumulating look bad compared to paying off a mortgage unless a person knows about them.

If you want to compare to paying off a mortgage, use a regular savings calculator and the after tax relief value of the pension contribution, then apply a 20% income tax reduction in 75% of the final value and nil adjustment for the other 25%.

fairleads

232607
Before commentating you need to remove your blinkers and educate yourself in world and UK affairs, financial literacy and not least, manners
Creditors confiscate pensions as do governments when the going gets tough.
For example, UK gov telling us they offer 90% pension protection in the case of companies going to the wall is not borne out by case history.
Even your SIPP is owned by HMRC.
Remember, the times they are a changing.

jamesd

fairleads wrote: »

For example, UK gov telling us they offer 90% pension protection in the case of companies going to the wall is not borne out by case history.

Please give at least on example where the UK government has refused to pay the 90% redress that it was supposed to pay. Here's a hint: it'll be really hard to do because the UK government has not said it will pay 90% redress.

The protection is provided by the Financial Services Compensation Scheme or the Pension Protection Fund and the redress it paid is funded by the financial services firms or pension schemes themselves, via the levies charges on them. In the case of defined contribution pensions not in payment yet or in drawdown the protection is not 90% but has a cap of £50,000 per firm.

So, having correctly identified which bodies are supposed to pay, please give one example of the relevant body refusing to pay the amount it was obliged to pay for a pension covered under the relevant scheme. That is, don't go into history before the protections existed and quote things like the Maxwell example that led to the protections being introduced.

fairleads wrote: »

Even your SIPP is owned by HMRC.

It's legally owned by the pension scheme trustees, not HMRC, and this is to do useful things like protecting from bankruptcy, giving trustees flexibility to decide how to protect beneficiaries and provide assorted other benefits.

232607

fairleads wrote: »

232607
Before commentating you need to remove your blinkers and educate yourself in world and UK affairs, financial literacy and not least, manners
Creditors confiscate pensions as do governments when the going gets tough.
For example, UK gov telling us they offer 90% pension protection in the case of companies going to the wall is not borne out by case history.
Even your SIPP is owned by HMRC.
Remember, the times they are a changing.

Well I'll try & up my manners & keep this civil.
If the OP's company went to the wall it would have no bearing on money build up in a money purchase scheme. If a major UK pension company went bust I would suggest the whole UK financial system would also be bust. Banks, government & everything.
Your comment on a SIPP has no relevance as the OP would no doubt be joining a group PP & moreover a SIPP would be unsuitable for their needs.

Please provde 1 historical example of a previous goverment confiscating "on mass" the type of pension the the OP is considering joining.

232607

WickyWickyWa wrote: »

Slowly becoming clearer but still dont fully understand. Here's full figures:

My estimated DB (Final Salary) pension already built up is £7545 a year.
My State pension is predicted to be £6029 a year.
On the final salary, death benefits for spouse will be £3772 a year.

On the proposed DC pension at age 65 the predicted forecast based on the 10% company contribution is £3330 a year.
With a 10% contribution from me (which I dont think I will afford) its £6680 a year.
5% contribution from me (again doubt i would afford) its £5000 a year.
3% contribution from me is £4340 a year.

The proposed death benefits are if I die in service partner will get 10 times my salary (the 10 times is paid regardless of whether I pay in or not) plus the money in the DC pot.

The Cushioning will be £3023 a year until I retire. This can be put in the pension or used for other benefits to be decided (possibly green car scheme, etc).

I have asked the employee representative about the 10%, etc and the reply was that if I take the the 10% as salary I should take off 43% to account for national insurance and tax which seems to tie in with some of the figures above.
I have calculated that taking the 10% (I will seek to get this confirmed) and the cushioning I would recieve an extra £307 a month.

Hopefully this helps - going to send something similar to this to the company HR and I will let you know their response.

Your DB pension is reasonable & if that is its value now it will "tick up" in line with your salary rises.

I suspect your state pension prediction of £6029 is what it is now. Every year worked after 2016 starts to catch up to the upper limit of approx £7700 by about £225 per year. This means if you work for approx 7.5 years after 2016 you'll qualify for the upper limit SP.

As post No 23 explains, pension forecast tools are wildly inaccurate, generally to the downside. For that reason I would never use them & prefer to use my own calcs.
Punching some No's in from the information you've provided gives the following:-
Note - I've made the following assumptions:-
Average investment returns of 5% + inflation of 2.5% less investment costs of 0.5% hence I've used growth of 7%
I've assumed you'll get average salary rises of 3% PA thus the pension contributions will increase annually.
I've assumed a starting contribution of £539 which is the figure before the 43% was taken off to get to the £307 figure.
Not knowing the time frame of you mortgage I've run figures over 10, 15, 20 & 25 years.

If you didn't pay anything yourself but took the company offer of a pension you'd have the following pots:-
10 years - £106K
15 years - £205k
20 years - £355k
25 years - £579k

If you stretched yourself and also paid 10% of your own money which would actually only be 5.7% of your net pay the pots look like this:-
10 years - £160k
15 years - £311k
20 years - £539k
25 years - £877k

These are the sort of figures you need to compare against anything you'll save by going the route of over paying the mortgage & not having a pension.
You have a very generous company pension offer & an opportunity to build a very good DC that will compliment your DB nicely. Don't turn it down & do contribute your 10% (net 5.7%) if at all possible.

1 other thing to question your employer rep on. They have indicated a 43% reduction for tax & NI. This is the sort of reduction if you were in the 40% tax band. You say the company contributes £3330 PA representing 10%. This would indicate your salary to be £33330 PA which would not put you in this tax band. Something doesn't add up here so you need clarification.

Regards.

fairleads

232607
Google Ros Altman for starters.
Secondly, there is a difference between a pension company and a company pension

232607

fairleads wrote: »

232607
Google Ros Altman for starters.
Secondly, there is a difference between a pension company and a company pension

Thanks for the tip. I'll do some googling when I get time.

fairleads

James

It is of little comfort to those who have lost pension capital by illegal actions to be told its not gov.uk’s fault but rather the fault - by lack of oversight/due diligence - of some or other quango.
And just because you’re unacquainted with this phenomena doesn’t mean it never happens. It happened to two of my friends.

Appears my 90% compensation cap was woefully out.
A 50K cap on an expectation of receiving 150K is theft.
As to who owns a pension fund, the clue is in who upped the retirement age (and stole 5 yrs of an individuals’ retirement), HMRC or the trustees?

mania112

fairleads wrote: »

James

It is of little comfort to those who have lost pension capital by illegal actions to be told its not gov.uk’s fault but rather the fault - by lack of oversight/due diligence - of some or other quango.
And just because you’re unacquainted with this phenomena doesn’t mean it never happens. It happened to two of my friends.

Appears my 90% compensation cap was woefully out.
A 50K cap on an expectation of receiving 150K is theft.
As to who owns a pension fund, the clue is in who upped the retirement age (and stole 5 yrs of an individuals’ retirement), HMRC or the trustees?

Are you drunk? I'm trying to find a legitimate reason why you're talking such tripe.

It's happened to two of your friends, and it's happened to you?

Your story is that you were due £150k pa from your pension, but the scheme fell into the hands of the Payment Protection Fund and now you're only going to be receiving £50k pa?

If this story is true:
a) You are clearly an extremely wealthy man, why are you wasting your time trolling this forum?
b) How do you not know the 90% cap for a 65 year old is just over £32k pa?

You've also not clearly addressed why paying off the mortgage is a better idea than paying into a pension? Surely the government you dislike so much could just as easily bulldoze the bricks and mortar and make the property worthless, or is that just stupid?