Employer pensions are becoming less generous

One more thing to think about on top of the lowly state pension is that pension schemes provided by employers are on the whole becoming less generous. While your parents and grandparents probably benefitted from a final salary pension scheme (also known as a defined benefit scheme) at the companies where they worked, changes in regulation, volatility in investment markets and longevity increases have made it difficult and expensive for employers to continue offering them.

The pension income paid by a final salary scheme is calculated as being a percentage of your salary multiplied by your years of qualifying service. But these pension schemes are now few and far between and the final salary schemes that do exist are rapidly closing to new members.

The type of employers pension scheme that is replacing final salary schemes is called a defined contribution pension scheme (also known as a money purchase scheme).

A defined contribution pension scheme places the responsibility on you, and if applicable, your employer, to pay contributions into the scheme. You can’t rely on the guarantee of knowing what the value of your pension benefits will be as provided by a final salary scheme. You have to choose the funds or assets your pension fund is investing in and you need to ensure that you are paying enough into the scheme to be fairly sure that a sufficient pension will be paid to you when you retire.

17% of people don’t know what pension their employer provides, according to Towers Perrin research, so make sure you’re not one of them!

Ask your employer what pension schemes they offer. If you can join a final salary scheme you may be best served doing so. If you are able to join your employer’s defined contribution pension scheme you need to decide where contributions into the scheme are invested and find out if your employer will pay money into your pension.

If you’re in pension scheme where the onus falls on you to make the decisions about how to invest the contributions, this may sound daunting. You should talk to an independent financial adviser to help guide you through your choices.

Remember, turning down employer’s contributions which would be paid into an employer’s occupational pension scheme is akin to turning down a pay rise, so think carefully before you make a rash decision and decide there’s no point joining

What can you expect from the state
Employer pensions are becoming less generous