Co.Pension - how much Company, how much Me?

[Audrey]

I'm in a company pension scheme (Defined Benefit Scheme). I pay a certain per cent and the company pays 13%. However, when I ask the powers that be in the job, I am told that the 13% that the company pays is not "strictly for me personally" but rather "paid towards the scheme". I'm not sure I understand - do any of you? Is it something like this? The company pays an amount into the scheme to "run" the scheme (ie admin cost), and in the early days of ones pension contributions, most of the company contribution goes on admin., but as time goes on the amount that is required to go towards admin becomes less and the amount that goes towards the personal pension becomes greater? Anybody know whether this is correct?

 

[Protocol]

Yes, that's true.

Your contribution is not going into a fund specifically for you.

Indeed the 13% is really irrelavant. The company are making a promise to pay you a pre-defined benefit in the future. How they fund that is their business.

Example: in most public sector defined benefit schemes, you pay 6.5% of salary. But that does not go to your future pension, it goes towards existing pensioners.

 

[Audrey]

Yes, that's true.

Your contribution is not going into a fund specifically for you.

Indeed the 13% is really irrelavant. The company are making a promise to pay you a pre-defined benefit in the future. How they fund that is their business.

Example: in most public sector defined benefit schemes, you pay 6.5% of salary. But that does not go to your future pension, it goes towards existing pensioners.

Thanks Protocol. One more question, if the 6.5% doesn't stricly go towards an individual's pension, presumably any additional contribs (AVCs) paid by that individual DO??

 

[Omega]

Yes, they do.