How important is a company pension?

[mikecotterill]

Ok so what if I changed it slightly and said, which would you choose from a job with the above pension and low pay or a better paid job but no pension?

[Gareth Dalzell]

Are you asking how important is a company pension because in a few months time you may be asking should I opt out as you will automatically be "in" if you don't.

 

Employer and government payments to workplace pensions : Directgov - Pensions and retirement planning

 

This will have an impact on any pay rises which are being considered this year I would imagine by employers.

 

Clearly there is no money in the kitty and everyone will need provision in their old age and not everyone can buy an additional property so as a society we need to provide for everyone whether we want to or not. I just have a bit of an issue with the numerous final salary pension schemes floating about paid for by tax payers hard earned money.

 

So in answer to your question "how important is a company pension?" if could be very important long term if you have no other investments or provision. And the fact that your employer is obliged to pay into it and there is personal tax relief on it, it's a win, win situation - consider it a stealth payrise or bonus.

[agg221]

This was another thing I'd wondered. I thought that for it to be any use I'd have to stay with the company for the next 20yrs or so. But your saying it doesn't matter if I move I'll still get something?

 

That's correct - I've got two previous ones.

 

The old-style company pension scheme tends to allow you the option to defer payment until you retire. The more modern system is to use a pension investment company like Standard Life, Scottish Widows etc. It's like having a bank account that you can only withdraw from by closing it to set up your pension. The bank account continues to exist whether or not anybody (you or your employer) is paying in to it. Eventually you close them all down, separately or together - up to you, withdraw the money and move it into a big pot, in exchange for an agreed sum to be paid to you as an ongoing pension for life.

 

The return you get on the investment varies with your attitude to risk. These investments are called funds, and you really need to talk to a pensions adviser to choose them. If you take the view that it's very important you get something back, the money goes into secure investments like government bonds, that don't make much interest. If you take the view that it's nice to have, and on the long term you should be OK (and don't watch it with fear on a daily basis!) then overall you usually do better with slightly higher risk investments. To put this in context, I think we managed something around 100% growth from 2002 to 2008 in medium-high risk funds, and even in the last few years it would still be more than 5% average.

 

If the company has an agreed provider (e.g. Standard Life) then you might as well talk to their adviser as it will be free and they can take you through the funds they offer, the relative levels of risk, and let you sort out ones you're happy with.

 

Alec

[NFG]

Hi

 

Put your money into property, pension funds have a nasty habit of being raided or diminished in management charges

 

so pay off your mortgage first

 

N

Edited February 6, 2012 by NFG

[agg221]

Hi

 

Put your money into property, pension funds have a nasty habit of being raided or diminished in management charges

 

N

 

I disagree with this. Historically, you're correct, but legislation has put a stop to raiding, and management charges are coming down a lot.

 

The property route loses you both the tax advantage and you don't get the input from your employer at double what you're putting in. It's also only viable if you have a lot spare. Say you're putting in 4% of a £20k salary, that's around £67 a month, for which you're getting benefit of £200 tax free. £66 won't pay for much of a property investment!

 

Alec

[firewood]

The state pensions are running out even now. I've been contracted out of the state pension since I was 18, and this year they are putting an end to that...why? I assume because they dont have enough money to pay out the pensions they currently have to pay so need more money in the kitty now

 

Me too. I believe it is because the govt could be held liable for misselling sometime in the future. I think "contracting out" will be the next scandal after ppi.

 

http://www.kinnoirwoodfuel.co.uk

[firewood]

I disagree with this. Historically, you're correct, but legislation has put a stop to raiding, and management charges are coming down a lot.

 

The property route loses you both the tax advantage and you don't get the input from your employer at double what you're putting in. It's also only viable if you have a lot spare. Say you're putting in 4% of a £20k salary, that's around £67 a month, for which you're getting benefit of £200 tax free. £66 won't pay for much of a property investment!

 

Alec

 

Correct as far as it goes. The problems arise when you come to retire and find you can only access part of your pot directly. The majority has to be used to purchase an annuity at currently ruinous rates . when you die the remainder of the annuity is won by the life company.

 

Moral of the story...work hard and do your best the get ###### like all the rest.

 

http://www.kinnoirwoodfuel.co.uk

[Shane]

The best advice is to talk to a pensions expert and get him/her to write it out, draw diagrams or whatever.

Everyone here will have opinions based on their own experience/knowlege. Our understanding of it all may or may not be correct. Me included.

 

There are all sorts of pitfalls, benefits, quirks with each type.

I would assume the company's scheme is a money purchase (very few of the old final salary ones now running). If you leave the company your 'pot of money' will be put to one side until you retire. Then the money is used to 'buy' a pension from an organisation at that time. The question is... in the time between you leaving and finally drawing the pension - how (if at all) do they increase the pot to compensate for inflation?

The same is true, if I recall correctly, for final salary schemes.

As many have said above - there is a lack of funds going into pension schemes - not enough to meet current (let alone future) commitments.

 

I have also been told that once you start to draw your pension the 'Robert Maxwells' who run it cannot make changes to it. But they CAN up to the day before you retire.

Guess how many scemes are changed to improve the payments.

 

Those of us who are older may have half decent pensions to look forwards to but I really pity the younger folk.

Property is expensive at the moment but investment wise may well be a safer long-term bet. After all do these pension companies run the schemes for us or to make money for themselves.

 

Older and more cynical than ever...

Shane

[born2trot]

Spot on Shane, the company i worked for ( huge well known national company ) stopped paying into our pension for i think it was 7 years or something of that ilk and didnt tell anyone , nobody had a clue but them until the whistle was blown on them. Union funded pension lawyers in to sort out the mess , how on earth could a lone employee fund any investigation or misdimeanor .. simple they couldnt.

[gensetsteve]

I think property has alot further to fall in value as much as a third. I think in a few years there will be some good rental opportunities houses that cost 140k may drop to 80. Give this some thought as its as important to have somewhere to live as it is to pay some suited fat cat manager his commission. It will be more difficult to get a mortgage if your throwing £200 a month into a black hole. The reason pension schemes are so complicated is so they can rob you blind without you realising until its too late. I am the generation that got ripped off with mortgage endowements and now we are working to prop up the banks again.