ConfusedFirey wrote:Unfortunatly 12.9% is the maximum I can contribute to the Pension scheme. It should also be noted I don't have a 'pot' which is invested. My payments pay the pension of members who have already retired, it's actually akin to ponzi scheme. I actually don't know how my pension is accrued, but I'm very certain it isn't invested and I can't find much information on the SPPA website. When I retire I won't have access to any of the money I've paid in. Instead I get £2100pm (pre tax) until I die. The £553,000 sum was worked out by factoring in the tax and then assuming I live to 95. I then multiplied the yearly pension by the difference between my retirement age and when I turn 95. It should also be noted the £553,000 sum was accrued through a 47 year career, paying £341pm into the scheme. As far as I'm aware, an investment horizon of 47 years with £341 paid monthly, an end sum of £553,000 is quite mediocre (4% compounded per year) when compared to the potential returns of an index fund? I also don't like being trapped by the pension if it changes again. A perfect example is a number of my colleagues experience. They were due to retire at 50, but the pension was changed and they now need to work to 60 with no increase to the value of their pension. It's pretty shocking what happened to them.
There is quite a lot to deal with there, Others have pointed out that your current pension has very many benefits, so I'll just address the downside points that you make and any I think that have been missed.
In "theory" you might make better elsewhere, or you might be a LOT worse off. This is why the advice to remain in the scheme.
Retirement age, seen that. I wanted to retire at 50. I didn't have the finances, though I was not far short. Of course I couldn't access my pension, but I could use funds from my ISA to support me until I could. My wife also intended to retire at 50, which she could until the government moved the goalposts. She was relying upon a pension.
My wife can't access her current pension for five years, yet she intends to retire next year. How? Ah the flexibility of the standard ISA.
I didn't start my SIPP until very two years before I could access it. For me, as a standard rate tax payer, the disadvantages in lack of flexibility were greater than the financial advantages.
The sort of scheme that you describe was common when I started work. If the scheme allowed you to retire "early" (60) the employer could refuse to allow you to claim from the scheme until 65. That said they are VERY secure these days.You will get that payment regardless of stock market performance. This allows you to take greater risks with your other investments. If they come good they will garnish your income. If they don't then you have a guarenteed minimum to live upon.
While on the subject of the difference between ISA and pension, here is something for you to think upon.
I intend to retire in two years time and won't pay income tax for the following 5-7 years
How?
Well I shall draw less than my personal tax allowance from my SIPP and top it up with money from my ISA to match my lifestyle.
At 65 an old "final salary" or "Defined Benefits" scheme will start to pay out. It will probably be just less than the personal allowance, so I could continue paying no income tax by reducing the amount that I take from other pension schemes. At 67 I'll get the state pension and have to start paying income tax. When I die, any money left in my "Defined Contribution" schemes will pass to my children free from IHT.
Knowing what the current, ever changing, tax and pensions landscape is can make a huge difference. Hence my comment about the more interest that you pay in what's happening, the better the outcomes.