Final Salary Pension scheme

Hi

Not sure if this is the right newgroup to ask ths, but here goes.

As part of a TUPE process, i have been given a one off chance to join my new employers final salary pension scheme.

The information I have says your pension is based on your pensionable service, and final pensionable pay in last 12 months.

The formula to calculate the pension is 1/60 x fpp x ps.

What exactly is pensionable service? Is it the number of years I have been in the scheme?

Also, I am now 45, and have no other pension provision, is this worth doing?

thanks for any advice

Rick

Reply to
rick stevens
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IMHO you grab it quick before the employer takes it away. the best example to understand what a 60ths scheme is is to imagine a standard 40 years pensionable service, therefore 40/60 = 2/3 so you get

2/3rds of your final salary as a pension. Up to 2008 the local government pension scheme used to be an 80th scheme.... so choosing the above example that is 40/80 = 1/2 so you get half of your final salary as a pension. Incidentally this scheme is now a 60ths scheme with improved pension! Pensionable service is as you say is number of years in the scheme (this assumes that you are working a full working week and this is not reduced pro-rata for part time working) In my case I was an apprentice for 5 years and so was not a member of the scheme until I became a fully fledged employee. The most difficult definition to grasp is pensionable pay...which is not the same as gross pay...or net pay. In the british steel pension scheme (not sure if its the same for all schemes) it is gross pay minus single persons state pension, irrespective of whether you have a full state contribution in terms of 44 years for a male (or 30 years after 2010) . At 45 you may not get a lot of service in, however the scheme may allow additional voluntary contributions of years of service whereby you pay extra to buy these additional years. Its worth asking... but only if you can afford the cost. The scheme will give you the costs if you ask for any numbers of additional years.

Summarising, these schemes are a dying breed and are really unsustainable especially in businesses which have high salaries (such as steelworkers, rather than shopworkers), so you go for it....unless you have a chronic illness which is going to have you deceased early...in which case you may not even need a pension. But... if your a healthy 45, with no defects, and healthy then do take them up. If its a large company the scheme might last, but if its a small company it will be closed sooner rather than later, but even if it is you become a deferred pensioner with protected rights.

Reply to
BigGirlsBlouse

You clearly know much about these matters, Rick. I've been retired many years and was on a final-salary scheme when I was working. My pension is index-linked. I've not noticed any mention of index-linking when these matters are discussed here. Is I/L implicit in a F/S scheme, or am I just fortunate? Sadly, my wife dumped me some years ago but my scheme would have given my widow a 'half-pension' for her remaining years. Is that common with these schemes?

Reply to
DB.

Basically I agree with this. I would say, however, that you ought to ask the scheme for its own definitions of the terms that you are questioning. For example, in the old days (rules have changed since) the maximum the Revenue allowed you to have as a pension was based on your years of service, which may have been more than the length of time you were a member of the pension scheme (given that some pension schemes required you to be an employee for, say, 2 years before you could join). So 'years of service' depends on the definition that the pesnion scheme uses.

Whatever the niceties of these definitions are, it's almost certain that you'd be better off in than out.

Rob Graham

Reply to
robgraham

I don't think it's implicit, but I do believe it's almost universal - but then I don't know the terms and conditions of all the schemes there are.

Yes, it is common. But in some cases it's taken time for this to apply, particularly for different sexes. For example, until sometime in the 80s (can't remember when), pensions for male teachers included a 50% widow's pension on death. But this was not true in reverse, i.e. if a female teacher died her husband did not get a widower's pension - although the wife could pay into the scheme to establish this entitlement. But then later the entitlement became equal (due to the Sexual Relations Act, I suppose).

Rob

Reply to
robgraham

I would only add that you ought to ask how much of your pay you would have to contribute. That is so you can consider if you can afford it. (It may well be good buy but it probably ain't worth starving yourself today for the sake of a bit more jam in 2029.) When looking at the contributions bear in mind that (i) you get tax relief on your contributions so they cost you less than the gross amount and (ii) if you don't join you may pay more NICs on your earnings. Your employer may well help you with these figures.

