Pension - Is there an easy answer?
Discussion
So I'm moving jobs, and have to decide if I want to opt out of the pension the company offer, or not.
I have a pension currently, because it's with the NHS, and is a 'no-brainer', but I don't know how good this new pension is. Is there a simple guide somewhere?
The figures are:
My contribution: 4%
Company contribution: 5% (9% after 2 years)
Naturally the example given shows a monthly saving in tax and NI, so I can't know exact figures (as the example isn't the pay I will be on).
I'm going to just nip into the higher tax bracket, which may or may not have a bearing on whether it's worthwhile doing this or not.
Any advice?
I have a pension currently, because it's with the NHS, and is a 'no-brainer', but I don't know how good this new pension is. Is there a simple guide somewhere?
The figures are:
My contribution: 4%
Company contribution: 5% (9% after 2 years)
Naturally the example given shows a monthly saving in tax and NI, so I can't know exact figures (as the example isn't the pay I will be on).
I'm going to just nip into the higher tax bracket, which may or may not have a bearing on whether it's worthwhile doing this or not.
Any advice?
If you opt out you are losing the money the Company pays in - in this case you are giving up 5% of your salary (rising to 9% afer 2 years).
Pensions do have their faults but not taking up the pension option is just throwing money away.
If you are just tripping into the 40% tax bracket, the tax breaks on pensions are even more valuable as you are most likely going to be a basic rate tax payer when you retire. So you save 40% on the way in and pay 20% on the way out. (All the usual caveats about the fine detail, of course.)
Pensions do have their faults but not taking up the pension option is just throwing money away.
If you are just tripping into the 40% tax bracket, the tax breaks on pensions are even more valuable as you are most likely going to be a basic rate tax payer when you retire. So you save 40% on the way in and pay 20% on the way out. (All the usual caveats about the fine detail, of course.)
Pulse said:
I get life cover regardless (4x salary) - or at least I think I do, without joining the pension.
Every company is different. I get 4x cover with the company pension, then an additional 5x cover on top (non pension reated). If i hadnt joined the scheme id only get the 5x coveranonymous said:
[redacted]
I'll be completely honest - I know nothing about pensions, how they work, what's a good deal or not, what annuity is, etc... I should probably do some reading up on it.I don't even know what my NHS pension will give me to be honest - I just paid into it because I was told it was worthwhile.
Hiya. As a starter, annuity is related to the word annual and refers to a regular series of payments. When you retire and receive your pension the money you get is called an annuity. You buy the annuity by using the money built up in your pension fund.
So when you get to 65 you may have built up say 100,000 pounds in the fund. You take that to an annuity provider, and they take your 100k and promise to keep paying you x until you die.
If you look online or in the ft they publish tables of what the best annuity rates are for certain ages (and sexes).
If you want to get really advanced then start looking up joint life mortality tables and working out someone's average age if you know their age last birthday on the next policy anniversary!
So when you get to 65 you may have built up say 100,000 pounds in the fund. You take that to an annuity provider, and they take your 100k and promise to keep paying you x until you die.
If you look online or in the ft they publish tables of what the best annuity rates are for certain ages (and sexes).
If you want to get really advanced then start looking up joint life mortality tables and working out someone's average age if you know their age last birthday on the next policy anniversary!
Irrotational said:
Hiya. As a starter, annuity is related to the word annual and refers to a regular series of payments. When you retire and receive your pension the money you get is called an annuity. You buy the annuity by using the money built up in your pension fund.
So when you get to 65 you may have built up say 100,000 pounds in the fund. You take that to an annuity provider, and they take your 100k and promise to keep paying you x until you die.
If you look online or in the ft they publish tables of what the best annuity rates are for certain ages (and sexes).
If you want to get really advanced then start looking up joint life mortality tables and working out someone's average age if you know their age last birthday on the next policy anniversary!
