Pensionable pay lower than salary!

marklv

MrChips wrote: »

To my knowledge, no public sector schemes apply this deduction. However, I am aware of some private sector schemes doing so.

I think you're comnig at this from the wrong angle. Of course the scheme provides a lower pension than if a deduction wasn't applied. But then, it would also provide a lower pension if the retirement age was 5 years later, or if a lower accrual rate was used. These are all just different elements of scheme design to provide the right balance between affordability and protection for members.

By including an offset, the scheme can target providing an "overall" level of benefits to its members in their retirement. If the offset wasn't applied, it could conceivably be "over generous" to lower paid members at the expense of medium earners. E.g.

A member works for 40 years and finishes with a salary of £15k, pension from scheme of £10k plus £6k State Pension = £16k - higher than salary before retirement (and more generous tax status)!

With the offset, this becomes (approx) an overall pension of £10k, which is more in line with the very general target of 2/3 of salary needed in retirement (NB this is a very general approach).

By targeting the accrual at the right level, maybe the scheme can afford to give more generous increases, or pay benefits from age 60 rather than age 65. Or these days, actually afford to keep the scheme open!

Re your 45% comment, your pension provision from your earlier career will (approx) make up for the difference. Your scheme can't be expected to provide benefits in lieu of earlier periods of employment.

I work for a public sector body and they do apply the deduction, unfortunately. :mad:

I take your point about the worker on £15k a year, but why should it be wrong for someone on such a low income to be nicely rewarded upon retirement? Alternatively, the person concerned could have the pension reduced and a tax free lump sum paid in addition. Sorry, but I can't help feeling that this LEL reduction is just a fiddle. It means that if you retire after a full 40 years, your employer pension will be reduced by 2/3 of £4,665, which is £3,125.

As for myself, I have no previous pension provision because it was mostly lost in various stockmarket crashes - first in 2001 and also more recently. What pittance was left I have transferred to my employer pension, and the combined total will give me around 45% of my final salary when I retire, taking the LEL cutback into account as well.

marklv

CluelessJock wrote: »

Marklv, as others have said you are in the fortunate position of having an employer that contributes to your pension. Given that it is not a legal requirement for employers to do so how can you ask if the adjustment is legal?

Some people appear never to be happy, irrespective of what they have.

You're missing the point. I recognise that I am luckier than most in having a form of final salary pension, but this is a matter of principle. 'Final salary' should mean precisely that, not a watered down version.

Aegis

marklv wrote: »

I work for TFL and they do apply the deduction, unfortunately. :mad:

I take your point about the worker on £15k a year, but why should it be wrong for someone on such a low income to be nicely rewarded upon retirement?

Because paying someone who is not working more than someone who is would be extremely demoralising to those still actually having to work.

You're missing the point. I recognise that I am luckier than most in having a form of final salary pension, but this is a matter of principle. 'Final salary' should mean precisely that, not a watered down version.

It does mean that. "Final salary" pensions are technically defined benefit pension schemes based on the employees final salary. There are a number of possible relations of the eventual payment to the final salary, and these will vary from company to company.

MrChips

marklv wrote: »

You're missing the point. I recognise that I am luckier than most in having a form of final salary pension, but this is a matter of principle. 'Final salary' should mean precisely that, not a watered down version.

There are many different variants to "final salary" schemes. Many schemes apply an average to the last few years of earnings to protect members whose salary falls prior to retirement (e.g. those on variable commission).

CluelessJock

marklv wrote: »

You're missing the point. I recognise that I am luckier than most in having a form of final salary pension, but this is a matter of principle. 'Final salary' should mean precisely that, not a watered down version.

I'm missing the point??:rotfl:

God help your employer if you didn't recognise you are luckier than most.

What principle? It seems it's only you that perceives something unjust.

As Aegis said, it is a final salary scheme.

To knock a responsible employer, suggesting they may be involved in illegal activity or that they are hiding clauses, when in fact they are going well beyond what they need to do is irresponsible and demonstrates your own lack of understanding.

You accepted the job with these conditions, if you don't like them you can always leave. I am sure if you were an employer exceeding your obligations you would not appreciate your staff bad mouthing you.

To make the claims you have and then name the employer is approaching being libelous and is certainly dodgy ground. If I worked for your employer and read this I would seek you out and hold you accountable.

If you were fired that would solve your issue with your employer.:D

dzug1

MrChips wrote: »

To my knowledge, no public sector schemes apply this deduction. However, I am aware of some private sector schemes doing so.

.

Yes they do - or used to at any rate. Both the Civil Service and Local Government schemes have/had such a deduction in respect of service from 1948 to 1980 or so (I'm guessing on exact dates, and don't know if LG ever stopped it). LG contributions were 'modified' (= reduced) rather than pensionable salary being reduced but it's the same principle.

Basically when you start getting the state pension, your occupational pension is reduced. Originally it was I think by the amount of the state pension, but it's been watered down over the years and is not now that much.


The idea behind it was that YOU don't want to pay for two pensions. These days many may have a different view on that, but that was the origin.

MrChips

Sorry, I meant currently - I don't know too much about the form of the schemes 30 years ago. I know some schemes applied some sort of deduction for service before 1980 - about £1.80 per year of service. I guess this is connected to what you refer to above, but it's probably not too significant these days.

dzug1

MrChips wrote: »

Sorry, I meant currently - I don't know too much about the form of the schemes 30 years ago. I know some schemes applied some sort of deduction for service before 1980 - about £1.80 per year of service. I guess this is connected to what you refer to above, but it's probably not too significant these days.

Yes that's what I was on about - and no - not very significant now. But there are still people working that it will affect when they retire

seven-day-weekend

So my deferred LG Pension at the moment tells me that on today's rates I will get around £5k Pension a year which I can draw unreduced in August 2014. I paid into the scheme from 1995-2004 which is why it is not a huge amount.

I draw my full State Pension next January.

Are you saying that my LGPS deferred benefits will then reduce, or does it only effect benefits accrued before 1980?

Answers in words of one syllable please!

MrChips

Just bens earned b 4 Nine Teen Eight Tea ;-)

i.e. you shouldn't suffer any reduction.