Multi-employer defined contribution pension ok?
|Retirement | Occupational Pension
Asked by hdeakin299, submitted
20 June 2011.
I think I am in a Multi-Employer defined Contribution Scheme with a 3% employer contribution
I joined in September 2009 and am expecting a Benefit Statement in August 2011. The reason for the delay in that the ethical funds are being changed.I have never been in a scheme like this before. Are they flexible in terms of future options? Are the options similar to Stakeholders?
Answered by Justin on 22 June 2011
A multi-employer pension scheme is simply a pension that allows several employers to use it, in theory this might reduce costs thanks to economies of scale.
Your scheme is defined contribution, which means that in general it's pretty similar to a stakeholder pension. That is, money is invested (including your contributions if you make any) and this is eventually used to buy an income for life when you retire (via what's called an annuity).
Unfortunately the whole process is quite uncertain. Your retirement pension will depend on a combination of investment performance and annuity rates when you retire - both unpredictable. However, unless you're fortunate enough to have a final salary pension (in which case your employer and not you bears these risks - no surprise these schemes are largely being closed) then I'm afraid there's little alternative. Even if you use other ways to save for retirement it'll still involve taking investment risk.
The differences between a stakeholder pension and your occupational pension are likely to be charges and investment choice.
Stakeholder pensions can only levy an annual charge of up to 1.5% for the first 10 years then 1% thereafter, although in practice you can find good examples for under 1% a year, especially if using a discount broker. And they tend to offer a range of 20 or so funds to choose from (although this varies between different providers from just 2 to over 40).
It sounds like your pension is administered by The Pensions Trust using their ethical fund. This used to invest in just one fund (F&C Stewardship) but has now changed to invest across 4 F&C funds, giving a mix of global stock market and UK corporate bonds. It's alright, but these one-size fits all type funds aren't necessarily the best idea. Also just be aware that ethical funds tend to avoid oil companies, which can impair performance versus conventional funds when the oil price is riding high. Unless you have a desire to invest ethically I'd ask whether there are any other options giving you access to greater choice of funds.
As for charges I think your scheme charges 0.75% a year, but please check with your employer as I'm not certain. This is not unreasonable and about on par with a stakeholder pension purchased via a discount broker. I don't think there are penalties if you stop contributions or move the pension elsewhere in future, but again check with your employer.
In summary, if your employer will pay their 3% contribution into a stakeholder pension this might give you more investment choice. If they don't the defined contribution scheme is still probably worthwhile (thanks to the 3% employer contribution) but try to find out your investment options and choose funds appropriate to your situation (e.g. you'll probably want safer funds the closer you are to retirement). Either way, your pension at retirement will depend on investment performance and annuity rates, both something of a lottery.
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