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    • Yorkshireman1977
    • By Yorkshireman1977 5th Oct 17, 8:36 PM
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    Yorkshireman1977
    Can I compare a CARE pension with a standard pension?
    • #1
    • 5th Oct 17, 8:36 PM
    Can I compare a CARE pension with a standard pension? 5th Oct 17 at 8:36 PM
    I've been offered a new job, and the pension offered is 8% employer contribution and 4% employee contribution. My current company has a CARE/Career Average scheme, which I've been in for 3 years, with the previous 7 years in a Final Salary Scheme at the same company. The new role is slightly higher pay, and has better long-term earning potential, but is there a way to roughly calculate the pot I'd get at the end in both schemes (taking the job Vs not taking the job)...?

    My gut feel is that I will be massively out of pocket come retirement, if I take the new job, but maybe not?

    Thanks in advance...

    Chris
Page 1
    • JoeCrystal
    • By JoeCrystal 5th Oct 17, 9:06 PM
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    JoeCrystal
    • #2
    • 5th Oct 17, 9:06 PM
    • #2
    • 5th Oct 17, 9:06 PM
    It is generally accepted that DB pension scheme is worth between 25% to 33% of your pay. You can always outline your income, accrual rates and the years of service so we can see the difference but frankly, in term of index-linked retirement income, your current job is unbeatable compared to all the investment risk you will bear in your new job.
    • Yorkshireman1977
    • By Yorkshireman1977 5th Oct 17, 9:16 PM
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    Yorkshireman1977
    • #3
    • 5th Oct 17, 9:16 PM
    • #3
    • 5th Oct 17, 9:16 PM
    Thanks JoeCrystal, that's what I suspected... However to offset this weaker pension, I wanted to understand how much more I'd need to earn to make it more equal. I'm on £53k now, where as the new job is £65k, however the new job rises to £75k after 3yrs, so would the extra £22k make the new job more lucrative overall?

    I will need to get my accrual rates tomorrow, and I'm assuming I'll work another 25yrs. So to keep it easy imagine both jobs increase at the same rate over that period.

    Thanks,

    Chris

    Ps. What is DB please?
    • JoeCrystal
    • By JoeCrystal 5th Oct 17, 9:19 PM
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    JoeCrystal
    • #4
    • 5th Oct 17, 9:19 PM
    • #4
    • 5th Oct 17, 9:19 PM
    DB mean Defined Benefit. Well, does your seven year service in final salary element is still linked to your final salary in the future? If so, then it is even more valuable.
    • Yorkshireman1977
    • By Yorkshireman1977 5th Oct 17, 9:25 PM
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    Yorkshireman1977
    • #5
    • 5th Oct 17, 9:25 PM
    • #5
    • 5th Oct 17, 9:25 PM
    Just looked up DB (Defined Benefit)... So 25% to 33% of pay would mean a pension of between £13,250 and £17,490 per annum, is that right? Assuming £53k was my average salary over the 25years.

    So to compare I'd need a salary that makes the 8% + 4% contributions yield the same. Is there anyway to calculate the pension of 8+4% of £60k over 25years? Maths isn't my strength, as you've no doubt gathered.
    • Yorkshireman1977
    • By Yorkshireman1977 5th Oct 17, 9:27 PM
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    Yorkshireman1977
    • #6
    • 5th Oct 17, 9:27 PM
    • #6
    • 5th Oct 17, 9:27 PM
    I'm not sure, I'll need to check, but that's a very good point, thanks. I was ignoring the Final Salary as it's closed now.
    • JoeCrystal
    • By JoeCrystal 5th Oct 17, 9:33 PM
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    JoeCrystal
    • #7
    • 5th Oct 17, 9:33 PM
    • #7
    • 5th Oct 17, 9:33 PM
    Assuming you start afresh with this pension pot at new job and want index-linked income with 5% increase every year and 50% spouse income. If you are 43 and retiring at 68, and the return is 5% a year then it may yield £4,000 per year. That's all. Of course, the market may crash beforehand reducing your pot by half or worse. On other hand, it may do better. There is a reason why these kind of schemes are considered gold plated, especially for someone on high salary! Whatever you are paying atm in term of contribution, they are almost certainly be peanuts and wholly not relating to the true cost of the schemes.
    Last edited by JoeCrystal; 05-10-2017 at 9:39 PM.
    • Yorkshireman1977
    • By Yorkshireman1977 5th Oct 17, 9:43 PM
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    Yorkshireman1977
    • #8
    • 5th Oct 17, 9:43 PM
    • #8
    • 5th Oct 17, 9:43 PM
    Ok, so basically it doesn't matter what they offer me as a salary, or as a contribution, I just have to accept the new pension will be considerably smaller than my current CARE pension. Does that sound right?
    • JoeCrystal
    • By JoeCrystal 5th Oct 17, 9:46 PM
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    JoeCrystal
    • #9
    • 5th Oct 17, 9:46 PM
    • #9
    • 5th Oct 17, 9:46 PM
    Ok, so basically it doesn't matter what they offer me as a salary, or as a contribution, I just have to accept the new pension will be considerably smaller than my current CARE pension. Does that sound right?
    Originally posted by Yorkshireman1977
    It depend on the accrual rate, contribution rate you are currently paying really. Hopefully, once you got your hands on the detail tomorrow but it seems unlikely that 12% is sufficient to replace advantages of potentially final salary linked and CARE scheme. Another thing to bear in mind that your current scheme may have Death in Service, Ill Health Retirement and so on which may not be available at all in the new scheme.
    • AlanP
    • By AlanP 5th Oct 17, 9:49 PM
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    AlanP
    Just looked up DB (Defined Benefit)... So 25% to 33% of pay would mean a pension of between £13,250 and £17,490 per annum, is that right? Assuming £53k was my average salary over the 25years.

