# Workplace pension increase....



## Soapybubbles (Feb 10, 2014)

Had a letter from my workplace pension provider today stating the minimum required contribution is jumping from 1%-1% (employee-employer) to 3%-2%.

That's quite a jump for me. 

What gives? Is this mandatory.... Can I reman at 1% and still get 1% from employer?

Nb.. I'm not too clued up on pension schemes


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## DrEskimo (Jan 7, 2016)

I think you can opt out altogether, but not sure you can reduce the amount below the minimum.
It will rise to 5% (3% from employer) in April 2019.

Have you thought about your retirement though? contributing 5% total is highly unlikely to give you a sufficient pension fund to live on beyond 60+. Many advocate paying at least 15%, since when asked, the average person looks to retire with an income of about £25k per year. 
Also worth checking what scheme your employer has, since many will match additional contributions.

Depending on your age and how much you have accrued, this retirement income target may or may not be realistic, in which case what plans do you have in place for an income?


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## Soapybubbles (Feb 10, 2014)

DrEskimo said:


> I think you can opt out altogether, but not sure you can reduce the amount below the minimum.
> It will rise to 5% (3% from employer) in April 2019.
> 
> Have you thought about your retirement though? contributing 5% total is highly unlikely to give you a sufficient pension fund to live on beyond 60+. Many advocate paying at least 15%, since when asked, the average person looks to retire with an income of about £25k per year.
> ...


25k/year is definitely not realistic for me unfortunately.

And in the perfect world I'd love to put 15% into it,however there is not a chance I can input that amount at present.


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## DrEskimo (Jan 7, 2016)

Soapybubbles said:


> 25k/year is definitely not realistic for me unfortunately.
> 
> And in the perfect world I'd love to put 15% into it,however there is not a chance I can input that amount at present.


Ah OK. Something worth thinking about though..

Remember that you will have tax relief on any additional contributions, so the net cost will be lower than the gross amount contributed. 20% if a basic rate tax payer, or 40% if a higher rate tax payer.


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## Soapybubbles (Feb 10, 2014)

DrEskimo said:


> Ah OK. Something worth thinking about though..
> 
> Remember that you will have tax relief on any additional contributions, so the net cost will be lower than the gross amount contributed. 20% if a basic rate tax payer, or 40% if a higher rate tax payer.


I also have 2 share save plans currently running.

Generally are pension figures more stable than share prices? The share price has taken a rather big turn for the worse since brexit.....

I have thought about putting the share save amounts into a lump sum payment to my pension ( I don actually have any shares yet as they don't mature until Novemeber)


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## DrEskimo (Jan 7, 2016)

Soapybubbles said:


> I also have 2 share save plans currently running.
> 
> Generally are pension figures more stable than share prices? The share price has taken a rather big turn for the worse since brexit.....
> 
> I have thought about putting the share save amounts into a lump sum payment to my pension ( I don actually have any shares yet as they don't mature until Novemeber)


A pension isn't separate from stocks and shares. Anything invested within a pension will be invested in stocks and shares. Think of it like a cash ISA savings account. The ISA itself isn't different to any other savings accounts, but it's a 'wrapper' that makes it exempt from tax. Pensions are the same. You contributions are deducted from your gross pay and therefore have tax relief, but the penalty is that you can't access it until you're over 55 (soon to be 58...). Likewise, you can buy stocks and shares using an ISA wrapper too (so that any gains are not taxed), so while you wont make any tax savings (as contributions are made using income after tax), you do have the freedom to access the money whenever you want.

There are many ways to invest in stocks and shares, but typically within a pension is the most beneficial due to the tax savings you make on the contributions. Basically you get a lot more for your money, and it helps you secure an income for retirement.

Pensions are typically invested in the form of a multi-asset fund, which will include a mixture of stocks and shares from different geographical regions and sectors, along with bonds, cash, property, and other assets. This helps create diversification. At a young age, the pension will look to invest in more risky funds that are typically mostly overweight in stocks and shares in order to see better long-term growth. The reasoning is that any dips in the market will be outweighed by general increases over a 30/40yr term. As you approach retirement age, the weighting will move more towards income based classes, such as bonds, which see less growth, but more stability. You are free to chose how your money is invested though. There are a range of different portfolios to chose from, ranging from different risk levels, and also things like ethical portfolios that don't invest in things like oil, tobacco or arms companies.

