flaws with the opt in pension

A question about : flaws with the opt in pension

are there any ?

Best answers:

• There is no opt in pension. There are opt in rules but the pension used can be any your employer likes as long as it meets the rules.
  As the rules mean you get "free money" effectively from the employer contribution then then its hard to turn that down unless you are daft.
• Your take home pay is reduced, your cash, a bit of tax relief and employer con s are invested in a scheme. At some date in the future, the government may change this, you can then choose to use the pot, perhaps take up to 25% tax free, then the rest buys you an annuity (usually). So if you have a pot of Ј50000.00, you may get back a taxable amount of Ј2500 a year. That's a long time just to get the capital back. Or put it another way. If you give me Ј100k now, I will give you back Ј5000 a year. I can invest the Ј100k to get a return. Someone can probably do a spreadsheet to show how long it would take you to live, for me to lose.
• Take a male aged 65 with Ј100,000 purchasing a single life non-escalating annuity.
  The man in average health should expect to live 21.4 more years, or until 86.4 (source here)
  The relevant annuity rate is 5.72 (source here).
  The 20 year gilt yield is 2.81% (source here)
  Invest that Ј100,000 in gilts yielding 2.81%, and pay an annual amount of Ј5,720 (which is pretty much what the insurer does).
  The pot runs dry when the man is aged between 87 and 88.
  That looks about right, given the man expects to live to 86.4 and the insurer has operating costs and a profit to make.
  With an annuity rate of 5.384% the pot runs dry between age 89 and 90.
• Whether there are flaws with the opt in pension depends on the specific one being made available to you. Almost all are good, at the moment there are just two that I'd say aren't, and in those cases just for those that are not close to retirement.
• Take away the tax releif and the employers contribs then it isn't a pension. Use a S&S Isa instead.
  But that isn't what the OP is talking about.
  Sukh, once you know what your pension is, get back to us. but it is likely to be better than no pension at all.
• Depends on your worker status under the auto-enrolment rules.
  If you're a jobholder (age between 16 & 21 or state pension age & age 74 earning above Ј9,440pa. Or age 16-74 earning between Ј5,668 & Ј9,440pa) and you opt in, your employer has to contribute.
  But if you're an entitled worker (age 16-74 earning below Ј5,668) then your employer does not have to contribute, until you trigger the AE rules.