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zaffi

I have two options for my workplace pension. I'm 36, married no kids (or plans)

Option 1, existing career average,

Contribute 6% which employer matches. This will increase to 12% contribution over the next 2 years, employer will only match 6%. This will accrue both pension and lump sum

Option 2, new scheme

Contribute 6% which my employer will match, but no longer accrue pension, only lump sum. If I take this option I think I would make an additional 3% contribution, numbers below based on this assumption

There is a projector tool on our intranet which gives me the following numbers - based on retirement age of 65

Option 1
Pension £13959
Total value of cash account £113700
Dependants pension £7328
Death in service £135000

Option 2
Pension £4436
Total value of cash account £364430
Dependants pension £2329
Death in Service £201000



Looking for advice, basically, what would you do and why?, I think I know which one I'm going to go with, but looking for a broader range of opinions

TIA
zaf.

kidmugsy

zaffi wrote: »

Option 1, existing career average,

Contribute 6% which employer matches. This will increase to 12% contribution over the next 2 years, employer will only match 6%. This will accrue both pension and lump sum

I'm baffled. "career average" means it's DB, so it matters not a hoot what the employer says he contributes - he's on the hook for whatever is required to provide the eventual pension.

Can you explain?

Brynsam

zaffi wrote: »

I have two options for my workplace pension. I'm 36, married no kids (or plans)

Option 1, existing career average,

Contribute 6% which employer matches. This will increase to 12% contribution over the next 2 years, employer will only match 6%. This will accrue both pension and lump sum

Option 2, new scheme

Contribute 6% which my employer will match, but no longer accrue pension, only lump sum. If I take this option I think I would make an additional 3% contribution, numbers below based on this assumption

There is a projector tool on our intranet which gives me the following numbers - based on retirement age of 65

Option 1
Pension £13959
Total value of cash account £113700
Dependants pension £7328
Death in service £135000

Option 2
Pension £4436
Total value of cash account £364430
Dependants pension £2329
Death in Service £201000



Looking for advice, basically, what would you do and why?, I think I know which one I'm going to go with, but looking for a broader range of opinions

So you want advice based on what other people would do? Why? We aren't you and we don't know/necessarily share your attitude to risk/financial objectives. Which of these tallies with what you want for your own circumstances? Not nearly enough information to make any helpful comment - other than echoing the one above that your description of Option 1 as a career average scheme can't be correct, or at least not the way you've described it. So my advice would be to check what exactly you are being offered and make sure you understand it before taking a decision.

Dox

Instead of asking other people what they'd do, why not say what you'd do and why? If you set out your reasons for rejecting one option and accepting the other, there's a good chance people here will be able to spot any misunderstandings (and there quite obviously is one, given your description of option 1), any flaws in your logic and any important things you might have overlooked.

zaffi

I can confirm the current scheme is indeed defined benefit. I probably have picked up the numbers incorrectly / don't really understand it that well.

I currently pay 3% to my pension and 3% to an "extra" account. These are individual lines on my payslip.

I believe the company match both, please let me know if that sounds incorrect

If I stay with the defined benefit scheme I will have to pay 9% to pension and 3% to extra account. The company will match the 3% to the extra account. I assumed they would pay 3% to the pension too, clearly that isn't correct.

Changing tact a bit here, Am I right in thinking that moving to the new scheme isn't necessarily going to be worse? It was described to me as the company moving the liability from them to me. I might move to the new scheme and the funds I choose perform really well it's just that when I get to retirement age the company have a lower on-going commitment to me.

I was considering moving to the new scheme and making additional contributions of 3%. This, I think, would give me more options with a larger cash pot

I'm overpaying my mortgage, so was thinking maybe the difference in the monthly contributions between the current and new schemes could go to that?

I'm also at a salary point where pension contributions can / will reduce the 40% tax I have to pay which possibly further muddies the waters.

Hope that's cleared some stuff up, any comments or clarification let me know.

TIA
zaf.

Dox

zaffi wrote: »

I can confirm the current scheme is indeed defined benefit. I probably have picked up the numbers incorrectly / don't really understand it that well.

I currently pay 3% to my pension and 3% to an "extra" account. These are individual lines on my payslip.

I believe the company match both, please let me know if that sounds incorrect

If I stay with the defined benefit scheme I will have to pay 9% to pension and 3% to extra account. The company will match the 3% to the extra account. I assumed they would pay 3% to the pension too, clearly that isn't correct.

Changing tact a bit here, Am I right in thinking that moving to the new scheme isn't necessarily going to be worse? It was described to me as the company moving the liability from them to me. I might move to the new scheme and the funds I choose perform really well it's just that when I get to retirement age the company have a lower on-going commitment to me.

Companies don't 'match' contributions in a defined benefit scheme - they are on the hook for whatever is needed to pay the promised benefits. Are you sure you aren't paying some sort of Additional Voluntary Contribution (AVC) - ring any bells?

The company aren't just shifting liability, they are shifting risk to you in the new scheme.

I'm not sure you have grasped what you are dealing with and it's really important you do. For free, impartial help in terms of explaining what's going on (not financial advice), try https://www.pensionsadvisoryservice.org.uk/ - it could be much more helpful for you to have a chat with someone on the phone. They are used to dealing with pension novices, so don't be afraid that you'll be drowned in jargon.

zaffi

Dox wrote: »

Companies don't 'match' contributions in a defined benefit scheme - they are on the hook for whatever is needed to pay the promised benefits. Are you sure you aren't paying some sort of Additional Voluntary Contribution (AVC) - ring any bells?

I think I've just not explained the current system very well. It is effectively two distinct schemes. I pay 3% to the defined benefit pension and 3% to an additional account that is only for building a cash pot. The company matches the first 3% of what I pay to the additional account, anything I choose to pay above that would be AVC.

Thanks for the suggestion on the PAS, I'll definitely have a look at that.

cheers
zaf

xylophone

Is there a link to your scheme booklet on the internet?

GunJack

So, the main db (career average) scheme will increase in cost from 3% to 9%. This will give you a pension of £x per year on retirement.

The "extras" is, in reality an AVC, with you and the company both paying 3% into, which will give a cash lump sum to take with the pension.

The new scheme is a purely DC scheme, which you and your employer will contribute 6% to. There may or may not be the option to continue with the AVC.

I know which one I'd (stick with) choose if it were either/or.

Can you leave your already-accrued benefits in the DB scheme if you opt for the new one, or are you going to be given a transfer value for them into the new scheme?

Alibert

Is it normal for a company offering a DB scheme to also make a matching contribution to employees AVC ?
I wonder if the OP really understand the current set up

zaffi

GunJack wrote: »

So, the main db (career average) scheme will increase in cost from 3% to 9%. This will give you a pension of £x per year on retirement.

The "extras" is, in reality an AVC, with you and the company both paying 3% into, which will give a cash lump sum to take with the pension.

The new scheme is a purely DC scheme, which you and your employer will contribute 6% to. There may or may not be the option to continue with the AVC.

I know which one I'd (stick with) choose if it were either/or.

Can you leave your already-accrued benefits in the DB scheme if you opt for the new one, or are you going to be given a transfer value for them into the new scheme?

Thanks, you've succinctly summarised way better that I would have been able to!


Everything accrued post 1 July 2018 will be affected, everything accrued until that point will remain as DB.