Pension Question

nicki_2

My partner has recently started working in a school in Wigan and as a result was automatically entered into "Greater Manchester Pension Fund" . Now I'm not complaining that he's been put in it BUT it takes 6% of his earnings, paypacket for September showed a cost of £98 in pension contributions. NOw, there is an option to "defer payments" and rejoin at a later date as long as you have been a member for three months.

As I was counting on the pay increase that came with this job to help dramatically cut our credit card bill I was wondering whether deferring his pension for until Nov 05 could be an option. To quote the booklet it says :

Deferred benefits are simply where we work out what your benefits are worth, then hold them for you until a later date.

This choice is open to you if you have at least three months membership...

In fact we will automatically defer your benefits if you don't ask us to transfer them, and this may well make sensem especially if you hope to rejoin the scheme in the future.

If your benefits are deferred, we will work them out at the point you leave, then hold them for you, increasing them each year in line with the cost of living, to keep their value up to date...

If you join this scheme again: You normally only have 12 months from the date you joing to link your deferreed benefits with your new membership

Am I right in thinking that come the end of December my parnter could deferr his pension payments for say 11 months and then rejoin and link his pension he has now to the new one when he rejoins? Or am I just getting the wrong end of the stick? (By my calculations if this is possible it would mean that we could repay our credit card back about a year earlier)

HELP - this is all new to me this pension lark!!!!

Debt_Free_Chick

Deferred benefits are normally only awarded if you leave the scheme - usually when you leave employment. You may also get deferred benefits if you opt-out of the scheme i.e. stay in employment but say "I don't want to a member of the scheme any more".

Which part of the booklet are you reading? Is there an option to opt-out of the scheme after 3 months and get deferred benefits?

Check carefully the terms for opting-out. He may lose valuable death benefits too e.g. any lump sum paid on death in service and any dependant's pension. And any pension he might get if he were forced to retire due to ill health.

If you join this scheme again: You normally only have 12 months from the date you joing to link your deferreed benefits with your new membership.

Again, check that he can link his new membership with the old, if he opts out. Linking is sometimes given to those who join again, having previously worked for the Authority, but left and then returned. It's not often given to those who opt out then change their mind and want to re-join the scheme, without having left employment.

Now I'm not complaining that he's been put in it BUT it takes 6% of his earnings, paypacket for September showed a cost of £98 in pension contributions

Is that his contribution to the pension scheme? If so, then remember that it was deduced before income tax, so the actual cost was only £76.44, as it looks like he pays tax at 22%.

In addition, as a member of the scheme he pays lower National Insurance so this reduces the cost even more.

Look carefully at what he would lose, compared with the true net cost.

Could you not make savings elsewhere to "compensate" for his pension contribution? After all, it will only be for a short time.

Pal

Just to agree with what DFC has said, check carefully that you are allowed to do what you are proposing before going ahead.  It is possible that they allow it but it is equally possible that you are incorrect and will significantly reduce your partner's future pension.

Her comments on the death benefit cover as well are really important.  Death benefits from these schemes are very valuable and would make a real difference to your life if your partner was to die.

Without working out the figures, the difference that membership makes to your husband's take home pay is probably only actually about £50 a month because of the tax and national insurance savings.

I suggest you find an alternative way to sort out the credit card.  In particular:

- Cut it up to stop you spending on it;
- Apply for a 0% balance transfer card and transfer the balance to reduce your interest payments;
- If you cannot get 0%, look for the lowest rate balance transfer cards you can get.

Personally I would very rarely suggest that anyone pulls out of a final salary pension scheme except as a last resort.  The benefits are just too valuable, particularly if your partner gets any large payrises in the future.

Robert_Sterling_3

I am surprised that he is not in the Teachers Superannuation Scheme.
This is a government backed Final Salary Scheme.
The teacher pays 6% but pays reduced tax as a result the Local Education Authority adds another 6 pence I think and then to balance the books the government contributes about 8%. So that effectively the teacher puts in less than 5p after tax and gets about 20p of actuarial value.
There is no actual pension fund involved as far as I know and I do remember Aneurin Bevin saying so. Never the less the pension is guaranteed by the government.
It is all a tad less excellent than you might think because when teacher enter a pay claim they are told to bear in mind the value of their pension and are paid less because of this.
It works out very well if you stay in teaching but less well if you leave teaching.

nicki_2

My partner is not actually a teacher - he's the ICT Technician at the school or at least thats what the letters from the school say ;D

Debt_Free_Chick

I am surprised that he is not in the Teachers Superannuation Scheme.
This is a government backed Final Salary Scheme.

The Local Authority schemes are the next best thing. Final salary schemes backed by the authorities finances i.e. Council Tax

http://www.gmpf.org.uk/

There is no actual pension fund involved as far as I know and I do remember Aneurin Bevin saying so. Never the less the pension is guaranteed by the government.

The LA schemes are usually funded. Funding can be more or less guaranteed, if you assume that the Authority can always generate sufficient income through the collection of council tax.

It is all a tad less excellent than you might think because when teacher enter a pay claim they are told to bear in mind the value of their pension and are paid less because of this.

To be fair, all employers factor any increase in pension funding into pay rises. Some are less scientific though than others. And in the private sector, employers are generally closing final salary schemes rather than face the cost of extra funding.

Debt_Free_Chick

Nicki

The website for that pension fund has a member's guide.

https://www.gmpf.org.uk

In the section "How to join" it explains you can cancel your membership. BUT it then states

Your employer could even refuse to let you back in at all

I'm now confident that the part about counting deferred benefits only applies to those who previously for the authority and have returned to a new job.

As Pal says, the net cost is lower than the £98 shown on his payslip and you should look for savings elsewhere to compensate.

Think hard before you cancel this membership. Many in the private sector are clamouring to join such a scheme.