Check your pension before it is too late

The pensions debate affects everyone of working age and it is becoming apparent that not all company schemes offer the security...

The pensions debate affects everyone of working age and it is becoming apparent that not all company schemes offer the security you need. Roisin Woolnough looks at the options open to ITers

Those who work hard all their lives and invest in company pension schemes can sleep safe in the knowledge that they will be rewarded with luxury cruises and plenty of money to indulge their grandchildren when the golden years finally arrive. And computers are just a passing phase.

The press is full of reports of mis-sold pensions and low-performing schemes, leading many people to be sceptical about the value of investing in a pension. The latest blow is the number of companies that say they cannot cope with the burgeoning grey-haired population and are abandoning the final-salary schemes that once promised so much. The Financial Services Authority recently published a report into the widespread closure of those schemes, entitled Financing the Future: Mind the Gap, which offers little consolation for anxious investors.

What is certain is that you would be a fool to bank on state provisions keeping you afloat after the age of 65. IT professionals need to do a bit of pensions homework to ensure a decent retirement fund. This may lead to you opting for some other long-term savings method instead of a pension, but bear in mind that the Government offers excellent tax relief on pensions. This can result in significant savings on monthly tax and national insurance charges - a major benefit for permanent and contract IT professionals.

Julian Howe, senior partner at financial services company Graduate & Professional, explains that company pensions usually fall into one of three categories:

Occupational schemes. These are the final-salary schemes where the benefits you receive are determined by a calculation based on the salary you are on when you leave the company and your length of service. For most people, they are the best option

Money purchase schemes. With these schemes money is invested and the profits determine how much you will receive

Group personal company schemes. These offer a way of making personal pensions more cost-effective and affordable to run by lumping them all together. They can be stakeholder schemes (a top up to the state pension).

A lot of organisations now offer the third option. "We have a group personal pension scheme," says Jill Crowther, HR manager of skills and infrastructure at Microsoft UK. "We bring in an independent financial adviser to speak to staff, most of whom take it up."

A major advantage of company pension schemes like this is that, usually, your employer will be paying into your fund as well as you. "If the employee joins our scheme, then they need to pay in at least 3% of their salary," says Crowther. "We will then pay in 5%."

Companies often contribute on a sliding scale, whereby the more the employee invests, the more the employer invests, although the firm will stipulate minimum and maximum amounts.

While commercial organisations may be withdrawing their once generous final-salary initiatives, the public sector is not. "Like a lot of public sector organisations, we offer a final-salary scheme," says Malcolm Laird, pensions manager at Southwark Council in London. "It is 180th of a person's final salary for every year of service and then three times the amount of the annual pension as a tax-free sum."

When personal pensions were all the rage a few years ago, Laird says quite a few of the council's employees decided to go solo. "A number of them went out and got personal pensions, but it proved to be a bad thing to do, so a lot are now buying back into our scheme."

Like many pensions, the council's scheme is portable. This is an important consideration for IT professionals, considering that the average length of time an ITer spends with an employer is 18 months. Job hoppers need to make sure they do not take out any company schemes that will penalise them for their fickleness.

Oliver Johnston, a business programmer/ analyst at Lease & Loan Insurance Services, has always made sure his pensions are transferable. "I have had pensions through companies for about five years now, since I started work, and Ihave transferred them."

Aware of all the negative news about pensions, Johnston says he has been reading up on the pensions debate and asking people in the know if they think pensions are still a good thing. "I know people are saying it may not be a good investment in the long run, but I think it is and it is definitely better to be safe than sorry. With my latest pension, I asked friends in the financial industry for advice and they said 'it is a good deal, go for it'."

But, just in case the pension situation gets bleaker, Johnston dabbles on the stockmarket too. "I invest in shares as well, but only in addition to my pension, not instead of it."

Howe recommends that ITers do as Johnston does and make a series of investments. "Don't put all your money in pensions or all in property, for example. Spread the risks. Think about ISAs or more adventurous investments like venture capital trusts."

At network supplier Avaya employees can choose where their money is invested. "We have a group personal pension plan and people can choose the type of investment fund their money goes into," explains Mike Young, Avaya's UK HR director. "It could be a risk area that might have more growth potential or an investment that might pay less year-by-year but is a safe bet."

Contractors need to be even more aware of the benefits and downsides of pensions than permanent staff because it is all too easy for them to put it off until another day and lose out on valuable stockpiling time. This is what has happened to Roy Dahari, a contractor who works in technical support at Absolute Computing. "I haven't taken a pension out yet," he says. "I was going to take out a personal pension, but didn't get round to it. Now I am contracting for Absolute Computing I will be allowed to join its scheme in six months time."

Dahari thinks it is high time he got onto the pensions bandwagon -and he is right.

How to plan your pension
  • Work out how much you want to retire on

  • Calculate how much you need to save to achieve that figure

  • Research the different types of pensions that are on offer and how they are performing

  • Speak to your company's pensions adviser or contact an independent financial adviser and find out exactly what you will get for your money

  • Consider other investment options to top up your pension.

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