Regarding Brexit, quite the opposite has happened....bar the small correction that we saw in the last couple of months that happened globally, stocks and shares have been at the highest levels since records began. 2017 saw incredible gains for anyone invested in stocks and shares. This can't go on forever though...! The economy operates in cycles (long-term and short-term debt cycles), so it's not a question of if, but when the next economic crash will occur. Typically they happen every 10yrs or so, so we are certainly due one... However, if you are sensible and invested for the long-term, then these downturns should be seen as natural. In fact, they are an opportunity to buy stocks at a much lower rate. If the last 50yrs is anything to go by, over the course of 15/20yrs you should see an overall increase in your capital. Importantly, this will be much higher than any gains you will get from high street bank savings accounts, hence why people take the risk. The nature of inflation means that sitting on monthly income will actually see it decrease over the years, so carries a risk in itself...

When you say share scheme, I take it you mean you get to buy shares from your company at a discounted price? A very good option, but obviously holding individual stocks and shares from a single company is much more risky. Many would advocate moving towards well diversified funds, which hold many stocks and shares from many different companies all over the world. I don't have much experience with company share schemes though, so worth doing some research about how to deal with those.


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## Soapybubbles (Feb 10, 2014)

Yes so I have 2 share save schemes running at the moment. 

The first scheme I paid £16.16 per share (that's 20% less than the share price at that time)
This is due to mature at the end of this year,I can either take the shares or take my money back.

However the share price is over £2/share below that amount at present and has only been above the £16.16 for around 2 weeks in total over the past 18months. 

So if I took the shares its looking like a loss at present, hence me thinking of taking the money instead and adding the lump sum into my pension scheme?

The other share save I have matures in 2 1/2 years time,however those were purchased £4/share less than the first scheme at £12odds/share.

Thoughts?


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## DrEskimo (Jan 7, 2016)

Soapybubbles said:


> So if I took the shares its looking like a loss at present, hence me thinking of taking the money instead and adding the lump sum into my pension scheme?


I really don't know enough to give advice mate. I've never done any share schemes like that. There is a lot of information someone will need regarding your current pension scheme, your BAYE scheme and any terms and conditions regarding liable tax on the different options you have.

On first glance though, my immediate reaction would be to not sell your shares at present. Get them transferred into your name and keep them. If you are worried about under funding your pension though, I would look at stopping your current share schemes and moving that money to your pension instead as additional contributions.

Essentially it's doing the same thing. The 20% discount you mention is the tax relief given your a basic rate tax payer. You will get the same 20% discount on any funds bought through your pension too. The advantage of doing it through the pension rather than your company share scheme is that you are contributing to a diversified fund, rather than hedging all your risk into a single company. If the company does well your share scheme will be worth it, but if it does badly, then it would be a waste of money. Of course knowing what way this will go is a gamble (albeit one that can be weighed up given the companies success; profit/earnings ratio, investments, direction, etc.).

Of course, you only have to look at companies like RBS or Carillion to realise the risk involved in holding single company shares...


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## pxr5 (Feb 13, 2012)

DrEskimo said:


> but the penalty is that you can't access it until you're over 55 (soon to be 58...).


58? I did read that sometime ago, but it was mooted to be in 2028 and age 57.


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## fatdazza (Dec 29, 2010)

pxr5 said:


> 58? I did read that sometime ago, but it was mooted to be in 2028 and age 57.


Correct - proposed to increase to 57 from 2028. But requires parliamentary approval.

https://www.pensionsadvisoryservice.org.uk/about-pensions/pension-reform/freedom-and-choice


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## DrEskimo (Jan 7, 2016)

pxr5 said:


> 58? I did read that sometime ago, but it was mooted to be in 2028 and age 57.





fatdazza said:


> Correct - proposed to increase to 57 from 2028. But requires parliamentary approval.
> 
> https://www.pensionsadvisoryservice.org.uk/about-pensions/pension-reform/freedom-and-choice


Ah sorry, potentially 57.

