Silly question about pensions

[RussianBlu]

Hello

I never was very good at things related to finance and I am totally confused about the whole pension thing. If anyone could advise I would be really grateful.

When I look on my payslip I can see how much I contribute to a pension each month, it says at the bottom of the slip that its 5.90%. Anyway, its the part about the employers contribution that confuses me. It says ER's Pension and then lists a figure about 3 and a half times the amount of my contribution then it says ER's NI which is more or less what I pay each month minus about £4. These 2 figures are in the THIS PERIOD box, not the year to date box. In the YEAR TO DATE box it shows what I have contributed to my pension so far this year but it doesn't show the ER's Pension.

Anyway, what I'm asking is, does my employer really pay over 3 times what I pay in to my pension each month or am I totally misunderstanding?

Many thanks in advance!

They might do. It would be quite generous but possible. My employer pays about double what I pay in. Ask HR for some info on your pension. They should be able to provide you with it.

Might it be a large amount because the amount I pay in isn't that much (I don't know what is normal to pay in)? I pay in less than £100 a month.

I don't think that would have anything to do with it. Normally the more you pay the more they pay, e.g. at my work if you pay in 1% they will pay 2%, but if you pay 5% they will pay 8% (that's just my work, yours is probably different)

You should also be able to get an estimate to see what is your pension fund and what this is predicted to equate to in retirement.

Thank you very much for that. I have also been trying to figure out what it would be when I retire! Not very much at all I imagine.

That sounds about right in regards to the amount the employer pays into it, it's one of the incentives to get people to join a pension scheme. In my place of work the employee pays 7.75% of there monthly salary and the employer pays 22.5%.

Is it a final-salary pension? If so then employers 'have' to pay whatever is necessary to maintain sufficient funds to ensure the promised benefits can be paid. Our employee contributions are around 6% and I've heard our employer is contributing 18% at the moment.

Thanks all. I have no idea if its a final salary pension to be honest. I did try to ask someone at work how much pension she gets paid in in relation to the amount she pays in and she wasn't even aware that it was written on her payslip each month!

Definitely possible. But you'd be better off speaking to your Pension or HR department at work than asking a colleague or posting here! You should be getting an annual statement with the total pot, and projection for retirement.

Are you in the public sector?

If so, it's entirely possible that the employer's pension contribution might be three times yours. The average cost to the employer of the public sector defined benefit schemes is 18%.

(You should take any pension projection with a pinch of salt, though. Civil service pensions once told me that I'd be getting £220k a year when I retired. The next statement told me that I'd be getting £12 per year. Luckily, it's usually pretty easy to work it out for yourself with defined benefit schemes!)

Hi

Yes, I do work in the public sector. I have absolutely no idea how to work out how much I may get when I retire! Hmm, hope we get more than £12 a year though!!!

If you're on a career average scheme, find out the accrual rate (in the civil service NUVOS scheme it's 1/42.5) and multiply that by your salary. Or divide your salary by 42.5, same thing. That's the amount of annual pension you will receive, after you retire, for every year you work and earn that salary. Multiply it by the number of years you expect to have worked, and been in the scheme, by the time you retire (see below). That's your total pension income per year from the scheme.

If it's a final salary scheme, find out the fraction the scheme works on. Most work on the basis of 1/60 or 1/80. Estimate how many years you'll have worked, and been a member of the scheme, when you retire - not sure of your age, but state pension age for most working people will be 67. Divide the number of years by 60 or 80, depending on the scheme rules. Multiply that fraction by your salary. Unless you expect to be promoted to a higher paying job before you retire, use your current salary. The answer will be the amount you'll receive annually when you retire.

Figures are at today's prices but will increase with CPI, so should be worth roughly the same* in the future.

*yes, I know. Don't get me started on RPI v CPI.

Thank you for that Financeprincess.

I had a go, as best as I could at calculating using your figures, I really don't know if its a career average or a final salary scheme, actually I don't know much at al! It seems (if I am calculating correctly) that I will get anywhere between 9 and 15,000 each year. My goodness, I'm going to be living it up!!!

(I also don't know what RPI v CPI means but I'm sure that's hardly surprising!)

Oooh, I just discovered its a career average pension. I guess that's not as good as the final salary one though.

Oh, unfortunately it seems that as I work between 30 and 40 hrs per week and am therefore classed as part time I am looking at around £6k a year. Pathetic.

Would I receive any kind of state pension as well or is that my lot?

The state pension isn't means tested currently, so you'd get that as well as your company pension. That's about £5700 a year. There's also pension credit for some, an additional payment but that is means tested.

You only get all the state pension if you've paid enough years of NI - think it's 30 years of paying NI on over £6000 ish salary a year. There are done years that can still qualify - for example if you weren't working but received child benefit for a child under 12 (I think it's 12). It's not complicated but there are a few different rules, it's clearly explained on the .gov.uk web pages.

Also bear in mind that your state pension age is probably 67. So if you retired at 60 with your private pension, you'd be waiting into you were 67 to start getting the state pension alongside it.

Going back to the means testing... there are lots of suggestions from think tanks these days that state pension should be means tested, to save some money. If at all possible, my personal opinion is that you should plan for your private pension to meet your needs, and anything from the state would be a bonus.

I don't know where you're getting your figures from for that £6K. Final salary is usually better than career average, but career average can still be OK! If you work 30-40 hours I don't see why you'd drop from £9K to £6K. That's losing a third when you only work 25% less hours? How have you got that number? Also, £9K-£15K is quite a range! Why aren't you coming out with an exact number?

Career average schemes are only disadvantageous for people who start on a low salary and expect to leave on a much higher salary. In those circumstances, final salary schemes are best.

For most people, though, career average schemes are just as good, or better; the accrual rate can be more generous.

As Cabrinha suggests, maybe review your calculations and perhaps think about buying some extra years in the scheme, if you're permitted to?

(I don't think that any government will ever have the cojones to make the state pension means-testable, by the way. It would be a very effective vote loser!)

Thank you both very much for all your advice. My maths isn't that great to be honest, that's probably why I came out with random figures to begin with! I found a website relating to my pension ( I think). Basically, it said that if you are not classed as full time, which I am not because I work around 34 hours a week (I think overtime isn't counted because on my contract im classed as part time) then I have to work out the number of years I have worked then divide by 2. I think it gave an example of someone working part time for 30 years so they would have to use a figure of 15 years to work out their pension. Fairly annoying to be classed as part time and for them to do that but I guess it means they don't have to pay out so much. So I think that's why it says I would get around £6k. Maybe I am wring though?

I suspect that the example you looked at concerned somebody working 50% of a full week, hence the pension that person could expect is 50% of the full time equivalent. It sounds as if you work more than that; a minimum of 30 hours per week, according to an earlier post.

You're correct that overtime isn't usually pensionable.

Presuming that your basic contractual working week is 30 hours, which you supplement with up to 10 hours of overtime, then based on a standard 38 hour full time working week you should bank on getting 30/38 x the pension you'd get if you were full time. Or 78%, if that's easier to understand!

The key is the number of hours per week that you are required to work, according to your contract.

Hi. Just to say that if you are on a career average scheme it should actually be irrelevant whether you are full or part-time as you just get whatever percentage/fraction of your income in the year in question. If you are part-time, you will be earning less so it will flow through automatically. Dividing the number of calendar years would normally only be relevant if you are in a final salary scheme.

As others have said, best thing to do is just ask for a statement of your pension so far from your HR dept.