Reply to
neverwas

In message , DB. wrote

You are fortunate. In these 'tough time' and when lots schemes are showing a shortfall many of the terms and conditions are changing on a regular basis. My employer has stopped this type pension for new joiners. My final salary pension is going to cost me around 3% more of my salary. Index linking has been capped at 2.5% per annum when it is paid. Some of the guarantees with regards extra contributions will not be ongoing and only honoured to the current year for funds already paid in. There are also many 'little' changes that are constantly eroding the potential value of my final pension benefits with respect to the voluntary contributions.

Reply to
Alan

In message , DB. writes

Mine is index-linked to the RPI, but capped at 3% indexing. We got less than 1% this year...

I am a widower, my FS Pension scheme would pay out 50% if I re-married, provided that my new wife was not more than 10 years younger than myself. Other schemes may vary, don't you still have the handbook of yours, or receive newsletters, or does the scheme have a web site?

Reply to
Gordon H

Thanks for all the advice, I think I shoudl sign up and not look a gift horse in the mouth, so to speak.

Just for info, the contribution rate at present is 11.6% (but I think the employers contribue as well) and the final pensionable pay is basic pay -

1.5 x state pension

cheers

rick

Reply to
rick stevens

I agree with all the advice given by others. Even for 20 years, it is well worthwhile being in a final salary pension scheme.

You didn't say what your previous pension arrangements were. Were you already in a final salary scheme? If so, what will happen to the pension which you have earned so far? The default would probably be to freeze the scheme, and pay you a deferred pension from it. The problem with this is that even if the deferred pension is inflation-proof, it's unlikely to keep up with rises in *earnings* - which are invariable higher than price inflation. The ideal solution would be to transfer any existing entitlement into the new scheme - particularly if your pensionable service is transferred on a year-for-year basis. I realise that the trustees of the new scheme are not that likely to agree to such a deal - but you won't know if you don't ask!

Reply to
Roger Mills

At full-time equivalent, yep.

It's always worth seeing an IFA, but for damn near everyone, it's worth joining a defined benefits scheme.

FoFP

Reply to
M Holmes

Final Salary schemes used to be good. However, check the small prints, especially on the index linking, My employer recently changed his FS scheme so that increments are at "inflation or 2.5% whichever is the smaller" so the index-linking is very poor. the change only applies to years credited since the date of the change, but for the OP that would be all his years.

Robert

Reply to
RobertL

yes, but check the small print. I have a scheme from a former employer and I found that the widow's pension is only payable if the widow is the same person who was my wife at the time I wascontributing. I have been deivorced and remarried since I left the scheme (frozen) so nobody will get a widows pension from it.

R
Reply to
RobertL

11.6% as an employee's contribution. Compare that with 6.4% which is a (new) teacher's contribution.

And yes, the employer contributes as well (unless it's an unfunded scheme like many of the state sector schemes). But his contribution is not a percentage amount. It's the amount that the actuaries reckon need to be put in to the scheme to enable it to fulfil its obligations. How much this amount is does not need to be a secret but it is not relevant to an employee, who simply gets a set amount related to his income and years of service (this is what a defined benefit scheme is).

Remember, membership of the scheme may take you out of the State Second Pension (if it's a contracted-out scheme).

Rob

Reply to
robgraham

I think you will find your employer had no choice about that. The Pension Act 2008 provided for a reduction of the cap on revaluation of deferred pensions from 5% to 2.5% revaluation of deferred pensions from

5% to 2.5% and I think that has now come into force.
Reply to
neverwas

I beg to differ on the IFA!

Reply to
BigGirlsBlouse

Roger Mills wrote: [snip]

[snip]

What about the risk of the trustees losing all the money paid in for your pension ?

FERGUS O'ROURKE

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(Not just law stuff)

Reply to
Fergus O'Rourke

What about it? What alternative would you recommend?

Reply to
Roger Mills

It's surely a relevant consideration.

I am not authorised to give investment advice :-)

But I am inclined to agree with yours, with the rider that the OP keep a very keen eye on the behaviour of the trustees. He may think it's more expedient to get a private pension instead, or even forego the tax relief and invest directly.

Reply to
Fergus O'Rourke

Surely the 2008 act did not force employers to do this; it merely enabled them to do it. Or did I misunderstand it?

Robert

Reply to
RobertL

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