DB,AVC and private pension - what to do

LilMiss8

Hiya

I have recently joined a new company and enrolled on their defined benefit pension (1/60) and also contracted out until April next year when it changes.

From my previous job I have private pension with Scottish Widow (latest forecast shows £13k). I know I cannot transfer this to the defined benefit pension so my options are to either stop paying into it or continue to pay with £3,600 tax relief available. Before I left previous firm I spoke to pension adviser who said its best to continue to pay in even if its the min of £20 as it means I get to keep the discount management fees - fine don't have a problem with this.

My salary is £34k

My questions are:

1) I get £3600 tax relief if I continue to contribute to my private pension - but I am not sure about the tax relief on my DB pension other than I don't pay as much National Insurance. Is it worth putting in £3600 in the private pension? I don't really understand what the tax relief will be or how it works so any explanation would help.

2) I can opt to make AVCs with current employer although that will be considered separate AVC plan with the company and I get to choose the fund I invest in. Also there is tax relief by doing this and some of the fees are covered by the company . Is this worth doing or is just like my private pension in which case rather than having DB,Scottish Widow and AVC plans I just have DB and Scottish Widow.

I probably should get independent financial advice but where do I go to get a trusted person? Are they worth it if you have used them?

Just confused as to what to do. All I know is the DB pension carries a risk that should I stay at this company until I retire in approx 40yrs it may a) been stopped at some point, b) company may not exist or have funds. So I do see the benefit of paying something into my private pension its just a question of how much to make it worthwhile in terms of tax relief as it will be a nice backup plan should something go awry with DB pension.

Appreciate any advice you can give or examples of what you would do in my situation

bigadaj

Lot of questions and issues there so I'll try and address a few as best I can.

Firstly well done in getting a db pension, not many of these left around.

Firstly what is the sum currently in your sw pension, presume the £13k is a projection based on continued contribution, growth etc

I think the £3600 figure you use us in error, this is the sum that someone nit earning can get tax relief on. Paying the basic £20 is a good option if it saves fees, another option would be to transfer to another provider as either a personal pension or a sipp. Whether you do this or not you will have to make some decisions on investments, or employ an ifa to do this for you, if you don't leave it in default funds which is presumably where it is now.

The tax relief on your new pension just comes from your gross salary so you don't see it, much of the contribution will presumably be employer rather than employee in any case, might be worth seeing what this is estimated to be, though it's all a but fictional as they are promising to pay you a sum in the future.

The avc may be worth doing but I'd suggest not, there's no employer contribution and the fee discounts won't be greater than you could access elsewhere in all probability.

An ifa might well be a good idea for you, search on unbiased.com with laid adverts turned off, however they need to be paid and your current funds might be small bet for them. Do some reading on here and monevator and you'll get some background and ideas about how investments work.

If the db pension is stopped then you retain the pension earned to that point, so no worse off. If the company doesn't exist or can't fund the pensions there is protection, though it is limited and doesn't have inflation protection.

You need to consider pensions within your wider financial arrangements, do you have a cash emergency fund, if not then create one. Do you gave a house or mortgage or saving for one, if so then spare cash might be limited.

Finally on your earnings you would only get basic rate tax relief on contributions so many people would invest in an isa, you can hold the same funds and investments, but it isn't locked away for decades and you get tax free growth rather than tax relief going in. This ignores the possible changes muted for pensions combining with isas, or being replaced by, but that's just speculation currently so best ignored.

LilMiss8

Thanks for your response.

My sum is approx £9k in SW pension (only started it 3yrs ago). Yes the £3,600 is net earning (my mistake). The funds are currently in the SW Pension Plan 2 (if I remember it rightly) its a medium risk fund. But yes I hadn't thought of moving it another type like a SIPP soI think an IFA would be useful and will check out the sites you mentioned.

I don't really have a cash emergency fund its definitely something I want to build up now (i had one but it got decimated in recent redundancy).

I have a mortgage and used to overpay £250 a month but the new job meant taking a small pay cut so now I only overpay £150 a month as it will still save me thousands in interest and I want to be mortgage free as soon as I can but still have a bit of life so I thought aiming for mortgage free between 40-45 is sensible (hoping I get married along way so that extra contributions will then bring that down).

I think its because after all my bills including food and some money for going out I still have approx £600 left so its deciding how much to put where - I could go back to putting £150 pm into my private pension (that's how much I used to contribute) but its whether its worth it or whether I should more in or less in based on what tax relief it would bring me. The rest would go back to building up cash reserve.

kidmugsy

There's probably a case for following the advice you got to continue paying the £20 p.m., and also stopping overpaying the mortgage for a while, letting you rebuild your emergency fund. You could use a high interest current account for that.

OldBeanz

Are you sure that you cannot pay the pension into the DB pension? Most of the DB pensions tend to be Government funded and many allow transfers of DC's into their schemes in the first year.

bigadaj

Seems a bit mad to me worrying about pensions and having no emergency fund, but we're all different.

I'd want to build up a fund of £5-10k in high interest laying current accounts, suspending mortgage overpayments to get there quicker. You can then start overpaying and look at isas, mortgage debt should be cheap now so low on the scale of things to do.

Also if is a public sector scheme then look at transferring in, fee render to company in op indicated this s one of the few open private sector schemes.

jem16

LilMiss8 wrote: »

so I think an IFA would be useful and will check out the sites you mentioned.

Make sure you use https://www.unbiased.co.uk and not unbiased.com as was mentioned earlier.

I don't really have a cash emergency fund its definitely something I want to build up now (i had one but it got decimated in recent redundancy).

You should really build up an emergency fund rather than contribute to the PP.

atush

I agree with all the above.

Overpaying your mtg with no emergency cash is rather foolish. So stop that and build up your emergency cash.

Then consider AVCs or adding more to your SW pension (apart from t he 20/m you are going to keep paying in). But you should also consider S&S isas.

If you are worried about choosing investments, a Global tracker or lifestyle fund lin\ke the Vanguard series