Qualified earnings - but what happens when you get a pay rise?

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Baffledbutbattling
Baffledbutbattling Posts: 6 Forumite
in Pensions, annuities & retirement planning
Please can someone advise? I am in a "qualified earnings" pension. I was never sent any details about it so didn't know it was a QE scheme. Some years on now, and as I have moved up the company, my pay now exceeds that QE banding. But the pension payments from my company have just stayed static and within the banding. And my employee contributions are all calculated around the QE band and not my total salary, so are far smaller than I anticipated. So basically I am not paying anywhere near enough in - and neither is my employer IMO. Does this sound right to you?
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  • xylophone
    xylophone Posts: 44,413 Forumite
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    Do you meaning "qualifying earnings?

    Is this a defined benefits pension?

    Have you tried to obtain details of the scheme from the administrator?
  • Baffledbutbattling
    Baffledbutbattling Posts: 6 Forumite
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    I am getting no joy from my pensions department; i have been asking for clarification since April. (sounds ridiculous I know)
    Basically it looks like a qualified earnings pension scheme - yes. The pensionable part of my salary only applies to a proportion of what I actually earn.
    So, say I am on £80k (I wish), the bit the firm uses to calculate my pension is around half of that.
    Not sure how it differs from a defined contribution scheme?
  • hugheskevi
    hugheskevi Posts: 3,856 Forumite
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    edited 15 December 2017 at 6:19PM
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    Do you mean that your employer is basing employer and employee contributions on the statutory qualifying earnings bands? The bands are currently £5,876 to £45,000 (annual). Employers must contribute at least 1% on earnings in this band. They may contribute more if they wish but are not obliged to.

    In terms of technical terms, I think you are in a Defined Contribution scheme which bases employer and employee contributions on qualifying earnings bands.

    You can probably choose to contribute higher employee contributions if you wish, or make lump sum payments into the pension. Your pension administrator will be able to give further information about that.

    It sounds like the employer is doing nothing wrong, they are meeting their statutory obligations around the minimum amount they are putting into employee pensions. They have simply chosen to put the minimum in (assuming they are contributing at 1% of qualifying band earnings).

    If so, you are correct that the minimum employer and employee contributions will be very unlikely to provide an adequate pension pot, so you should be considering how much additional contribution you make.
  • Baffledbutbattling
    Baffledbutbattling Posts: 6 Forumite
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    Thanks Hugkeskevi - think you are right.
    I have a number of issues with this though - firstly, this sort of pension arrangement is dreadful! If I had known (or been told) I was in this sort of scheme, I'd have negotiated a better one straightaway. It is the worst company scheme I have ever been in. Doesn't the firm have to send details to you of the type of pension you are entering and its limitations?
    Secondly, when I chose to increase my own contributions to 10%, I had imagined it would be 10% of the majority of my pay. So by not knowing about the QE element, my contributions have been too low (I do pay in extra sometimes, as AVCSs, but then have to go to the bother of trying to reclaim the tax,)
    Thirdly, if your pay way exceeds the limits of pensionable pay, don't most companies then up their pension contribution or put you in a different scheme, reflective of your salary? Who would stay in a scheme like this? You'd be living your retirement in penury.
  • Number75
    Number75 Posts: 205 Forumite
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    I'm staying in a scheme like that.
    I'm in a DB CARE scheme, but it's capped at £45K salary. It's a good scheme.

    Yeah, it's rubbish compared to my old DB FS scheme, and I now pay 2% more for it too. But it's still fantastic to have a proportion of my retirement planning coming from a DB scheme!

    I want to pay more - so I do. It takes seconds to open a DC private pension (I have my reasons not to use AVCs).

    So I'm perfectly happy to stay in a scheme like this, and I'm making alternative plans to avoid penury.

    I see nothing wrong with what they offer - as long as it's clear in the information you were given. In my (large) firm, there would be no chance of negotiating something else on the pension - you could negotiate on starting salary as part of the overall package though.

    I have neve seen reclaiming tax as a bother. Extra money in my pocket is not a bother!!
  • xylophone
    xylophone Posts: 44,413 Forumite
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    You mention AVCs and a pension department - are you sure that this is a DC pension?

    Are you prepared to name the company/the scheme?
  • Baffledbutbattling
    Baffledbutbattling Posts: 6 Forumite
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    I can't name the firm or scheme I am afraid. But I can honestly say it's the worst scheme I have been in. Times change maybe, but companies need to pay a fair whack into employee pensions - especially as the workforce gets older - and if it had been more transparent about this at the start, I would have negotiated a higher starting salary and factored a discussion about my pension in every conversation about pay since. The employer contribution looks very measly from where I am standing.
  • Baffledbutbattling
    Baffledbutbattling Posts: 6 Forumite
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    Number75 - in terms of reclaiming tax. Do you have to wait until the end of the tax year to do this, or can you reclaim from the HMRC every time you make an extra net contribution to your pension?
  • Dazed_and_confused
    Dazed_and_confused Posts: 6,458 Forumite
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    edited 15 December 2017 at 7:37PM
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    With this type of pension relief (personal pension/sipp) you cannot normally claim a refund from HMRC for any higher rate tax relief during the year you make the contributions in but if you keep them informed of your expected contributions and what you expect your taxable salary (P60 figure) to be they should keep your tax code up to date so you get any extra tax relief due through reduced tax on your wages (because of the higher tax code).
  • Paul_Herring
    Paul_Herring Posts: 7,481 Forumite
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    The employer contribution looks very measly from where I am standing

    Well, yes. It is. They are, however, within the contribution regulations.

    Your gripes are probably better directed in any (mis-)communication regarding overall remuneration.
    Conjugating the verb 'to be":
    -o I am humble -o You are attention seeking -o She is Nadine Dorries
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