    So to compare I'd need a salary that makes the 8% + 4% contributions yield the same. Is there anyway to calculate the pension of 8+4% of £60k over 25years? Maths isn't my strength, as you've no doubt gathered.
    Originally posted by Yorkshireman1977
    Not really, your DB pension will be whatever it is based on your salary and accrual rate and number of years worked - your statements should show you what it is worth now and probably an estimate of what it will be at the scheme pension age.

    The 25-33% figure is an estimate of how much extra salary you would need to earn to "breakeven".

    So, if new employer is putting in 8% you could logically want an extra 17-25% salary to compensate for what you are giving up.
    • kidmugsy
    • By kidmugsy 5th Oct 17, 11:07 PM
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    kidmugsy
    I'm not sure, I'll need to check, but that's a very good point, thanks. I was ignoring the Final Salary as it's closed now.
    Originally posted by Yorkshireman1977
    You do need to check. Some schemes that have converted from Final Salary to CARE have based the eventual FS pension on the salary at the time of swapping over to CARE. That's what the university scheme USS has done, for example. Oof!
    • Yorkshireman1977
    • By Yorkshireman1977 6th Oct 17, 7:32 PM
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    Yorkshireman1977
    I checked... My accrual is 1/60th, and my Final Salary was my Final Salary when the scheme closed back in 2014, not my Final Salary when I retire.
    • JoeCrystal
    • By JoeCrystal 6th Oct 17, 7:53 PM
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    JoeCrystal
    Right. So assuming your final salary back then is £53,000, you got index-linked pension of £6,183 already. Not bad for seven years work! If your CARE pension accrual rate is the same, then you already got £2,650 due to three years service. If your salary is £53,000 and went on like this for twenty five years (assuming CARE haven't closed due to ruinous cost on the employer) , then your CARE will be boosted by 1/60th of the salary (of that year) every year For the sake of simplicity, assuming your salary remains unchanged and kept up with inflation, Your 7/60 of the final salary back then = £6,183 and 28 years of 60th accural rate equals £24,733 per year so combined, about £30,916 a year.

    However, if you leave your DB pension schemes and went for the new job, you will keep your index-linked pension of £8,833 which is already better than your state pension. So in order to do something similar in a private pension (In order to produce £22,083 per year you will be missing out in your current job) (and assuming you are 25 years away from SPA), you would need to contribute £3,350 per month or 67% of 60k salary.

    Yes, I am saying that the HL pension calculator is suggesting a million pound pot to generate £22,000 index-linked pension (up to 5%) with 50% spouse at age of 68! So... never underestimate the value of the DB pension scheme, especially on a high salary!

    I seriously need to get a job with that kind of retirement remuneration somehow! My altruism is taking a bit of a battering here.
    Last edited by JoeCrystal; 06-10-2017 at 8:08 PM.
    • Yorkshireman1977
    • By Yorkshireman1977 7th Oct 17, 12:03 AM
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    Yorkshireman1977
    Thank you so much, you're really quite good at this!

    It's certainly made me realise just how good my pension is in my current job, however I think what I've failed to see, is that like they did with our Final Salary scheme, they could so easily close the current CARE scheme. If you then factor in the current economic climate and uncertainty, and I start to feel that there's no point basing a job decision based on what might happen 28 years from now.
    • badmemory
    • By badmemory 7th Oct 17, 6:15 AM
    • 812 Posts
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    badmemory
    You need to remember though that they will not change the CARE scheme tomorrow, it is going to be about 5 years down the line at least.
    • k6chris
    • By k6chris 7th Oct 17, 8:29 AM
    • 127 Posts
    • 182 Thanks
    k6chris
    yer is putting in 8% you could logically want an extra 17-25% salary to compensate for what you are giving up.
    Originally posted by AlanP
    ...and the put that extra 17-25% salary into a DC pension, where you have the risk (and potential reward) of investment performance.
    EatingSoup
    • JoeCrystal
    • By JoeCrystal 7th Oct 17, 8:42 AM
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    JoeCrystal
    Thank you so much, you're really quite good at this!

    It's certainly made me realise just how good my pension is in my current job, however I think what I've failed to see, is that like they did with our Final Salary scheme, they could so easily close the current CARE scheme. If you then factor in the current economic climate and uncertainty, and I start to feel that there's no point basing a job decision based on what might happen 28 years from now.
    Originally posted by Yorkshireman1977
    True however, the fact they changed it over to CARE rather than closing it outright does suggest that they want to keep it for a while. As badmemory pointed out, if they do close it eventually, it would likely to be few years down the line. At that point, you can always change job since your remuneration took a real hit in term of retirement provision.
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