Query on joining company DB scheme

Charlton_Taz

A quick question for the knowledgeable people out there.

I have just joined a company which offers a defined benefit scheme which sounds very good and I would like to join. However, I have one concern which is that, considering I'm still quite young (under 30!) and being realistic I'm probably not going to work for this company forever, how do they actually work out your final salary? For instance, say I leave the company when I'm 35 (the literature of the scheme defines your final salary as the average of your final 3 years) how do they generally project this forward till I'm 65? If they do this on wage increases assumptions it sounds a winner but if they did it on say RPI that doesn't seem as good....would I then be better investing my money in a DC scheme instead?

Any suggestions?

Cheers

Lorian

It will vary from scheme to scheme. There should be a scheme booklet that details this and lots of stuff you need to know like:

Your continution level.
The defined benefit, ie 60ths (typical the best) or 80ths, 100ths etc.
Any life insurance offered
If pensions are/can be provided for dependants (you might not have them now, but you may have in the future)

I guess you are pretty lucky to be offered a place in a defined benefit final salary scheme today, as many companies have closed entry for new people, only offering generally less attractive average salary or defined contribution schemes.

You should be able to get the booklet/details from the pension scheme administrator. It's also worth asking if you can have a free chat with the pensions company adviser, which im my experience is also sometimes possible.

dunstonh

If they do this on wage increases assumptions it sounds a winner but if they did it on say RPI that doesn't seem as good....would I then be better investing my money in a DC scheme instead?

With a final salary scheme, you pension is almost exactly known. If you have 10/80ths, you will get 1/8th of your pensionable salary. This will be set when you leave and will be increased each year by an appropriate rate.

The amount of money you would need to pay in to match this on a defined contribution is far greater and frankly not a viable alternative. If you are so inclined to pay that amount, you would be better off being in the final salary and paying the difference into an ISA.