Let's be honest...it'll probably be 65 by the time I'm looking to retire


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## JoeyJoeJo (Jan 3, 2014)

If your share save is the same as the few I've been in, they won't let you buy the shares if the market price is less then the option price, you just get the money back.

So if the share price at the start of the scheme is £12, you are granted the option to buy at say £10 at the end of the term, then have the option to buy at £10 and either hold the shares for future dividends and potential growth, or sell at the market price, which is great if the price stayed at £12 (or anything more than £10) but you don't actually have any shares until you've exerised that option to buy (and possibly selll straight away). If the price at the end of the scheme is less than £10, the 5 schemes I've been in just give you you're money back, they can't sell you shares at £10 if the market price is £6.50.

I personally prefer pension at the moment, with employer mathching and tax relief, it's like free money. ** not advice  **


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## Soapybubbles (Feb 10, 2014)

JoeyJoeJo said:


> If your share save is the same as the few I've been in, they won't let you buy the shares if the market price is less then the option price, you just get the money back.
> 
> So if the share price at the start of the scheme is £12, you are granted the option to buy at say £10 at the end of the term, then have the option to buy at £10 and either hold the shares for future dividends and potential growth, or sell at the market price, which is great if the price stayed at £12 (or anything more than £10) but you don't actually have any shares until you've exerised that option to buy (and possibly selll straight away). If the price at the end of the scheme is less than £10, the 5 schemes I've been in just give you you're money back, they can't sell you shares at £10 if the market price is £6.50.
> 
> I personally prefer pension at the moment, with employer mathching and tax relief, it's like free money. ** not advice  **


Ours is a little different

They have now introduced the option to hold off in deciding to buy the shares at the end of the term by a further 6months to see if the price increases.

However they will indeed sell you shares if you want them at the end date,regardless of price at the time,whether up or down.


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## Johnsy (Oct 20, 2013)

Soapybubbles said:


> Yes so I have 2 share save schemes running at the moment.
> 
> The first scheme I paid £16.16 per share (that's 20% less than the share price at that time)
> This is due to mature at the end of this year,I can either take the shares or take my money back.
> ...


I had 3 of them running which I simply closed and cashed them in because the shares price was some £4 less than the agreed price and is no way going to recover that much.

Infact we took another one out last December @ £0.91 per share, as 5yr ago the share price was £7.50, but it's actually dropped to £0.57 per share. So while I'll let this one run in the hope of at least double my £3600 at the end of the 3yr.its just a savings account if it all goes Pete tong , as someone rightly pointed out your money is held in account until the share save matures and you can exercise your options .......money back no brainer if it's less than the discounted agreed value


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## Soapybubbles (Feb 10, 2014)

Johnsy said:


> I had 3 of them running which I simply closed and cashed them in because the shares price was some £4 less than the agreed price and is no way going to recover that much.
> 
> Infact we took another one out last December @ £0.91 per share, as 5yr ago the share price was £7.50, but it's actually dropped to £0.57 per share. So while I'll let this one run in the hope of at least double my £3600 at the end of the 3yr.its just a savings account if it all goes Pete tong , as someone rightly pointed out your money is held in account until the share save matures and you can exercise your options .......money back no brainer if it's less than the discounted agreed value


If the share price is still under £16.16 (barring a miracle it will be) I think I will take the money and put it into my pension pot,is my employer duty bound to match the lump sum payment?


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## fatdazza (Dec 29, 2010)

Soapybubbles said:


> If the share price is still under £16.16 (barring a miracle it will be) I think I will take the money and put it into my pension pot,is my employer duty bound to match the lump sum payment?


No, your employer will not have to match any lump sum payment you make into your pension.


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## DrEskimo (Jan 7, 2016)

Soapybubbles said:


> If the share price is still under £16.16 (barring a miracle it will be) I think I will take the money and put it into my pension pot,is my employer duty bound to match the lump sum payment?


