Added Pension

Tonyacs

Hi, all I hope you can help me with some guidance. I keep reading that adding to your work pension is beneficial. I have been paying and extra £6000 per year into it. However according to the goverment tables from my pension scheme Im only going to receive an extra £300 per year extra when I retire. This does not seem to be beneficial to me and im losing out. what are you thoughts on this, how can I achieve better , is it better to just save the money into ISA's. and can I claim that money back if I request it.

age 51 retire at 55 been paying in for last two and half years.

Kind regards

Tony

Dazed_and_C0nfused

Is this a DB or DC pension?

Is the £6,000 before or after tax relief?

Is the £300 inflation linked?

Which scheme is it?

dunstonh

 However according to the goverment tables from my pension scheme Im only going to receive an extra £300 per year extra when I retire.

The Government doesn't produce any tables unless you are referring to a public sector defined benefit scheme. 

This does not seem to be beneficial to me and im losing out. what are you thoughts on this, how can I achieve better , is it better to just save the money into ISA's. and can I claim that money back if I request it.

The devil is in the detail.   You have given no detail.   What type of pension are you referring to?  Where is the additional pension going?

hugheskevi

Tonyacs said:

I have been paying and extra £6000 per year into it. However according to the goverment tables from my pension scheme Im only going to receive an extra £300 per year extra when I retire...age 51 retire at 55 in for last two and half years.

So you have been contributing £6,000 per year to purchase (each year) an additional £300 of annual pension payable from age 55. As you have paid in for 2.5 years, you will have already purchased around £750 of additional pension per year payable from age 55. Is that all accurate?

This does not seem to be beneficial to me and im losing out. what are you thoughts on this, how can I achieve better , is it better to just save the money into ISA's. and can I claim that money back if I request it.

At age 55 you can expect to live for 30-35 years more on average unless your life expectancy is impaired. The Added Pension may also have survivor benefits (does it?). The Added Pension should be linked to uncapped CPI in the the future (is it?). So the expected pay-out before tax is £7,500 to £9,000 (25 x £300 to 30 x £300) for each £6,000 contribution (before tax relief, presumably).

Why do not think it is beneficial? Would you put funds into a cash or investment ISA? Do you want to build up a guaranteed indexed income, or a capital lump sum? What rate of return would be required to match or exceed the outcome of the Added Pension, and is that consistent with your risk tolerance?

Notepad_Phil

As others have said, you need to give more detail, but...

If this is a Defined Benefit pension that you are paying into then you've possibly missed the fact that the extra £300 per year will likely go up by some inflationary measure (e.g. wage or actual) before retirement and then by actual inflation after retirement for every year that goes by. If you go first then there may also be additional pension for your partner for the rest of their life too. Such an income does not come cheap and the employer will likely have to pay a lot of extra contributions to pay for this.

On the other hand if this is a Defined Contribution pension (which given the return seems less likely) then the £300 is likely just an indication of how much money you will be able to drawdown from the extra amount of money that you have put in. On death a drawdown pension can be inherited and so the £6000 is worth whatever the funds it is invested in are worth.

Tonyacs

Thank you for your replies. I have no idea of what any you are saying. I have a police pension where I add voluntary  added pension contribution of 500 per month, 6000 a year. According to the company who controls the police pension they say I'll get an extra 300 per year added into  my forecasted pension. When I questioned this they said it comes from the government tax tables..
I'm not sure what else I need to give you to assist me further. That's why I said 6000 a year added investment in pension is only giving 300 extra a year.
Regards 

Albermarle

The police pension retirement age is 60 I think , so on average a pension will be paid for another 25 years ( average life expectancy of a 60 year old man is another 25 years ) . So you will get £300 X 25 extra pension = £7500. Presumably the £300 will go up with inflation, so in reality probably worth in excess of £10,000 
So in simple terms you get more than £10000 for paying in £6000 . Sounds like a good deal !
Or to look at it another way if a 60 year old man bought an annuity with £6000, they would  only be offered  an income of around £175 per year .

hugheskevi

To keep it simple, if you want a guaranteed income every year for life, then Added Pension is the best option for you. You are not losing out, the calculations are based on an annual rate of return of CPI+2.4% which is much higher than you will get for any investment without investment risk.

If however you prefer to have more money early in your retirement or to build up something to provide an inheritance, then other options such as a personal pension may be better. If you are willing to take more investment risk, you should expect to do better than CPI+2.4% as well (with the obvious risk that you could end up doing significantly worse).

Tonyacs

Hi, thanks again. Sorry still confused. I pay extra 6000 per year and so far I've paid in 15000 yet I'm getting extra over 25 years for argument sake as you suggested 10000. Still can't see how that's any good deal.
Best I seek  financial advice. Thank you for taking the time to reply. Much appreciated 

Dazed_and_C0nfused

Aren't you accruing an extra £300 for each year you pay £6,000?

Have you looked at this?

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/428034/Police_E_W_Pension_Scheme_2015_AP_Guidance.pdf

xylophone

You may find this (police officer discusses buying AP) of interest.
https://cashflowcop.com/purchase-of-added-pension-worth-it/