Passed probation at large corporation, now offered different pension, should I transfer to it?

Mr_X

Hi guys,

I'm earning £65k per year and have recently passed probation at a large corporation, with this I am now entitled to a different pension, I’m currently on the company auto-enrolment level but am curious about the ‘Level 3’ option they offer. I am looking for maximum money in my pension but also don’t want my take home to be any less than it is now.

I struggle to understand pension jargon. Please can someone knowledgeable look at the below pension wording and tell me, is it worth moving to Level 3 or just stay on the auto-enrolment?:

 “I would like to confirm that you are contractually entitled to join the Group Personal Pension Plan as a Level 3 member. Please complete the attached Joiner Form and return it to the Payroll Department at your earliest convenience if you wish to take up this invitation. If you have been auto enrolled and are a Level 4 member but wish to transfer to Level 3, please complete the transfer of this form only and return to the Payroll Department at your earliest convenience.

 

The Pension Level differences are noted below:

 

Level 4 (Auto Enrolment Level)

EE's % - Minimum of 5%

Employer will contribute - 3% only.

Employee contributions are based on qualifying earnings, the calculation if you were to make the minimum 5% contribution would be as follows –

Total earnings over £520 but below £4,189 (2025/26 figures) x .05

Employer contributions are also based on qualifying earnings, the calculation is as follows –

Total earnings over £520 but below £4,189 (2025/26 figures) x .03

 

Level 3 (Contractual Entitlement)

The company will match the employee contribution percentage plus 1% to a maximum of 4%.

EE's 1%, Employer will contribute 2%.

EE's 2%, Employer will contribute 3%.

EE's 3%, Employer will contribute 4%.

EE's 4%, Employer will contribute 4%.

EE's 5%, Employer will contribute 4%.

Employee contributions are based on basic salary plus any statutory payments (Maternity pay, SSP etc.), the calculation if you were to make a 3% contribution would be as follows –

Basic salary plus any statutory payments (Maternity pay, SSP etc.) x .03.

Employer contributions are also based on basic salary plus any statutory payments (Maternity pay, SSP etc.), the calculation is as follows –a

Basic salary plus any statutory payments (Maternity pay, SSP etc.) x .04

You may pay more per percentage as a Level 3 member.”

MallyGirl

The best employer match is achieved by you going to level 3 and contributing 3% - it this may cost you a bit or maybe not.
Level 4 you pay 5% of some (most) of your monthly salary and employer pays 3% of same amount.
level 3 you pay 3% of your whole salary and employer pays 4% of same amount.

Marcon

Mr_X said:

Hi guys,

I'm earning £65k per year and have recently passed probation at a large corporation, with this I am now entitled to a different pension, I’m currently on the company auto-enrolment level but am curious about the ‘Level 3’ option they offer. I am looking for maximum money in my pension but also don’t want my take home to be any less than it is now.

Those two objectives are mutually exclusive given the way your employer has set up their scheme, so which matters more: take home pay or getting maximum money in your pension?

DRS1

Well if you go to level 3 and reduce your contributions to 3% you will get 4% employer contributions.  You'd have to do the sums based on the different earnings used for level 3 and 4 but you may end up contributing less yourself than you currently do and the employer contributing more.

Of course you wouldn't be maximising your overall pension contributions.  But any increase in your contributions wouldn't get extra employer contributions and many people draw the line there.  But depending on how young you are 3% (or even 5%) employee contributions  and 4% employer contributions are short of where you would ideally be.

You might also want to check how contributions are paid - is it by salary sacrifice and if so what do they do about the NIC saving.

How is the money in the pension invested?  Presumably you have a choice.

HedgehogRulez

When can you get access to level 11?

Bostonerimus1

MallyGirl said:

The best employer match is achieved by you going to level 4 and contributing 3% - it this may cost you a bit or maybe not.
Level 4 you pay 5% of some (most) of your monthly salary and employer pays 3% of same amount.
level 3 you pay 3% of your whole salary and employer pays 4% of same amount.

I think you have 3 and 4 mixed up in your first sentence

Going to level 3 gets the the OP the +1% match on the basic salary. 

OP right now you are paying 5% with 3% match on an amount less than your basic salary. You can probably increase the amount going into your pension and maybe reduce your contribution amount by going to Level 3 and to 4% with a 4% employer match on your basic salary. But 8% total still isn't great as the contributions to your pension are more important than it's growth when it comes to determining the final amount you can drawdown in retirement. I think 10% total is the minimum amount that should be going into your pension, so 6% from you and 4% from your employer. Next make sure you understand how your money is being invested.

Secret2ndAccount

As a level 4:
Each month, you contribute £183 and your employer contributes £110

Opt for level 3 at 3%
Each month, you contribute £162 and your employer contributes £217
Or you could go to 4% and pay in £217 yourself, still matched by £217 from employer.

So yes, you should opt for Level 3.

westv

HedgehogRulez said:

When can you get access to level 11?

   ..

cfw1994

Secret2ndAccount said:

As a level 4:
Each month, you contribute £183 and your employer contributes £110

Opt for level 3 at 3%
Each month, you contribute £162 and your employer contributes £217
Or you could go to 4% and pay in £217 yourself, still matched by £217 from employer.

So yes, you should opt for Level 3.

Future you will always thank you greatly for putting more in early.  

You currently put 5%, employer 3%, so go with Level 3 and continue to put 5% in…gets a bit more from your employer, & makes your contribution 9%.

You don’t mention your age, or what you have already in pensions built up…..MSE broadly suggest half your age in % terms, so if you are 30, you ought to try to get 15% (in total) in.  On Level 3 that would be the 4% employer part plus 11% from yourself.  

LHW99

On the other hand, if you stay with level 3, can you go to level 4 later, or is this a one off option? When your pay increases, it is always a good idea to increase contributions if you could afford it.

Also, as said above, how the money comes out (sal sac or not) would make a difference.

QrizB

Mr_X said:

I'm earning £65k per year and have recently passed probation at a large corporation, with this I am now entitled to a different pension, I’m currently on the company auto-enrolment level but am curious about the ‘Level 3’ option they offer. I am looking for maximum money in my pension but also don’t want my take home to be any less than it is now.

As touched on above, we don't know how old you are or what other pension provisions you might have but 8% auto enrollment is quite a low contribution for someone on £65k pa.

8% is £5200 a year. If you're 30, and if your pension investments beat inflation by 2% a year, by the time you're 68 your pension pot will be £295k.

That, plus your state pension, will give you a retirement income of about £24k a year. That's quite a lifestyle change from £65k.

You might want to think about increasing your pension contributions substantially, unless you fancy a spartan retirement.