Pension Help

[sneakypetesgrandmaisace]

Hi,

I'm going to speak to an advisor about this but I so naive about pensions that it would be good to understand some basics before I do so. Thank you in advance if you can help.

I've had a partnership pension for 16 years. At the time I chose this over a defined benefit pension. I haven't paid much into it and think the balance is about £50k. I regret this, but can't change it now.

I'm now trying to work out if I should change to the defined benefit (average salary) pension that I am eligible for. I have over 30 years until state pension age.

I have worked for the same employer the entire time. I can give information about contribution percentages for both schemes but based on this limited information, is it a no brainier? Are defined benefit pensions always better?

Here are the contribution rates for each of the schemes.

Partnership pension:

Employer will pay 9% of salary plus will match employee contribution up to 3%. So a max employer contribution of 12%. This increases with my age though so would be a max of 18% by the time I am 46.

Employee contributions are unlimited but I wouldn't pay more than 7%.

Defined benefit career average pension:

Employer contribution is 28%.

Employee contribution is 7.35%.

Accrual rate is 2.32%.

Bumping. Hope that's ok!

The defined benefit is safer / better for a number of reasons.

1. if you add up there is an enormous difference between the employer contributions. Max 12% now vs 28% on DB. So you are missing out on all that "free" money from your employer.

2. with a DB pension - what you get out at the end is not dependent on your investment returns, it's worked out on your salary. There is less risk.

3. DB is protected by something called the Pension Protection Fund. This means even if the company fails and pensions investments fall short of what you are owed - you are protected.

Gold-plated DB schemes are increasingly rare and vanishing every day. If you have a chance at one, I would grab it with both hands!!!

@OnceUponAThread

The defined benefit is safer / better for a number of reasons.

1. if you add up there is an enormous difference between the employer contributions. Max 12% now vs 28% on DB. So you are missing out on all that "free" money from your employer.

2. with a DB pension - what you get out at the end is not dependent on your investment returns, it's worked out on your salary. There is less risk.

3. DB is protected by something called the Pension Protection Fund. This means even if the company fails and pensions investments fall short of what you are owed - you are protected.

Gold-plated DB schemes are increasingly rare and vanishing every day. If you have a chance at one, I would grab it with both hands!!!

Thank you very much for replying. That's what I suspected. I'm trying not to beat myself up about how much I've missed out on over the last 16 years. Will draw a line under it and get into the new scheme ASAP.

Don't beat yourself up!!

It sounds like your partnership scheme is still pretty decent (a lot better than most DC schemes) so it's not wasted time and at least you can get back on the DB now.

Agree with @OnceUponAThread it's a no brainer for the DB scheme.

And also echo the 'don't beat yourself up'. You're doing something now and have a great opportunity to make it much better than it was.

My only caveat is that it's a DB career average so if you plan to drop your hours prior to retirement and go part-time for a few years this could impact your final pension and would be worth checking.

Thank you both that's great advice and reassurance. I was 16 when I started working and joined the scheme. I had absolutely no idea back then (still don't now really!!). Have learnt a lot since looking in to this.