Anyone know about Pensions?
Discussion
Anyone on here able to give me advice on Pensions? Last year I joined the pension scheme where I work. it is a final salary type which is supposedly quite good(but not as good as it was, I just missed out)
I have 2 questions.
When I was 18 some bloke came to the door he had got my name from the electorial register and told me how amazing it was that we could contract out of Serps. I did just that. Now I havnt thought about it since or checked up on it. didnt even know what that meant but being 18 and thick and the promice of riches to come and how the state pension was rubish I took it all in
question is can I tranfer this money into the Final salary works pension?
Question 2.
Things are looking dodgy where I work and I may have to move jobs.
Whatever new job I go to will almost certainly not have a final salary type pension scheme.
DO I have to leave the scheme I'm in and join the one at the new firm?
Cheers.
ps I know absolutely nothing about pensions zilch! Please use small words i'm 34 if it makes any difference.
Thanks in advance
First piece of advice
1) Don't ask for pensions advice on t'internet. You really need to ask an independant financial adviser. Here is a start www.unbiased.co.uk/
2) Re the opting out of Serps. No doubt the smiling sharp suited gentlemen persuaded you to invest in some sort of investment device as a personal pension? You need to understand the details of the exit strategy, if any, from that investment and penalties / possibilities. That is not possible to do in these circumstances which is why you need an IFA. It may be that your current company scheme rules & trustees will allow you to purchase extra credits by transfer of funds from an earlier scheme, again not an easy one see item 1) above.
3) If you leave your current job then again it all depends. Let us say you leave on your own initiative to another job with pension you will have the option of leaving your assets in the old scheme as a deferred pensioner* or transferring the value** into the new scheme, assuming the new scheme rules and trustees allow that.
4) * Your deferred pension will most likely be based on whatever % of your salary you have earnt at time of leaving. This will in theory sit in the old scheme and grow at a predetermined rate (hopefully) again as defined by combination of legislation and scheme rules. This will be paid at the normal pension date defined by scheme rules, usually 65, but given current state God only knows what will happen in the next 31 years.
5) ** If you transfer into an alternative scheme the transfer value is almost certainly only your contributions and not the Company contributions. *** Then again you would need to talk to new Company what they are prepared to allow in credits with your transfer value. Hence you need very clear advice back to 1)
5) The problem is that you say current company looks dodgy. If the company does go tits up then the pension scheme will be in a problem. This is because certain classes of members have call on the funds in a certain order. Usually first pensioners, then deferred pensioners, then members, which is the case you would be if you were still an employee.
6) *** Just to make you aware its a big bad world out there, I know of people who have jumped ship, transferred 25 years worth of assets into a scheme only for that scheme to go bang within a year. Everything went to the current pensioners. Deferred pensioners and members got more or less nowt. The company I'm thinking of used to be part of what used to be known as one of the best funded pension schemes in UK and I do not exaggerate when I say the best of the best. I used to be one of their trustees, but moved on and after 20 years of demergers, sell offs, difficult times, finally a very shady foreign owner it all turned to tears.
7) One strange question you asked was do I have to leave my current scheme. I can think of only one circumstance where someone would actually work for company B yet still be an active member of company A scheme, and that is where A nd B are both daughter companies of the same umbrella group. An unlikely scenario but I know of several people in that boat, myself included until a few years back when the schemes were consolidated.
7) So in all not easy, back to step 1)
8) Before you talk to an IFA, go through and gather together all your paperwork, TRY and understand it so that you have facts to hand when the IFA does a financial review.
Hope that helps and explained simply enough.
FiF
>> Edited by Flat in Fifth on Saturday 10th December 09:14
1) Don't ask for pensions advice on t'internet. You really need to ask an independant financial adviser. Here is a start www.unbiased.co.uk/
2) Re the opting out of Serps. No doubt the smiling sharp suited gentlemen persuaded you to invest in some sort of investment device as a personal pension? You need to understand the details of the exit strategy, if any, from that investment and penalties / possibilities. That is not possible to do in these circumstances which is why you need an IFA. It may be that your current company scheme rules & trustees will allow you to purchase extra credits by transfer of funds from an earlier scheme, again not an easy one see item 1) above.