There's a saying that if you're not thinking about holding a share for at least 10years, then don't even think about holding it for 10minutes...! Assessing the worth of any stocks and shares after such a short time frame could be misleading, but perhaps I am missing something due to my unfamiliarity with the scheme. I mean there must have been a motivation for you to buy into the scheme in the first place...?

Also, what are the logistics involved in paying a lump sum into your pension? Monthly, the tax is deducted through salary sacrifice, however lump sum contributions presumably need to be declared at the end of the tax year to readjust the tax you paid? This is OK for me, as I am also self-employed, so do see-assessment anyway. But must be a bit of a headache to do an entire tax return on just a lump sum contribution?


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## fatdazza (Dec 29, 2010)

DrEskimo said:


> There's a saying that if you're not thinking about holding a share for at least 10years, then don't even think about holding it for 10minutes...! Assessing the worth of any stocks and shares after such a short time frame could be misleading, but perhaps I am missing something due to my unfamiliarity with the scheme. I mean there must have been a motivation for you to buy into the scheme in the first place...?
> 
> Also, what are the logistics involved in paying a lump sum into your pension? Monthly, the tax is deducted through salary sacrifice, however lump sum contributions presumably need to be declared at the end of the tax year to readjust the tax you paid? This is OK for me, as I am also self-employed, so do see-assessment anyway. But must be a bit of a headache to do an entire tax return on just a lump sum contribution?


If you pay a lump sum into a private pension, the pension provider will usually "claim" your basic rate tax relief from the government for you and add it to your pension pot. (Sometimes referred to as "grossing up"). So if you pay £80 in, it will be topped up to £100. If you are a higher rate taxpayer you will need to claim the additional tax relief ((£20 for a 40% rate taxpayer) through your tax return.

Not sure what the process is for Soapy's workplace pension is though. He should speak to his HR department to ask how AVCs (additional voluntary contributions) are treated.


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## robertdon777 (Nov 3, 2005)

Retire at 67 (that will go to 70 anyone under 45) then Die at 72 (average uk male age)

Don't worry about your pension, enjoy your money now lol


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## robertdon777 (Nov 3, 2005)

But if you are worried aim for 17% of your salary to give a half decent pension in a private one.


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## DrEskimo (Jan 7, 2016)

robertdon777 said:


> Retire at 67 (that will go to 70 anyone under 45) then Die at 72 (average uk male age)
> 
> Don't worry about your pension, enjoy your money now lol


Average life expectancy of a UK male was around 79 in 2015. This is likely to be around 81 today going by previous trends.

https://www.ons.gov.uk/peoplepopula...tins/nationallifetablesunitedkingdom/20132015

And of course, you can ignore your pension and join the 1.9million pensioners, or 1 in 6, living in poverty right now...

https://www.ageuk.org.uk/latest-new...ber/300000-more-pensioners-living-in-poverty/


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## robertdon777 (Nov 3, 2005)

DrEskimo said:


> Average life expectancy of a UK male was around 79 in 2015. This is likely to be around 81 today going by previous trends.
> 
> https://www.ons.gov.uk/peoplepopula...tins/nationallifetablesunitedkingdom/20132015
> 
> ...


Who hoooo i've gained some life haha

But yes see second post about poverty.. 17% aim for from Salary to pension fund from 18-67 and you should have a decent pot.


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## DrEskimo (Jan 7, 2016)

robertdon777 said:


> Who hoooo i've gained some life haha
> 
> But yes see second post about poverty.. 17% aim for from Salary to pension fund from 18-67 and you should have a decent pot.


Haha...some good news on a very chilly day 

Yes absolutely....unfortunately how many are funding their pension that aggressively from the age of 18? On a median salary of £26k, and on a workplace pension contributing just 2%, that would mean contributing 15%, which would cost around £300 per month. Not many can afford that.

By delaying that sort of contribution by 10yrs, you will need to up your contributions significantly to get that same decent pot...

It's a very tricky problem.


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