Final Salary Pension

Dithering_Dad

Hi, I've accepted a job that comes with a final salary pension. I have always missed out on these in my working life and so don't really know anything about them, apart from the basics.

My current pension (SIPP) was accumulated from various Money Purchase pensions and is currently standing at the £80k mark. I have over 25 years to retirement.

The new company pension is a 1/60th final salary where I have to contribute 6% of my salary (£60k), so £300pm - which is the current amount I put into my SIPP.

Is this a standard contribution amount for a final salary pension, does 1/60th represent a good return, is that a standard percentage return?

There won't be an option for my new employer to contribute to my personal pension, and I doubt I'll want to pay into 2 pension plans, so any ideas what I should do with this pension?

JonnyBravo

Cant comment on what you should do with your existing pot as I dont have any meaningful experience of that type of pension.


As for the final salary, I'm on final salary and yep that seems about normal.

We used to be on 1/60th's for 5% of our salary but this was changed a year ago when they shut the scheme to new entries.
We now have the choice of contributing 5% for 1/65ths or 3% for 1/80ths (I do the former) with our bonuses only eligible for a DC scheme.

Dithering_Dad

Cheers JB. From my calculation, based on my current salary I get £1000 per annum of pension money for each year I work with that company for an annual contribution of £3600. Over the 25 years I'd be paying in £90k and will get back £25k a year in a pension. I did a quick online check with annuities and found that £90k would buy me a £6500pa pension.

I knew that the FS scheme was a very valuable part of my remuneration package, but didn't quite understand just how valuable!

lolarentt

Yes I recently retired recently on a final salary scheme and that was 1/60th

Drumtochty_2

I did a quick online check with annuities and found that £90k would buy me a £6500pa pension.

Not True

You will get an inflated pension from a final salary scheme. For that £90k, you will getyou nearer £3,500 pa

Dithering_Dad

Drumtochty wrote: »

I did a quick online check with annuities and found that £90k would buy me a £6500pa pension.

Not True

Depends on whether you want a spouses pension, guarantee period and no escalation rate. I put in 'no', 'none' and 'none' into this annuity calculator with a 90k pension pot for a 65 year old male and it came back with £6500pa from Norwich Union:

http://www.find.co.uk/pensions/annuities_centre/annuities-calculator

The calculation was merely to compare the very best priced annuity against the FS pension to see what the difference was. I have to say I didn't appreciate the 'Not True' statement.

Drumtochty wrote: »

You will get an inflated pension from a final salary scheme.

I know, that's why I said that I thought the FS pension was a valuable part of my remuneration package.

Andy_L

FS pensions have to provide RPI escalation, although it can be capped to 5% (2.5% for service post "recently" - can't remember when)so it's even more valuable than it appears.
.

dwsjarcmcd

DD one big point you have missed out is your employer's contribution, which I can promise you will be substantially more than 6%. Depending on the current state of the scheme, many employers with DB schemes are paying well in excess of 25 - 30% of your salary into these schemes.

You would never get that with a DC scheme where they tend to match contributions.

These are VERY expensive for employers and are like gold dust!

David

StevieJ

Well done DD :beer:

EdInvestor

Dithering_Dad wrote: »

Depends on whether you want a spouses pension, guarantee period and no escalation rate. I put in 'no', 'none' and 'none' into this annuity calculator with a 90k pension pot for a 65 year old male and it came back with £6500pa from Norwich Union:

http://www.find.co.uk/pensions/annuities_centre/annuities-calculator

The calculation was merely to compare the very best priced annuity against the FS pension to see what the difference was.

You need to compare like with like.Typically an F/S pension will come with escalation in payment, 50% (or more) spouse's pension, dependants pensions, death in service benefit.You can't "opt out" of these benefits, so you really need to compare with an annuity which offers similar to get a fair comparison.It may also be useful to check out the early retirement arrangements,especially how much the pension will be reduced if you want to go at .say 60, (and also whether the spouse pension would be affected if you did so.).

Assuming you are not in the public sector you may also like to check the security arrangments for the pension in case the company doesn't survive.

https://www.pensionprotectionfund.org.uk

In general F/S pension deserve their gold plated reputation but they are a much better deal for people (like yourself I believe) with what were once conventional family arrangments (eg non-working spouse, several children), than for single/divorced/cohabiting people who often don't benefit from many of the bells and whistles but still have to pay the same contributions..

wonderman

You already have the answer here - 1/60th FS scheme for 6% of your pay is a good deal. I have done the sums and was staggered - mine is similar. Just sign on the dotted line.