3) If you leave your current job then again it all depends. Let us say you leave on your own initiative to another job with pension you will have the option of leaving your assets in the old scheme as a deferred pensioner* or transferring the value** into the new scheme, assuming the new scheme rules and trustees allow that.
4) * Your deferred pension will most likely be based on whatever % of your salary you have earnt at time of leaving. This will in theory sit in the old scheme and grow at a predetermined rate (hopefully) again as defined by combination of legislation and scheme rules. This will be paid at the normal pension date defined by scheme rules, usually 65, but given current state God only knows what will happen in the next 31 years.
5) ** If you transfer into an alternative scheme the transfer value is almost certainly only your contributions and not the Company contributions. *** Then again you would need to talk to new Company what they are prepared to allow in credits with your transfer value. Hence you need very clear advice back to 1)
5) The problem is that you say current company looks dodgy. If the company does go tits up then the pension scheme will be in a problem. This is because certain classes of members have call on the funds in a certain order. Usually first pensioners, then deferred pensioners, then members, which is the case you would be if you were still an employee.
6) *** Just to make you aware its a big bad world out there, I know of people who have jumped ship, transferred 25 years worth of assets into a scheme only for that scheme to go bang within a year. Everything went to the current pensioners. Deferred pensioners and members got more or less nowt. The company I'm thinking of used to be part of what used to be known as one of the best funded pension schemes in UK and I do not exaggerate when I say the best of the best. I used to be one of their trustees, but moved on and after 20 years of demergers, sell offs, difficult times, finally a very shady foreign owner it all turned to tears.
7) One strange question you asked was do I have to leave my current scheme. I can think of only one circumstance where someone would actually work for company B yet still be an active member of company A scheme, and that is where A nd B are both daughter companies of the same umbrella group. An unlikely scenario but I know of several people in that boat, myself included until a few years back when the schemes were consolidated.
7) So in all not easy, back to step 1)
8) Before you talk to an IFA, go through and gather together all your paperwork, TRY and understand it so that you have facts to hand when the IFA does a financial review.
Hope that helps and explained simply enough.
FiF
>> Edited by Flat in Fifth on Saturday 10th December 09:14
Chances are your final salary scheme will be downgraded more and more as time goes by. All the big UK companies are heading that way now, towards pseudo direct contribution, or just plain old direct contribution, with the employer contribution matching the employee if they choose to invest more.
DB schemes like what you are on just are not working out, there are HUGE defecits and they simply can't afford to keep providing these bloated promises they made many moons ago.
My employer gives me 3%, then any on top of that they match upto another 6%, so in essence I get 3% default, then 9% for a 3% investment of my own, or 15%, for a 6% investment of my own. They use Scottish Widows and is the kinda route most people are taking now, albeit in-house schemes that you will take up run by your employer still, but run as a contribution, not a benefit scheme.
I have no idea about the rest of what you said, I'd go see a financial advisor for the short term, but realise that schemes ARE changing, and unless you are a top earner within your company, then you likely will be just moved to a contribution scheme.
Probably can't say too much because of client confidentiality and I don't know who knows what, but alot of schemes are moving the way I say, and most are expected to shift, so don't expect your short term plans or financial advice to really play true for the coming years thats all if the final salary is all your worried about.
Dave
DB schemes like what you are on just are not working out, there are HUGE defecits and they simply can't afford to keep providing these bloated promises they made many moons ago.
My employer gives me 3%, then any on top of that they match upto another 6%, so in essence I get 3% default, then 9% for a 3% investment of my own, or 15%, for a 6% investment of my own. They use Scottish Widows and is the kinda route most people are taking now, albeit in-house schemes that you will take up run by your employer still, but run as a contribution, not a benefit scheme.
I have no idea about the rest of what you said, I'd go see a financial advisor for the short term, but realise that schemes ARE changing, and unless you are a top earner within your company, then you likely will be just moved to a contribution scheme.
Probably can't say too much because of client confidentiality and I don't know who knows what, but alot of schemes are moving the way I say, and most are expected to shift, so don't expect your short term plans or financial advice to really play true for the coming years thats all if the final salary is all your worried about.
