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  • FIRST POST
    • Lily1
    • By Lily1 17th Mar 17, 7:56 PM
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    Lily1
    Paying into pension for five years?
    • #1
    • 17th Mar 17, 7:56 PM
    Paying into pension for five years? 17th Mar 17 at 7:56 PM
    Trying to plan for husbands retirement. He has been paying into the British Steel Pension scheme for 39years, but retirement options have been turned upside down with its closure to further accrual. There is a new plan opening on 1st April run by Aviva. The max employee contribution is 6% with Tata paying in 10%. Husband is 55 planning to finish work at 60, so is it worth joining the new scheme? He is a higher income tax payer if that makes a difference.
Page 1
    • Alice Holt
    • By Alice Holt 17th Mar 17, 8:15 PM
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    Alice Holt
    • #2
    • 17th Mar 17, 8:15 PM
    • #2
    • 17th Mar 17, 8:15 PM
    I would have thought so:
    1) To get the employer contribution
    2) As a higher income tax payer the 6% contribution would cost a net c.3.6% reduction from net salary.

    So a 16% contribution going into the scheme costs a net 3.6% of salary.
    I'd be very happy with that.

    If the original scheme is DB, then a ( I assume) DC scheme alongside it could be quite useful.
    In that you could take a lump sum from his DC scheme to augment the ongoing DB monthly payments when needed. Or use it to defer taking DB benefits, if such a deferment would be financially advantageous.
    Last edited by Alice Holt; 17-03-2017 at 8:24 PM.
    • ermine
    • By ermine 18th Mar 17, 10:10 AM
    • 533 Posts
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    ermine
    • #3
    • 18th Mar 17, 10:10 AM
    • #3
    • 18th Mar 17, 10:10 AM
    It's a great deal. And burning up a DC pension ahead of drawing a DB pension is a great opportunity to enable retiring a little bit early. Say he wanted to retire early at 58 - he could consume all of the DC pension running it down to 0 ahead of drawing his DB pension, avoiding taking an actuarial reduction on the DB pension.

    One thing that's worth asking is if the DC pension can be seen as part of his total British Steel pension. That way if he draws both at the same time, he might be able to draw his 25% tax-free pension commencement lump sum from the DC part, possibly entirely tax-free (because the total value of his pension is the DB + DC components). Which would be a great way of not paying 40% tax for those last five years. Whether this is possible very much depends on how the pension is set up, it works in DB pensions with additional voluntary contribution DC schemes.
    • ischofie1
    • By ischofie1 18th Mar 17, 10:55 AM
    • 133 Posts
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    ischofie1
    • #4
    • 18th Mar 17, 10:55 AM
    • #4
    • 18th Mar 17, 10:55 AM
    Another thing to consider.
    Are you sure 6% is the max he can pay in?
    It may be the figure to get the max Co contribution but not necessarily the max he could put in.
    It would be worthwhile putting more in if you can afford it.
    • quotememiserable
    • By quotememiserable 18th Mar 17, 12:27 PM
    • 363 Posts
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    quotememiserable
    • #5
    • 18th Mar 17, 12:27 PM
    • #5
    • 18th Mar 17, 12:27 PM
    If has 39 years in, then he's only one year short of a maximum pension in that scheme. So it sounds like you're sorted already. Just top up with the new scheme. If he pays any 40% tax he can avoid that by making extra payments into the new one.
    • Lily1
    • By Lily1 18th Mar 17, 1:54 PM
    • 143 Posts
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    Lily1
    • #6
    • 18th Mar 17, 1:54 PM
    • #6
    • 18th Mar 17, 1:54 PM
    Many thanks to all who have answered. He has lost a lot of perks with the changes, e.g there will now be a 25% reduction for going at 60 which there wasn't before also certain allowances for long service etc. It is what it is, we will have to rearrange a few things but should be alright until his state pension kicks in at 67.
    • ermine
    • By ermine 18th Mar 17, 3:27 PM
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    ermine
    • #7
    • 18th Mar 17, 3:27 PM
    • #7
    • 18th Mar 17, 3:27 PM
    there will now be a 25% reduction for going at 60 which there wasn't before also certain allowances for long service etc.
    Originally posted by Lily1
    Are you absolutely sure about this? Was the normal retirement age of the original DB pension 60? Because he will have accrued entitlement based upon NRA 60 (if indeed it was that) right up to the change - they can't retrospectively dis-entitle you, without you agreeing to the change. They can change things going forward, of course.

    My company had a NRA of 60, and they fiddled about in 2009, reducing the accrual rate and changing the NRA to 65. I retired early, in 2012, so I only have three years under the new regime.

    They can't backdate the NRA for accrual before the change, so I recently asked them for a projection of my pension if I draw it at 58, 60 and 62. At 58 I lose about 6% p.a, relative to 60 and I get some tiny increase of ~ 1% at 62. This asymmetry is because most of my accrual is NRA 60 and they don't pay me any more to defer the NRA 60 years. It would be irrational to take it later than 60. Of course, they write all the blurb talking about 65 hoping they get some free money from people not realising this

    The company also said I couldn't take my DC pension at a different time ot the main pension. Which is true, but you can always transfer a DC pension to another supplier, which is how I get to burn up my DC pension before taking the DB pension.
    • Lily1
    • By Lily1 18th Mar 17, 6:33 PM
    • 143 Posts
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    Lily1
    • #8
    • 18th Mar 17, 6:33 PM
    • #8
    • 18th Mar 17, 6:33 PM
    It was 65 but there was no reduction if you went at 60. Generous I suppose. Now there is a reduction of 5% per annum for anything under 65. We were surprised that the unions agreed these changes but they did, perhaps they are not as cynical about Tata's vague promises as we are.
    • bigadaj
    • By bigadaj 18th Mar 17, 9:09 PM
    • 8,770 Posts
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    bigadaj
    • #9
    • 18th Mar 17, 9:09 PM
    • #9
    • 18th Mar 17, 9:09 PM
    It was 65 but there was no reduction if you went at 60. Generous I suppose. Now there is a reduction of 5% per annum for anything under 65. We were surprised that the unions agreed these changes but they did, perhaps they are not as cynical about Tata's vague promises as we are.
    Originally posted by Lily1
    Wasn't much choice, other option is to shut it down.
    • atush
    • By atush 19th Mar 17, 8:51 AM
    • 15,749 Posts
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    atush
    Wasn't much choice, other option is to shut it down.
    Originally posted by bigadaj
    Completely agree. One of the reasons big steel are in difficulty is the weight of the generous pension promises.
    • quotememiserable
    • By quotememiserable 19th Mar 17, 9:19 PM
    • 363 Posts
    • 221 Thanks
    quotememiserable
    It was 65 but there was no reduction if you went at 60. Generous I suppose. Now there is a reduction of 5% per annum for anything under 65. We were surprised that the unions agreed these changes but they did, perhaps they are not as cynical about Tata's vague promises as we are.
    Originally posted by Lily1
    Check those rules. I think it will only apply to pensions earnings from the date the scheme changed, and not retrospectively.
    • Lily1
    • By Lily1 19th Mar 17, 11:57 PM
    • 143 Posts
    • 60 Thanks
    Lily1
    There has been very little information as yet. There are meetings this week, hopefully things will be clearer then.
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