I'm f*&%ing clueless about pensions

[Koolbeans]

Hi, this is more a rant really I suppose. I just want to get this off my chest.

Does anyone really understand pensions or their pension scheme? I am a long way off retirement, but I've had a pension since I was 25. I can tell you that it is Defined Benefit and that the first 3 years of it where Final-Salary and the latter years are now Career Averaged.

That is the length and breadth of my knowledge. I'm ashamed to say this but I even went along to pension workshop at work last year and I still don't understand any of it. I can't be the only one, surely?

Absolutely agree with that.
I saw an IFA last year, took him through what I’d done already, and my reasons.
He wanted to know how I knew so much... simple answer: lurking on MSE forum, especially the Pensions topic.
It does help that I’m numerate and motivated! But there is a lot of information out there, and accessible too with people willing to explain things in forums!

I understand the basics of mine (partly thanks to the pensions dispute in universities last year which made me realise I should understand my pension better). Despite its other faults, my pension scheme has quite a good website, where you can enter your wage, contributions to date, and it calculates your expected pension for you. You can also play around with the assumptions (e.g. expected salary increases, expected retirement age, etc.). So, for me it shows for example an expected pension of £16k/year. But if I'd want to retire 5 years early, I would only get £11k/year.

Thanks for all the replies. I have spousal benefit, children are covered in my pension and there is a death in service pay out too.

My pension scheme allows members to make additional voluntary contributions. Is it worth investing any money I would overpay on the mortgage into this instead. My mortgage rate is about 2%, I have no idea what I could expect the rate to be if I shoved some extra cash in AVCs. I tried reading the info my scheme has but I'm still none the wiser. Are voluntary contributions treated as defined contribution or do they fall under the defined benefit scheme?

Sorry, I am bloody useless.

Hi OP, if you're in a union, see if you can get free access to an ifa via them. I did this, although the advice was to stay in the defined benefit scheme for as long as possible. Easier said than done with this government but that was his advice none the less.

A standard AVC is treated as a DC.
But you really need to ask your pensions department! They all have their own rules.
Something to check... my DB scheme allows AVCs. They can be a good idea because annual charges are low for us. BUT... we can only access them at same time as DB part. My extra pension savings are because I want to retire early. So I’d use my extra savings for 2 years, then retire. So for me, AVCs in company scheme weren’t suitable.

If you save into a private pension, you only save on tax. Some, but not all, company schemes save on NI too.

Get your scheme booklet, or check website, or see if you can talk to someone in the department. They’re not allowed to advise you, but they can explain how the scheme works.

@Koolbeans

rest assured, you are laughing. Rolling in it. I presume you work for the government.

No I don't work for the government or civil service. I don't think I'm rolling in it, I've only been paying into a pension for a few years and I'm a good 30+ years away from retirement .

I also have two young dc and still have childcare costs. I am far from rolling in it, believe me.

With 35 odd years service and /60 calculation your pension will be great!

Depends how long I'm in the job for. But on the face of it, I see what you're saying.

Nico

Also worth considering is any children....anything you have in a pension is generally lost in your death (there may be spousal benefit but very unlikely anything can be passed to children

Nico - DP says if he dies before he's 75 his pension pot is passed on to me or DC. Is he right?

Really informative thread! Similar to PP can anyone advise what happens to pensions when you die?

Pensions are usually passed on to children until they're 18, and/or surviving spouse until they're of retirement age. They won''t be paid any longer than that though, so if you are old parents, or there is a big age gap between spouses, this is probably a negligible benefit.

So if I have a 150k pension pot and die a month after retiring, all my money will be lost if my kids aren’t over 18 and DH has already retired?! Eek!

*are over 18

That’s not true @titchy.
You need to check your individual scheme rules.

If you have a DC pension, it’s a pot of money which can be inherited. Useful to note that it is excluded from inheritance tax threshold.

If you had a DC pension and already used it to buy an annuity (you buy a guaranteed amount for life) then you lose the lot when you die. Even if you only live for one week, you’ve already spent your money on the annuity. You can buy a joint annuity which would carry on paying out to a spouse - but it will cost you more. Annuities used to be really common, but changes in legislation have reduced that - as you can just keep your DC money invested and drawdown we required.

If you have a DB pension, that’s where you need to understand your scheme rules. My husband is a widower. He will receive a % if his wife’s pension for life. Their children receive a % until they turn 23. In my scheme, my husband would receive 50% of my pension, for life - not until his retirement age.

@ButterflyWitch - no, that’s not true. First you need to understand what type of pension you have. But the only way it’s going to just disappear is if you have already retired yourself and just bought a single annuity from money in a DC scheme, or if you have a DB scheme with no dependents benefits - which would be unusual I think.

Phew! There might be a pension heaven after all! I’ll check my scheme details

One thing I know is that whatever you can save and invest when you're young does magical things by the time you're ready to retire. If you get into the habit of putting away money when you're in your 20s, you'll get great benefits you would not get if you waited until later.

Placemarking for later

That's not to say there aren't advantages to an annuity on a DC pension. If you think you might make old bones and don't want to stress about outliving your capital, then they can be a good insurance policy. Whatever happens to the investment markets, and even if you live to be 125, they have to pay you out. Again, depends a lot on personal circumstances.

Thank you so much @Ellisandra and other pp! I've been sticking my head in the sand with regards to pensions, and need to get on top of things.

I work for a new company, who are just using NEST as a pension provider, so it's pretty basic. I was going to put it to them that a new better pension scheme would attract better talent to the organisation (the company is reliant on excellent staff). Any recommendations for where to look for good pensions providers/schemes?

I just posted a pension question as I don’t understand it either
I understand a mortgage but not pension

I have an NHS pension but I am leaving the NHS and the new pension won’t be connected. I will be moving back to NHS pension at some point so WTF do I do, pay into the new one which I can’t transfer? Or save it? Help!

don't worry, it's never too late to educate yourself