Dave
FiF is obviously well informed but I would add one thing and that is that not all final salary schemes (defined benefits) are vulnerable to company collapses. Those from smaller companies are often operated by financial institutions like insurance companies - Scottish Provident used to do one I was in, for example. The pension is as secure as the insurance company, not the employer.
IMO this sort of forum is a good place to pick up general tips because you get a number of different opinions. If you just go to one "independent financial adviser" then you only get one point of view.
Final Salary pension schemes can be good PROVIDED you stay with the same employer for a long time. A long time means more like 20 years than 5 and ideally you want that big slice of continuity at the end of your career rather than at the beginning. Hard to plan for! This is why public sector workers are much better off for pensions than most private sector workers at the moment. Few people in the private sector stay with one employer for long so there's not that much chance of doing better in a Final Salary scheme than a Money Purchase scheme.
Pension planning is reality, not magic. A pension scheme can only pay out the value that has been put into it plus the investment return. To get a decent pension you generally need to have had cash invested into a scheme at a rate of at least 12% of your gross earnings THROUGHOUT YOUR WORKING LIFE. That 12% may be paid partly by employer and partly by employee, although the self-employed obviously have to do it all themselves.
Any scheme which your employer is making payments to is worth joining - otherwise you're agreeing a voluntary pay cut!
IMO anyone who does not know what to do MUST do something as opposed to do nothing. The sort of thing that can make sense is to,
Invest in a Stakeholder Pension. You get immediate tax relief on your contributions and can draw a pension after retirement, and/or
Invest in an ISA. There's no tax relief on your contributions but the investment return rolls up tax free. You are not restricted as to when and how you access the ISA fund.
If in doubt, DO SOMETHING!
I have no involvement in the pensions or investment industry. Talk to one or more Independent Fianancial Advisers, talk to people whose opinions you value and then make up your own mind.
Final Salary pension schemes can be good PROVIDED you stay with the same employer for a long time. A long time means more like 20 years than 5 and ideally you want that big slice of continuity at the end of your career rather than at the beginning. Hard to plan for! This is why public sector workers are much better off for pensions than most private sector workers at the moment. Few people in the private sector stay with one employer for long so there's not that much chance of doing better in a Final Salary scheme than a Money Purchase scheme.
Pension planning is reality, not magic. A pension scheme can only pay out the value that has been put into it plus the investment return. To get a decent pension you generally need to have had cash invested into a scheme at a rate of at least 12% of your gross earnings THROUGHOUT YOUR WORKING LIFE. That 12% may be paid partly by employer and partly by employee, although the self-employed obviously have to do it all themselves.
Any scheme which your employer is making payments to is worth joining - otherwise you're agreeing a voluntary pay cut!
IMO anyone who does not know what to do MUST do something as opposed to do nothing. The sort of thing that can make sense is to,
Invest in a Stakeholder Pension. You get immediate tax relief on your contributions and can draw a pension after retirement, and/or
Invest in an ISA. There's no tax relief on your contributions but the investment return rolls up tax free. You are not restricted as to when and how you access the ISA fund.
If in doubt, DO SOMETHING!
I have no involvement in the pensions or investment industry. Talk to one or more Independent Fianancial Advisers, talk to people whose opinions you value and then make up your own mind.
motco said:
FiF is obviously well informed but I would add one thing and that is that not all final salary schemes (defined benefits) are vulnerable to company collapses. Those from smaller companies are often operated by financial institutions like insurance companies - Scottish Provident used to do one I was in, for example. The pension is as secure as the insurance company, not the employer.
Thanks for the support Motco.
Yes you are correct re security. Perhaps I should qualify what I had in mind when I said company scheme in trouble and then went on to talk about half the story, the worst and scariest half. oops.
Yes it could fold in the worst cases however life is more difficult for the scheme when a company closes.
Without getting complicated, and considering that I am not an actuary, actuarial valuations are done on defined benefit schemes to get an assessment of how well funded or "solvent" the scheme is, which these days due to Brown et al meddling is usually how big is the deficit!