Sounds like someone remembers the exposed to risk stuff in the life contingencies paper ...So when you get to 65 you may have built up say 100,000 pounds in the fund. You take that to an annuity provider, and they take your 100k and promise to keep paying you x until you die.
If you look online or in the ft they publish tables of what the best annuity rates are for certain ages (and sexes).
If you want to get really advanced then start looking up joint life mortality tables and working out someone's average age if you know their age last birthday on the next policy anniversary!
free money!
as long as the bosses are paying the bulk (made up with a bit of tax relief for you) just join the scheme. it would have to be a really bad choice of fund for that not to be worth doing.
as an IFA that is the easiest piece of advice I ever give. Read up on pensions afterwards; the NHS scheme is excellent, and of a type that are fast disappearing.
as long as the bosses are paying the bulk (made up with a bit of tax relief for you) just join the scheme. it would have to be a really bad choice of fund for that not to be worth doing.
as an IFA that is the easiest piece of advice I ever give. Read up on pensions afterwards; the NHS scheme is excellent, and of a type that are fast disappearing.
westberks said:
free money!
as long as the bosses are paying the bulk (made up with a bit of tax relief for you) just join the scheme. it would have to be a really bad choice of fund for that not to be worth doing.
as an IFA that is the easiest piece of advice I ever give. Read up on pensions afterwards; the NHS scheme is excellent, and of a type that are fast disappearing.
Excellent advice, listen to this.as long as the bosses are paying the bulk (made up with a bit of tax relief for you) just join the scheme. it would have to be a really bad choice of fund for that not to be worth doing.
as an IFA that is the easiest piece of advice I ever give. Read up on pensions afterwards; the NHS scheme is excellent, and of a type that are fast disappearing.
westberks said:
free money!
It's NOT free if you HAVE TO pay as well, however good it seems.Moreover, the long term outcome may be not so satisfactory, I hope you are aware what they invest it in (most likely bonds of insolvent governments of the 'west').
I wouldn't say there is any easy answer at all, the chances of getting lucky with a no-brainer approach are less than over the last 50 years IMO.
chris7676 said:
westberks said:
free money!
It's NOT free if you HAVE TO pay as well, however good it seems.Moreover, the long term outcome may be not so satisfactory, I hope you are aware what they invest it in (most likely bonds of insolvent governments of the 'west').
I wouldn't say there is any easy answer at all, the chances of getting lucky with a no-brainer approach are less than over the last 50 years IMO.
even if the guy is a basic rate tax payer and the gross contribution is £200 pcm on a 50/50 split, the net contribution for the member is £80; even less if it is arranged under a salary sacrifice arrangement (or a bigger contribution than £200 for the same outlay). the use of the term 'free money' was obviously a little tongue in cheek but get real, was inteneded to emphasise the value of an employer sponsored scheme over the alternative of doing f'all.
as for the investment, he can look into that in the near future and most schemes these days have a good selection of funds and most won't invest in bonds of the decadant west. Under pound cost averaging of regular contributions he has plenty of time to review this before it becomes remotely important. with a possible 40 year term he should be going higher risk than corporate bond or gilt funds anyway.
would love to hear of an alternative suggestion that is better value based on a zero starting point and monthly funded.
chris7676 said:
It's NOT free if you HAVE TO pay as well, however good it seems.
Moreover, the long term outcome may be not so satisfactory, I hope you are aware what they invest it in (most likely bonds of insolvent governments of the 'west').
I wouldn't say there is any easy answer at all, the chances of getting lucky with a no-brainer approach are less than over the last 50 years IMO.
That's a very cynical post. Mrs BC & I have done rather well from our pensions.Moreover, the long term outcome may be not so satisfactory, I hope you are aware what they invest it in (most likely bonds of insolvent governments of the 'west').
I wouldn't say there is any easy answer at all, the chances of getting lucky with a no-brainer approach are less than over the last 50 years IMO.
Anyway, your alternative is?
Edited by bad company on Thursday 15th August 10:40
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