Pensions - what should I do?

pstones578

I'm 29 years old. I have been with my current employer for 2 years and am in their pension scheme. I currently earn £25,000 a year. My employer currently pays £27.40 per week into my pension scheme, I pay nothing. I have got a statement off them today which estimates that by retirement age of 65 I will have £102,000 in the pension fund and an estimated annual pension of £4,244 per year. The estimated annual pension seems low so I'm thinking I should start adding my own money to the fund to increase this. Is this the best way to go about securing my future when I retire? I'm wondering what happens to this scheme if I leave the company I'm with too. Does the pension go with you to where you work next?

Any comments greatly appreciated.

dunstonh

The estimated annual pension seems low

Your contributions will be about £51k over the term. The projections can use monetary growth rates of 5,7 or 9% or SMPI basis at 7% minus 2.5% for inflation. If you are in low risk funds or funds with low potential for growth, the provider may often use lower projection rates. Projection rates are just examples of what you may get if x% rate of return is achieved.

I should start adding my own money to the fund to increase this. Is this the best way to go about securing my future when I retire?

Possibly, possbily not. It depends on the scheme and what benefits it offers you.

I'm wondering what happens to this scheme if I leave the company I'm with too. Does the pension go with you to where you work next?

Depends on the type of pension scheme. Some are portable. Some are not.

Not much help I'm afraid but we need more information about the scheme to let you know what options there may be.

Certainly at age 29 and earning £25k, your contributions towards your retirement planning do seem too low.

EdInvestor

Hi pstones

pstones578 wrote:

Is this the best way to go about securing my future when I retire?

Are you buying your own home?

Have you saved up a cash emergency fund?

IMHO these two would take priority if you already have a non-contributory pension (and are paying into the state pension via NI).

Some people might say that paying off your mortgage early would also be a better use for the money. And others would say that saving/investing in an ISA is better as it is much more flexible than a pension.

There are lots of options.

Pal

If you increase your contributions, would your employer increase its contributions?

pstones578

I'm currently saving up to buy my first property, spent so long doing the student thing that I'm still at home!

pstones578

I am unsure as to whether the employer increases their contribution if I increase mine, does that make any difference as to whether I should bother or not?

dunstonh

pstones578 wrote:

I am unsure as to whether the employer increases their contribution if I increase mine, does that make any difference as to whether I should bother or not?

Well, if they do, its free money for you and money you dont need to pay, in full, yourself.

EdInvestor

pstones578 wrote:

I'm currently saving up to buy my first property, spent so long doing the student thing that I'm still at home!

In that case, it would be more sensible to save spare money for the deposit in an ISA at this point, because if you put the cash in a pension, you can't extract it until you are 55, which is rather a long time to wait for a house

Pal

You need to contact your employer and find out whether they will increase their contributions if you pay more. As Dunston says, if so it is free money.

If they will pay more, it can be argued that you should pay as much as is required to get the maximum pension scheme contribution from your company in preference to saving for a house, simply because you may not work for that employer in the future. I.e. if you save for a house now and then move jobs (volantarily or otherwise) your new employer might not pay anything. You will have lost out on free money.

That said, everyone needs a roof over their head. Speak to your employer about what they will contribute to your pension, then make a decision about how to balance your savings between property, cash savings and long term pensions.

Glamourpuss_3

pstones578 wrote:

I'm wondering what happens to this scheme if I leave the company I'm with too. Does the pension go with you to where you work next?

Any comments greatly appreciated.

Hi, I think a lot of the time if someone changes employment and leaves the pension scheme then the fund becomes a retained benefit and you wouldn't be able to touch the fund until you reached retirement age, it would just wait there earning interest for you.

However. as dunstonh says, some are portable so perhaps the fund you have would be transferred into your a new employer's scheme

It seems your employer pays 5.7% of your salary into your pension scheme so even if you were able to put another couple of percent into it yourself it would make a noticeable difference to your fund over the years (and if your employer matched that then that would be great!)

If you're thinking of moving employment sometime in the near future or if your employer won't match any payments you ask to make to your scheme perhaps you could consider opening up a Free Standing Additional Voluntary Contibutions (FSAVC) scheme with a pensions company as then if you did change employment you would be able to keep paying into it as long as your new employer also had a pension scheme (you'd just have to fill out some forms for the pensions company) and you'd still be getting tax benefits if you did it that way too.

Sorry if any of this sounds like daft advice to anyone, my pensions knowledge is a bit patchy and I'm not too sure what the new changes are to be from next tax year

x

dunstonh

you could consider opening up a Free Standing Additional Voluntary Contibutions (FSAVC) scheme with a pensions company

You would find it hard getting an FSAVC set up nowadays. Stakeholders or ISAs tend to be the preferred products to an FSAVC. In house AVCs are losing popularity too see the introduction of low cost alternatives and the recognition that in house AVCs aren't much use if you want to retire before the scheme retirement age (and you have pension trustees that lo longer allow early retirement benefits).