More and more employees are starting to ask questions of their pension savings plan. If your company has a pension plan, whether you are a member of the plan or not, you should know exactly how that pension is performing to help you plan for your future.
There are two types of pension savings plan you could be a member of: (1) a ‘Defined Benefit’ (DB) Plan or (2) a ‘Defined Contribution’ (DC) Plan.
DB plans are where a company makes a promise to its employees to provide a portion of their final salary as a pension income when they retire. Retirement is usually designed to be at age 65. When you leave the company most pension plans give you the option of a tax- free lump. It’s up to the company pension trustees to manage the pension plan to meet the promise to the employees. There has been a significant reduction in the number of DB schemes in operation. Many of the existing DB schemes are closed to new members. The benefits promised in DB schemes by employers are proving harder to keep than originally planned.
DC plans are pension savings plans that don’t have a company promised benefit at retirement. Depending on how well your savings are invested will dictate what income and tax- free lump sum you’ll be able to take from your pension savings when you retire.
To know how your company pension plan is serving you, here are 6 key questions to ask the managers of your pension plan;
- Is my plan Defined Benefit or Defined Contribution?
- What charges do I pay on my pension savings account?
- How much in today’s terms should I expect to receive from my pension?
- What type of assets are my pension savings invested in?
- What yearly return are you assuming the pension plan will achieve?
- If I leave employment can I bring my pension savings with me?
Employees must get involved and understand how well their pension savings are being managed. The answers to these questions will help with that. This will help pension savers to plan for the future and have more control and peace of mind to achieve their financial goals.
About Enda Brady
Enda Brady is a A Certified Financial Planner™ professional with 20 years experience in Financial Services and Personal Financial Planning. He is the co-owner of iQ Financial formed in 2005.