Is a monthly pension increase buying me more years?

DogTailRed2

I am in a defined contribution pension scheme. I pay 3% and the company pays X%.
I have the option of increasing my payments to 8% and the company increases their share.
By increasing the amount I contribute am I essentially doubling, trebling the number of years I've paid in? For example if I contribute 3% over my remaining 10 years of service, if I increase that to 6% does that equate to 20 years contributions and so on?

molerat

With a DC pension you are simply adding more £s to the pot meaning at retirement you have more to withdraw.  "Years" only applies to DB pensions where you may be able to pay a lump sum to buy additional years of service.

Albermarle

DogTailRed2 said:

I am in a defined contribution pension scheme. I pay 3% and the company pays X%.
I have the option of increasing my payments to 8% and the company increases their share.
By increasing the amount I contribute am I essentially doubling, trebling the number of years I've paid in? For example if I contribute 3% over my remaining 10 years of service, if I increase that to 6% does that equate to 20 years contributions and so on?

Sort of but it is an unusual way of looking at it.

With a DC scheme, what matters is how big the pot is when you retire. It does not matter directly how many years you have paid in.
So for example you could pay in 10% pa for 15 years and 20% pa for 15 years OR pay in 15% for 30 years. It does not matter. Only what matters is how much you and your employer have paid in over the years ( + tax relief) and how much investment growth there has been.

Then when you retire you have a pot of £X and you have to decide how to take it . So buy an annuity, have a long term drawdown plan, take  more before state pension kicks in and less afterwards etc . Or you can not take it al if you do not want and leave it as a bequest.

In general you should always maximise the free money from the employer where possible so what you plan to do looks like a good idea.

ewaste

Not really, a Defined Contribution pension isn't really a 'pension' at all. It's basically a Personal Retirement Account that both you and your employer contribute to at a defined rate. 

The money is then invested in various assets either according to a default strategy or based upon whichever choices you have made. Investment performance generally compounds over the long term. Contributions made years earlier are far more valuable than those made later but at the end of the day it's still just a 'pot'. 

3% is frankly a pittance to be saving toward retirement and isn't going to get anyone very far regardless of how long they've been contributing. The general rule of thumb is that the joint contribution rate should be around half your age when starting. I tend to go further by saying it should be half your age when you start paying attention to pensions. 

dunstonh

By increasing the amount I contribute am I essentially doubling, trebling the number of years I've paid in? 

Defined benefit schemes are linked to years of service. 
Defined contribution schemes have nothing to do with years of service and you wouldn't link your contributions to that.

 For example if I contribute 3% over my remaining 10 years of service, if I increase that to 6% does that equate to 20 years contributions and so on?

No.   10 years will have 10 years of investment history.  20 years would have 20 years of investment history.    An economic cycle is around 15 years.   So, the longer you are invested, the closer you get to the long term avearge.

Plus, inflation would be different.

I fear you are mixing up DB schemes with DC schemes.  Forget about years.   DC pensions are all about the value of the fund.  Its a pot of money you get to spend in later life.     The more you have, the more you have to spend (or pass on)