Pensions?

[DennisNedry]

Me and my employer pay 1% of my minimum wage

 

I'll probably be able to buy a celebratory Freddo with it (inflation permitting) when I retire in my (probably late) 70s.

[Frank to be]

Invariably your employer will pay double the rate of you contribution

Matched contributions are common up to a point but I've never heard of a private sector employer doubling contributions. The best I've ever had was 7% employer to my 5%. Right now I'm on 7%/7%

[AS78UK]

Matched contributions are common up to a point but I've never heard of a private sector employer doubling contributions. The best I've ever had was 7% employer to my 5%. Right now I'm on 7%/7%

I pay 3% and my employer 6%.

[separator]

I pay in 4%, company pays in 8%, I was on a final salary pension then they moved to a different scheme. With the new one I can change how Legal & General invest, depending on how much risk I'm prepared to stomach. Haven't bothered looking into this yet though.

[Frank to be]

I must be getting ripped off then

[DJ Barry Hammond]

Depends what you want to know Ashley, but to start off simple;

Having some sort of private pension provision looks like it will be essential for those of us in the earlier years of work now, given that there is no way the state pension could be maintained at this respective level / retirement age in the future. The government knows this, which is why employers have to offer a work place pension now and auto enrolment is coming in.

Auto enrolment - this basic means that when starting a new job you will join the company pension scheme at a minimum percentage of your salary - 1% at the moment I think. You can opt out, but you have to actually do something to do this.

If you do decide to pay into a pension through your salary, this will come out of your gross pay meaning you won't pay tax on this amount, all of it goes into your pension pot. Normally your employer will pay in something for you too - most will match your amount, but some can be more generous, including those that offer 'non-contributory' schemes, which is where the employer pays in even if you don't.

In terms of type of schemes, most will be money purchase. With these schemes your money is invested with a view to it growing over time. The danger with this is that if the market takes a turn for the worse as you want to retire, your invested pot could suddenly be worth a lot less but to combat this, schemes are these days setup with automatic switching to less risky investments as you get closer to your retirement.

IF you are in or can still join a FINAL SALARY scheme then make sure you take advantage of this because it's the best type of pension you can get. As the name suggests, you still pay in but at the end you get a pension based on a percentage of your final salary. A money purchase scheme can't really beat this - but these schemes are much more expensive and risky to the employer, which is why they are a rare thing to find for people joining a new job.

In terms of taking retirement, under a personal arrangement you can elect to take retirement at 55 - if you're confident your pot is going to last long enough.

Ok, you may not retire at 55, but this is another benefit of having a personal pension over relying on the state pension as the earliest you can get that these days is at 65 and that age bracket will ge going up.

Taking your personal pension also comes in two parts. You can have a lump sum at the start, equivalent to 25% of your pot - so say if your pot was worth £100,000 you could take £25,000 up front as Tax Free Cash (official name Pension Commencment Lump Sum or PCLS).

The rest of your pot then goes towards providing you a pension, through a means of your choosing - this could be an annuity (a product that takes your money and guarantees to pay you a certain amount until you die), some kind of drawdown (where you money stays invested inside a pension, but you draw bits out as a pension), OR under the new rules, you can take out the rest and invest it yourself outside of the pension, but you would be taxed on this amount.

Hope this helps a few. Any questions on this area by all means ask.