I received the following text message a few minutes ago:
"Question: What's the best type of pension - final salary or career averaged revalued earnings?"
Now assuming that the sender of this question isn't currently stuck in his local pub quiz (if so, it is a stranger one than mine), then it's not really an easy question to answer within the space of a 160 character message.
For example, we really need to understand what he means by "best". And indeed, the specific terms of each type of scheme could I'm sure lead to one or the other being better in some ways. And are there other options to consider such as Money Purchase? What (if any) are the employee contribution rates? A hundred other questions?
And in any case, I am not allowed to give financial advice.
My simple answer would be "the one that gives you most money at retirement is best". But, dear readers, if anyone out there has a good generic answer to the question, please stick it in the comments, and maybe he'll see it.
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5 comments:
It's a little off-topic, but I had a call (from a real person!) last week.
Real Person : "Hello - can I talk to someone about pensions?"
Chip : "Errrrrrrrrrrrr. I think you need to speak to someone in our customer services department. Can I ask what exactly you're looking to find out, so I can get the right area?"
RP : "I just want to know about pensions."
C : "Oh. OK. I'll try putting you through to our main Customer Services number then - I'm not sure exactly who would be best, but they will know better."
RP : "Is that not the hospital then?"
C : (after dropping of penny) "Oh, sorry, no. This is Norwich Union - I think you have the wrong number."
RP : "Oh, yes, silly me. Thanks - bye."
Oh, and I don't have a 159-character response to the questions. Sorry.
Oh, sorry, since there is no character limit in comments, make any answers as long as you want. He either reads them here or manages without. Harsh, but fair.
I'm bound by similar constraints to yourself in coming up with any actual answer to the question though. Hence the offtopicness.
And strictly speaking, your off-the-cuff answer could (by stretching, I admit, but it might stand up in a court of law) be misconstrued as referring to the tax-free cash element, rather than the actuarial value of the whole pension pot.
totally agree it depends on so much, typically CARE costs less than FS as the revaluation rate is usually less than earnings. But for individuals this is not true. It depends on the pension fraction, dependants benefits, pension increases, defintion of salary, contributions, death and other benefits. Sh*t thats more than 160 characters.
I quite like the idea of CARE as the benefits are more known from an employers point of view, than say FS, and so they may consider keeping this rather than moving to MP. Not seen many schemes based on funding for cash yet eg fund of n/4 say. Think this is potentially better than MP.
Be interesting if the government do introduce longevity bonds as discussed today by BOE. This should help scheme funding - but exacabate the demopgrpahic issues for the taxpayer.
bit of a rant - must be as just been to a dinner paid for by reinsurers. Such a hard life.
This blog is getting rather serious and technical at the moment!
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