How should I evaluate a pension plan?

engravingdinerethically

Graduating next year. Fortunate enough to have received a grad job offer ~£40k with what appears to be a very generous pension scheme (at least compared to other employers I've interned at previously).

The employer contributes 5% regardless of what you put in (you could put 0% in if you wanted to) and they will additionally match your contributions up to 3%.

e.g. if you contribute 3% yourself, the employer contributes 8%.

Anything beyond 3% is only matched by 10%

e.g. if you contribute 4%, the employer contributes its usual 8% + (10% of 1%)

To me this seems quite generous - I believe it's salary sacrifice looking at the text but I am not 100% certain yet. How does this compare to other companies?

Beyond all of this, are there other things I should consider e.g. the company/fund the pension is in? Any other things I should consider before signing on the dotted line?

Alexland

Seems pretty good although the 10% of matching on additional contributions above the normal matching limit is unusual.

For now while earning basic rate income I would only suggest you only put in the 3% to get the 8% matching limit and then once your career progresses (as would usually happen quickly with a graduate job) start contributing lots more to keep your income at a level to avoid paying higher rate tax.

I regret 'wasting' some of my lifetime allowance making less efficient additional unmatched contributions out of basic rate income in my early 20s then not switching to heavy pension contributions as soon as my income was higher rate.

Once you get the details of the pension scheme checkout the available fund choices, risk levels and charges. If you are unhappy with these some even let you partially transfer out lump sums into your own SIPP for self management.

Marcon

engravingdinerethically said:

Graduating next year. Fortunate enough to have received a grad job offer ~£40k with what appears to be a very generous pension scheme (at least compared to other employers I've interned at previously).

The employer contributes 5% regardless of what you put in (you could put 0% in if you wanted to) and they will additionally match your contributions up to 3%.

e.g. if you contribute 3% yourself, the employer contributes 8%.

Anything beyond 3% is only matched by 10%

e.g. if you contribute 4%, the employer contributes its usual 8% + (10% of 1%)

To me this seems quite generous - I believe it's salary sacrifice looking at the text but I am not 100% certain yet. How does this compare to other companies?

Beyond all of this, are there other things I should consider e.g. the company/fund the pension is in? Any other things I should consider before signing on the dotted line?

Very sensible to look at the pension, but looking at the overall remuneration package is more useful. A 25% employer pension contribution looks a great pension - but looks a lot less attractive if the salary is, say, £18K!

£40K is a very healthy starting salary for a grad job offer, and the pension scheme is certainly well above the minimum required by law.

Focus on whether the job itself is what you want - hopefully it'll be a huge success! - and don't even think about turning it down simply because you might get a 'better' pension somewhere else.

Albermarle

An employer has to contribute a minimum of 3% by law. 
You would hope that any decent employer would up this to at least 5% .
For larger /richer employers looking to retain a good quality workforce up to 10% is not unheard of, but much more than that is relatively rare as far as I know .

LV_426

Albermarle said:

An employer has to contribute a minimum of 3% by law. 
You would hope that any decent employer would up this to at least 5% .
For larger /richer employers looking to retain a good quality workforce up to 10% is not unheard of, but much more than that is relatively rare as far as I know .

Have a look at Nationwide. Their company contribution is 16%, with employees contributing 7%.
Although having said that, a generous pension scheme can't make up for other shortcomings of a job. Trust me on this one!

AlphaKappa

Congratulations on your job, and hope it all works out well and you have an enjoyable career.
Certainly pay the max to get matching employer contributions (so 11% in total.  It may be a tad more if employer passes on the NI savings).
Contributing more is a judgement call.
If you expect to be a high earner in the coming years, you can defer further contributions beyond the 3% until then as you benefit from not paying 40% tax.
If you have student loans and you are inclined to minimise what you pay back, you can contribute more now, although I suppose you need to save for a house deposit, etc.
For now, I'll take a wait and see approach - contribute the 3% and see what the future holds.
(I had a previous employer who paid 20% , no contributions required. NI savings  also passed on if you contribute more - although no matching. Generous I know)

Albermarle

If you expect to be a high earner in the coming years, you can defer further contributions beyond the 3% until then as you benefit from not paying 40% tax.

and then once your career progresses (as would usually happen quickly with a graduate job) start contributing lots more to keep your income at a level to avoid paying higher rate tax.

Two good bits of advice but needs a word of warning . There is no guarantee that higher rate tax relief will continue to be available indefinitely .

Alexland

Albermarle said:

Two good bits of advice but needs a word of warning . There is no guarantee that higher rate tax relief will continue to be available indefinitely .

True but at £40k the OP isn't quite yet in a position to avoid higher rate tax anyway so they are hardly missing anything by only making enough contributions to get the employer matching for now. If they find their package has not improved (pay rises, car allowance, bonus, overtime, whatever) within a couple of years it's worth re-evaluating and maybe making a higher amount of pension contribution even if it means only saving basic rate tax to get to their retirement goals.

AlphaKappa

Don't forget LISA - good for saving for your 1st home as you get free 25% topup 

engravingdinerethically

AlphaKappa said:

Don't forget LISA - good for saving for your 1st home as you get free 25% topup 

Yup - been contributing my salaries from internships over the years into it! Thanks

noclaf

Albermarle said:

An employer has to contribute a minimum of 3% by law. 
You would hope that any decent employer would up this to at least 5% .
For larger /richer employers looking to retain a good quality workforce up to 10% is not unheard of, but much more than that is relatively rare as far as I know .

Some firms are certainly tightening up on how generous they are with pension contributions, my employer as an example:
 sal sac - I contribute 8% and receive a 12% employer contribution ( max available) + an additional SMART uplift so in total greater than 20% per month if I contribute at least 8% per month, the SMART uplift element actually keeps increasing if I contribute more than 8% so in some months I've been able to get more than 13%. As of last yr , this rate is no longer available for new joiners, it's a fair bit lower.
Op - Congrats on the grad role and well done for looking into this now.....I spent my 20's and early 30's not having a clue about my pension(s) as was too busy fritting money away on 'stuff' and having a good time...v.costly in hindsight!