Small company pension - what's the point?

[clockworks]

I worked part time for a supermarket for 9 years, and joined the company pension scheme. I was paying, I think, the middle level of voluntary contributions : 6%. Since I wasn't earning much, I was paying in less than £40 a month, so my total contributions were less than £4.5k, plus the "free" money from my employer.

I never expected to get much of a pension from it, more a case of getting the matching amount from the company.

I've just had a statement from L&G:

Current Pot £9,709
Estimated Pot at 65 £9490
Tax Free Lump Sum £2370
Annual Pension £168

The pot value seems fine, around double what I actually paid in.

The monthly pension is pitiful though - I would have to live for 40+ years in retirement to even get my money back!
Further down the statement it says that it takes a pot of £42,244 to get an annual income of £1,000.

Are annuity rates really that bad?
Looks like I'd be better off taking the 25% tax free lump sum now, and cashing in the rest as soon as I hit retirement age?
Any other options to consider?

Another question:

I'm 23 months away from my state pension age of 66, but the statement is based on a retirement date of May 2022, when I'll be 65.
Seems odd that the company scheme retirement age doesn't match the state pension age.


For info, I also have two proper DB company pensions, which I've been drawing for 12 years now. Added to the basic state pension, I'll have an income of at least £16k, plus the income from self-employment until I decide to give that up. An extra £3.23 a week isn't going to make much difference.


Edited to correct the numbers

Edited by clockworks on Tuesday 22 June 12:32

[clockworks]

Sorry, yes the £168 is the annual pension.

I'll edit to correct it

[clockworks]

Jawls said:

How are they predicting that the pot at 65 will be smaller than now? If their investment return doesn’t beat the charges, that’s pretty bad.

I couldn't figure that out either.
Pot value went up £550 from April 2020 to April 2021, but is predicted to go down by £250 in the next year

[clockworks]

I've just set up online access to the L&G pension website, and checked what my options are:

Cash lump sum
Flexi-access drawdown
Annuity
Leave it as it is for as long as I want

Taking an annuity seems pointless for such a small amount, so I'll be taking a lump sum of some kind, at some point.

I'm wondering if it'd be best to take the tax free 25% lump sum, then leave the rest where it is until the point where I actually need the money?
I don't have any urgent need for cash right now, but there might come a time when a taxable lump sum would be useful, probably after I actually give up self-employment.

I'm guessing that I'll get a much better return leaving 75% of the pot with L&G than I would if I just stuck it into the bank or bought Premium Bonds?

I can't see any circumstances where I'll be anything other than a basic rate tax payer, and I'll always be using up all of my personal allowance.

[clockworks]

anonymous said:

[redacted]

I've got no debts, already have a shed-load of clocks and watches, and a reasonable amount of cash in the bank - enough so that I don't really need to keep working.

Never tried coke or hookers though....

[clockworks]

IJWS15 said:

Does the scheme force you into an annuity, one of mine did.

If it does move the fund to somewhere more flexible that will allow you to take it as drawdown if you want to.

It doesn't appear to force me into an annuity, from what I can make out from my pension account details on the website.
I've applied for a "retirement pack" from L&G just now, which is supposed to explain my options in more detail, and tell me what to do when I've decided.


It might be better to defer the 25%. I'm fairly risk-averse though, probably feel happier if I cover all the bases (apart from the annuity one, which seems like a lose-lose option to me)..

[clockworks]

Welshbeef said:

That’s because he/she didn’t pay much £ into it. The return in % terms appears to be good. So OP made the error / or choice to not put cash into pension and instead had jam today.

I didn't actually need the pension at all, as I already have a couple of good DB pensions from two jobs in IT.

I only joined the supermarket pension scheme to make sure I got the maximum employers' contribution - free money. I pretty much doubled my money, so I can't complain about the scheme itself. What gets me is the incredibly poor annuity rates being offered. I'd have to make it to 107 years old to even get my pot back, which just seems crazy (I know I'm ignoring inflation and indexing).

A life-long employee, working for just above minimum wage, and relying on a pension like this to supplement their basic state pension, would be severely disappointed with a monthly income of less than £250.

I took my DB pensions about 12 years ago. I've already had way more out than I paid in over the course of 28 years of employment, roughly double. I'm just shocked at the huge difference between DB pensions and DC with an annuity. No wonder most companies have closed their DB schemes.