Defined contribution or defined benefit? decisions decisions!

speedyegg

I've just started working for a company that has the option of a defined benefit pension scheme or a defined contribution scheme.

Defined benefit is 7% contributions for 1/58th final salary

Defined contribution is 1.5% of my contributions up to 4.5% for them in the first 5 years, and up to 10.5% afterwards.

Now it might seem obvious to go for the final salary scheme, but my question is to do with risk and what will happen if i leave the company... Also, the company is about to be bought out, so i'm wondering whether it's 'safe' to go for a defined benefit policy when the rules might change (i'm 26 so it's a while before retirement!). Also, to what extent can they change the rules as they go?

I guess I just like to have control of my money, and i'd prefer to have the decisions regarding risk and don't like the 'no control' nature of a defined benefit - do the new pension laws mean that it's unlikely for a company to mess about with pensions in future, and if I only stay with the company for a couple of years, would i be better off with defined contributions?

Retired_I.F.A.

I guess I just like to have control of my money, and i'd prefer to have the decisions regarding risk and don't like the 'no control' nature of a defined benefit

Me too, as would the majority who looks into pension plans and the mechanics of them, Unfortunately, although as declared by the European Courts pensions are a part of pay employers very very rarely offer to contribute what they do to their FSS into an employees own plan and until the uk law rules in favour of true equality your stuck with it.

- do the new pension laws mean that it's unlikely for a company to mess about with pensions in future,

Theres leway still for benefits to be reduced though most will offer poorer benefits for new members or a money purchase alternative befoe messing with the benefits of existing members.

and if I only stay with the company for a couple of years, would i be better off with defined contributions?

In theory you could be yes but most likely no. Even if a FSS is underfunded and the new employer wants to see the back of it or even closes it down you should still find if having been a member for a couple of years the transfer value would exceed all but the very very best personal pension invested fund. The actuary working for the final salary scheme can only manipulated the transfer value so far.

You could get a current independent financial adviser to look into it (i quit the industry 6 yrs ago) but I doubt he/she would disagee.