Money Purchase Scheme or Auto Enrolment?

toshi_metropolis

I have a small pension pot with my current employer which is a Money Purchase Scheme I joined approx 2 years ago, when auto enrolment first came about. Being young, I don't tend to think about my pension much but something recently has made me think and wondering if I could ask some advice.

I joined the MPS as the contributions were higher (about 8.5% total) compared to 1 or 2% for the auto enrolment/ alternative pension on offer. I'm happy to sacrifice more of my salary at this point for higher returns later on so this made sense to me. However, I noticed recently that there is a plan for the auto-enrolment contributions to increase to 9% in 2019. This is some time off, but I wanted to ask;

1) Are there any advantages of being in a Money Purchase Scheme ocompared to auto-enrolment? They may be the same thing?
2) Would it be wise to change, if possible to have the higher contributions in the auto enrolment in 2019? and are there implications for doing this?
3) Long term, which is likely to be better? The MPS is managaed by a Pension company, but not sure about the auto enrolment.

Thanks for reading.

hyubh

toshi_metropolis wrote: »

1) Are there any advantages of being in a Money Purchase Scheme ocompared to auto-enrolment? They may be the same thing?

'Money purchase' and 'auto-enrolment' pensions aren't opposites, in fact most auto-enrolment pensions are money purchase (alias 'defined contribution' [DC]).

My guess would be (though it's only a guess) that your Money Purchase Scheme is an occupational scheme that predates Auto-Enrolment, and while better in some respects than the typical AE scheme (maybe it has highish employer contributions?), doesn't fulfil the legal requirements for AE, and the employer is unwilling to open it up enough to fulfil them.

2) Would it be wise to change, if possible to have the higher contributions in the auto enrolment in 2019? and are there implications for doing this?

What are the respective employer contributions? Really the employee contribution level is by-the-by, since if you wanted to contributed more but the scheme for some reason didn't allow it, you could open a personal pension (or SIPP) on the side as well.

Also, if the developing AE requirements were to lead to a total contribution rate (employee + employer) being above that set in your MPS, then the rules of the MPS would have to change. However, keep in mind that of the 8% minimum required from April 2019, only 3% of that is a minimum employer contribution. That's pretty low.

3) Long term, which is likely to be better? The MPS is managed by a Pension company, but not sure about the auto enrolment.

Since they are both DC, much of a muchness, though one may offer a greater variety of funds to invest in than the other, if you're into that.

jamesd

1. Auto-enrolment just means auto-enrolling and complying with a few other requirements, it says nothing about the type of pension the money is going to. In the public sector it would normally go to a defined benefit (final or average salary) scheme, possibly with optional AVCs into defined contribution/money purchase. In the private sector it would normally go to a money purchase scheme, which is just another way of saying defined contribution. MPS managed by a pension company in auto-enrolment is what most private sector employees will have. It seems as though your particular company may have two difference money purchase/defined contribution schemes, one for auto-enrolment for people who want the minimum required by law and a different one for people taking more of an interest. That's allowed.

2. If you were in an auto-enrolment scheme, I'd say let it increase when the increase happens because it means more money going into the pension from your employer as well as more from you and HMRC. But at the moment I'm not sure whether the auto-enrolment and MPS that you write about are the same underlying pension or not and there could be some difference between them that matters if they are different.

3. Can't say yet. Is the work scheme using "salary sacrifice" or just a deduction from pay? Salary sacrifices saves you and the company some National Insurance payments, making it a better deal on the way in than outside schemes. The range of options for investment also matter and we don't yet know what is available from the work scheme so we can't compare yet.

toshi_metropolis

hyubh wrote: »

'Money purchase' and 'auto-enrolment' pensions aren't opposites, in fact most auto-enrolment pensions are money purchase (alias 'defined contribution' [DC]).

My guess would be (though it's only a guess) that your Money Purchase Scheme is an occupational scheme that predates Auto-Enrolment, and while better in some respects than the typical AE scheme (maybe it has highish employer contributions?), doesn't fulfil the legal requirements for AE, and the employer is unwilling to open it up enough to fulfil them.



What are the respective employer contributions? Really the employee contribution level is by-the-by, since if you wanted to contributed more but the scheme for some reason didn't allow it, you could open a personal pension (or SIPP) on the side as well.

Also, if the developing AE requirements were to lead to a total contribution rate (employee + employer) being above that set in your MPS, then the rules of the MPS would have to change. However, keep in mind that of the 8% minimum required from April 2019, only 3% of that is a minimum employer contribution. That's pretty low.



Since they are both DC, much of a muchness, though one may offer a greater variety of funds to invest in than the other, if you're into that.

jamesd wrote: »

1. Auto-enrolment just means auto-enrolling and complying with a few other requirements, it says nothing about the type of pension the money is going to. In the public sector it would normally go to a defined benefit (final or average salary) scheme, possibly with optional AVCs into defined contribution/money purchase. In the private sector it would normally go to a money purchase scheme, which is just another way of saying defined contribution. MPS managed by a pension company in auto-enrolment is what most private sector employees will have. It seems as though your particular company may have two difference money purchase/defined contribution schemes, one for auto-enrolment for people who want the minimum required by law and a different one for people taking more of an interest. That's allowed.

2. If you were in an auto-enrolment scheme, I'd say let it increase when the increase happens because it means more money going into the pension from your employer as well as more from you and HMRC. But at the moment I'm not sure whether the auto-enrolment and MPS that you write about are the same underlying pension or not and there could be some difference between them that matters if they are different.

3. Can't say yet. Is the work scheme using "salary sacrifice" or just a deduction from pay? Salary sacrifices saves you and the company some National Insurance payments, making it a better deal on the way in than outside schemes. The range of options for investment also matter and we don't yet know what is available from the work scheme so we can't compare yet.

Thank you for the reply. I checked again today and I had read the contributions incorrectly. The total contributions into the pension are slightly higher for auto enrolment (after April 2019) but this is because the employee contributions are much higher. Employer contributions are only 3% for auto enrolment but 5.5% for Money purchase scheme.

Has reassured me that the MPS is the better option.

Thanks for your help.

hyubh

toshi_metropolis wrote: »

I checked again today and I had read the contributions incorrectly. The total contributions into the pension are slightly higher for auto enrolment (after April 2019) but this is because the employee contributions are much higher. Employer contributions are only 3% for auto enrolment but 5.5% for Money purchase scheme.

Has reassured me that the MPS is the better option.

Keep in mind the AE terms you've double checked are a legal minimum. There's no chance the other DC scheme will involve a lesser employer contribution, since your employer will be breaching the law if it did.