What type of pension should I get?

Question

I am in my mid 30s and am employed full time in the UK. I am currently in a company pension scheme with around 7k in it, but I'm about to start a new job and must leave the scheme. I have the option of taking the money and paying tax on it (at 40%), or transferring it into another pension scheme.

Its a problem I've faced before and took the money, which I now realise was a big mistake as the money was quickly spent. I expect to find myself in a similar position in my future career, I expect to work for several companies and I'm always going to get a company pension, but I'm not likely to stay in any one company for more than 5 years.

The best thing for me seems to be to get my own pension, not tied to an employer, and pay into it, but I don't know what kind of pension to get. What kind of pension can I get that allows;

• transfers in from company pensions (now and in the future)
• regular monthly contributions (probably £500 per month)
• occasional lump sum contributions

It seems the types of pension available are stakeholder pensions, personal pensions and SIPPs, but I don't really know what fits my needs. Obviously I want a good return and don't want to pay high fees. I can probably put some time and effort into managing the pension, but not a great deal and I'm not experienced in the stock market or investments in general.

Answer 1

1. If your new employer has a Final Salary or defined benefit type pension scheme, join it. DB plans are attractive because they are often less a risk for the employee.

2. If your employer has a defined contribution scheme and contributes to it, join it and contribute at least up to the maximum amount that they will match – otherwise you are leaving free money on the table.

You also probably need to sit down with an independent adviser for what to do with your existing pension (is it a DC or DB) and if you want to have a pension outside of your employer.

Answer 2

It's best to roll over a pension plan, you don't want to pay the penalties especially when you are young. Rolling over into another scheme, or rolling over into a scheme that is somewhat self directed would avoid the penalty and could help you achieve higher returns should you feel you will perform better. Making regular monthly or biweekly contributions is imperative so that you catch compounded returns on your investments.

Since you state that you are inexperienced, I would suggest rolling over into the new scheme and sitting with the pension advisor for the company, ie Prudential, etc. Telling them some key information like your age, in how many years you expect to retire, your current income, your desired pension income per year and such will greatly help them ensure that you come as close to your goal as possible, providing nothing horrendous happens in the market.