One basis for the present and future demands on the scheme is the member profile. How many pensioners, how many deferred, actives, age profiles, death rates, staff turnover, etc etc etc.
When a company closes that profile changes overnight, the active members are no longer errr active paying members. Same for the Company. Many of the actives are now seeking early retirement if they can. People gettng other jobs and maybe asking for transfers to other schemes at a much higher than expected rate.
I think that pressured scenario would apply regardless of who runs the scheme.
Personally, and this is a purely political point, in years to come I do believe that the "pensions issue" could come to be Labour's equivalent of Maggie's Poll Tax debacle. Even though imho the "Poll tax" was actually a good idea.
Problem is they've made SO MANY such moves in SO MANY areas that, to be fair, one could nominate many other issues that could be so regarded. I think we should run a book on how many years they will be out of power next time. 20 years?
/
FiF
>> Edited by Flat in Fifth on Saturday 10th December 11:58
simpo two said:
Mainly because the companies frittered away the funds and didn't bother to actually contribute to them........
And Brown taxed the dividends. And the stock market went pop.
Well it's a bit more complicated than that.
As I mentioned on another post I used to be a scheme trustee, not any more long story, they keep asking me to go back but I don't want to know. (btw this isn't the scheme which went bang but another one)
Anyway what happened to us was.
Scheme well funded, to the point where we had been prudent
pensioners and members got a good deal (honestly!) and our scheme was recognised as a good one. Not a massive scheme about 500 or so actives and fair few pensioners plus some deferred. Anyway our fund got to the point where HMG in the guise of the revenue said we were in danger of being overfunded according their rules. That we must reduce this or they would apply sanctions.
So we did. We increased the benefits, we increased pensions. The Company reduced its payments, fair enough difficult trading times. When the Company got a bit better in trading terms resumed contributions.
Then Gordon Brown :spit: :spit: :spit: made his pension raid.
Then the stock market went toes up.
Then the accountancy rules changed.
Big deficit, which to be fair the Company agreed it would fund on the basis of a lump sum payment, increased contributions from Company and members, and some minor changes to benefits around early retirement rules.
Scheme funding OK but could be better.
HMG says nothing to do with us you big and bad business people. Extra taxes to cover up the balls up Gordon has made of it all.
And there is more to come from HMG mark my words.
Then you might understand why I would willingly lead Brown in front of the wall come the revolution.
Sorry for the rant be better after a lie down.
FiF
>> Edited by Flat in Fifth on Saturday 10th December 12:00
pesty said:
Things are looking dodgy where I work and I may have to move jobs.
Whatever new job I go to will almost certainly not have a final salary type pension scheme.
DO I have to leave the scheme I'm in and join the one at the new firm?
If you have been with your current scheme for less than 2 years you will have to transfer it to your new company or personal pension. If you have been there more than 2 years you can leave it where it is but you cant add to it.
Dont forget that with company pensions you can pay AVC's. (Additional voluntary contributions) basically overpaying. If its a good scheme its something to think about but get proper advice
Jaglover said:
Mainly because the companies frittered away the funds and didn't bother to actually contribute to them........
The biggest problems have been the poor stockmarket perfromance and rising life expectancies. Gordon Brown has also contributed by taxing pension funds.
Why cant we have a system where employers pay money into a pension scheme owned and managed by the individual?
I appreciate that a pension is an investment vehicle, and it's value can go up and down, but I'd really like a scheme whereby I know what I've got, and how it's changing.
In this age of technology, surely it must be possible for an individual to have a investment pension scheme whereby you get a statement, perhaps once a year, letting you know what's going on.
Maybe, it'd be possible to make it transferrable, so if you don't like the investment choices made by your fund manager, you can take your money elsewhere?
Maybe that's too obvious?
I appreciate that a pension is an investment vehicle, and it's value can go up and down, but I'd really like a scheme whereby I know what I've got, and how it's changing.
In this age of technology, surely it must be possible for an individual to have a investment pension scheme whereby you get a statement, perhaps once a year, letting you know what's going on.
Maybe, it'd be possible to make it transferrable, so if you don't like the investment choices made by your fund manager, you can take your money elsewhere?
Maybe that's too obvious?
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