company pension contribution

jamesd

A 10% penalty for two years is one of the highest I've seen, tying with the highest I remember seeing.

If you have savings and can afford it I suggest that you both wait until NRA and do the maximum I've mentioned as contributions to the new scheme. It's fine to use savings to do that at this point.

[Deleted User]

Thanks james d. The penalty is in fact closer to 12%.! Reductions are: I yr to retirement is 7% 2nd yr is 6% then 5% each year from retirement. Management 20%contribution to dc fund may not be worth anything if they go bust, sold of etc.
I do not really have any savings of note apart from a small emergency fund. It does seem advisable l should hold off taking the db pension until fund retirement age, without penalty. Some of my workmates have already taken steps to release the cetv., however I do not really wish the worry or concern re fund management in my retirement. I will give deep thought to all options but am moving towards waiting until nra as you suggested. Thank,
Billy

atush

I personally would put in 100% of your pension income into the new DC pension- not obv that exact money, but 16K of your income and use the pension income to live on. Plus any of your salary in the HRT threshold.

It will save you tax.

Let HMRC know of your contributions, esp the HRT ones.

[Deleted User]

Thanks atush,
That's certainly worth considering. Will the company or pension scheme
not deal with tax allowances?
Billy

kidmugsy

thetimewill wrote: »

Management 20% contribution to dc fund may not be worth anything if they go bust, sold off etc.

That is most unlikely: the DC scheme is a big pot of assets ring-fenced from the company and very difficult to steal. Even if you have an ex-Labour MP like Bob Maxwell running the company he'd find it hard to make off with it.

Or bob, bob, bob Maxwell, as people used to joke.


Anyway, check the details. You might find that the assets are going to be under the care of Standard Life or someone like that.

As for the DB scheme, either you transfer (but, as said above, the terms might be lousy) or - like the rest off us - you cross your fingers. In general DB schemes are wonderful as long as they outlast you and your widow.

As for the compromise policy of taking the pension early, including maximum lump sum, I might be slower to dismiss that than the others are. On one of my pensions I commuted pension to take max lump sum and have never regretted it.

jamesd

Taking the pension and paying it into the new one will make you worse off than waiting. The problem is the 12% penalty on the income for life. Which means it starts out costing you £1,790 of lost income each year: £17,920 before the 12% reduction to £16,000. You get two more years of the £16,000 plus the potential new pension gain of £3,000 a year for the two years at £16,000 net going in. So total initial gain of £22,000. But then there's that £1,790 a year loss and that takes just 12.3 years before you're worse off. Not a long time.

A better way to do it without savings would be to get one ore more 0% for purchase credit cards and use those for as much as possible of your normal living costs. Perhaps add a card with a nice money transfer offer. Then you can use that to live on while you use your pay for pension contributions. Another way to do it would be an equity release mortgage that you repay from the pension income later, which lets you get the tax gain of the pension. Costs a bit more initially than the cards but potentially allows use of more money.

kidmugsy

And another thing: people do tend to exaggerate the protection one gets from the PPF. In the case of my principal DB pension I'd lose practically all my inflation protection: if you look at the annuity tables in the weekend papers you'll see that that's broadly equivalent to my losing one third of the pension's value. But worse, my widow's pension would be cut almost in half, and she'd lose her inflation-protection too. This is all better than nothing but it's nowhere near the happy talk about the value of one's pension being fully protected.

By contrast your DC pension is far better protected - the main risk is just market setbacks. The answer to this is for you to specify that the money be invested in a cash fund or deposit fund - whatever the providers call it - for the next couple of years. That gives you time to learn a bit about investment, find a good IFA, or whatever.

[Deleted User]

Hello again kidmugsy,
I was meaning the companies promise to pay 20% contribution into dc fund may be worthless if the company,in its current form, disappears. I am aware the fund itself is ring fenced.
I wasn't aware, until you stated, that the abatement is worse than the norm. That does give me concerns and I may just cross my fingers and everything else.
I will study all the figures and see if I am any more certain as to actions.
Thanks very much for input,
billy







5

[Deleted User]

jamesd and kidmugsy,
Sorry, I typing as your latest posts appeared,
I shall take my time and digest your input,
Billy

jamesd

The inflation linking in the PPF varies, lots will be at CPI. A defined benefit pension still using RPI would mean that you'd lose more. The PPF rules are a bit fiddly, need to check them to be sure what would apply to you.

But in any case, you're making a bad trade if you take it early: you're buying into the certainty of a 12% income drop and smaller lump sum to avoid the chance of a 10% drop and some potential indexation decrease. Uncertainty isn't something to like but sometimes it beats the certainty of a loss.