New job - final salary pension, picking funds? Confused..

divorcingjack

Hi all,

I have been reading through all the threads until my eyes bleed, so hope my questions aren't too obvious.

I start a new job on Monday and have just received the contract including pension info. As far as I can decipher it, it is an RPI linked final salary scheme on a 1/60th basis, with contributions from me of 4.5% gross.

I'm guessing that joining this scheme would be the smart thing to do. I am also planning on investing in stocks and shares ISA independently.

- Does it matter what the company contribute? It doesn't say anything about it in the info.

- Apparently the 4.5% contribution will only cost me about 2% of my net salary. Is this salary sacrifice? The scheme is contracted out - I don't really understand what this means. Idiot-proof terminology appreciated...

- There is an option to add AVC's. Is this worth it, or should I just add the money into the ISA?

- One of the pages details the funds available and has percentages where you can choose your investment mix. Cash, Consensus, UK equity, World Equity, or AAA-AA-A Corporate bond fund. They are all legal and general. Charges range from 0.1% pa to 0.22% pa. I assume these are just for AVC's?

Thanks for any help and advice! I'm 27 by the way.

CLAPTON

You get tax relief on your contributions
so 4.5% is effectively 4.5% x 80% i.e. 3.6%
as you are contracted out you pay 1.6% less NI contributions so your initial 4.5% is effectively 2%....

a very very good deal (is it public sector?)


contracted out mean contracted out of the state second pension scheme which means your state pension will be less than if contracted in. .. quite normal in these circumstances.

It doesn't matter what your employer pays in as your pension is defined benefits and so not dependant on the 'value ' of a fund.

However, your AVCs seem to be invested in a fund and so presumably are not guarenteed.
Depending upon your circumstances (do you own a property?) you might want to keep any extra money available rather than put it in a AVC

divorcingjack

Hi Clapton,

Thanks so much for your quick reply and info.

No, it's a big multinational company and I'm fully aware that it's pretty unusual to get a final salary scheme nowadays, which is why I'm so keen to understand how it works. (I don't really want to name my employer on the thread, but feel free to PM and I'll let you know)

I do own a property, and we are hoping to be mortgage free in the next 3-4 years. However, we may take an additional mortgage in the future to build a property if we can find a plot.

From what I can see on the boards, it seems to be the general consensus that it's a good idea to split your retirement provision between a company scheme and ISA's/flexible investments.

I have been on a low income for some time now, so I am now in a position to accrue substantial savings/investments. :beer: It's quite sad, but I'm really excited!

Cheers

dj

jonathon_hart

divorcingjack wrote: »

- Does it matter what the company contribute? It doesn't say anything about it in the info.

Not to you it is the company's responsibility to ensure there are enough funds in the scheme to pay for it.

divorcingjack wrote: »

- One of the pages details the funds available and has percentages where you can choose your investment mix. Cash, Consensus, UK equity, World Equity, or AAA-AA-A Corporate bond fund. They are all legal and general. Charges range from 0.1% pa to 0.22% pa. I assume these are just for AVC's?

Correct

Debt_Free_Chick

divorcingjack wrote: »

No, it's a big multinational company and I'm fully aware that it's pretty unusual to get a final salary scheme nowadays, which is why I'm so keen to understand how it works.

Put simply, it's a promise from the company to pay you a certain pension when you retire. The pension will be a percentage of your salary, based on the years you've worked there and been in the scheme. If these were 20 years in total, then the pension would be 1/3 (20/60) of your salary. The salary they use will be defined - it could be the last year's basic pay or an average of three years pay; it won't include bonus or any other element of remuneration unless specifically mentioned.

The promise also includes pension increases, paid from the 2nd year onwards and it would include a pension to your spouse/dependant, which they receive for life, after your death.

HTH

divorcingjack

Thanks so much for all your advice everyone, I'll be in that scheme like a rat up a drainpipe as soon as I arrive on Monday morning!

Just one more question:

I also have a form for 'death benefit' and spousal pension. Now, I'm not married (that's another story :mad:), and don't have any children.

Is there anything to stop me from naming my partner or parents as the recipient of these benefits? Presumably I can change it if I do have children/get married?

Cheers

dj

Debt_Free_Chick

divorcingjack wrote: »

Thanks so much for all your advice everyone, I'll be in that scheme like a rat up a drainpipe as soon as I arrive on Monday morning!

Just one more question:

I also have a form for 'death benefit' and spousal pension. Now, I'm not married (that's another story :mad:), and don't have any children.

Is there anything to stop me from naming my partner or parents as the recipient of these benefits? Presumably I can change it if I do have children/get married?

As you say ... name your partner or parents or split the total between them e.g. put down both and specify the percentage they are to receive Partner - 50% Parents - 50% or whatever.

Yes - you can change it at any time. If you didn't change it, the managers (or trustees) of the pension scheme would still look into your personal circumstances and take account of your situation at death. But it's always best to simply complete a new form.