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Pensions - how is it affected by part time working.

Hi. I am in a full time job and pay a percentage each month into a private pension through work.

After 30 years of being with the employer I can retire and start getting my pension. But I was thinking of going part time perhaps soon and wondered how this affects pension. Would it affect it still if I went back to full time in the last two years of the 30 as someone suggested to me it wouldn't affect it so much that way since pensions are calculated using the last two year's worth of employment.

Or does going part time to say only 3 days a week affect it hugely? Oh, and it's not because I am lazy that I wish to go part time. It's because I am toying with the idea of doing black cab driving in London. But I wanted to keep my foot in the door of my current employer for the pension if that was possible - maybe just doing one day a week if I can earn enough as a cab driver!

Thanks for your help.
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Comments

  • dunstonh
    dunstonh Posts: 120,150 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    by private pension I am going to assume a personal pension not an occupational defined benefit scheme. It makes no difference if you go part time. Personal pension benefits are based on the value. The value is a mixture of what you pay into it and what it grows to. How many hours you work has nothing to do with it directly (unless you cant afford to keep the payments going).

    Personal pensions are not calculated using the last two years of employment. Occupational defined benefit schemes do base the pensionable salary on your earnings in various periods in the later years (ie. average of the best 3 consecutive years in the last 10 or varients of that).

    So, at this stage, its probably best to find out what type of pension you have as you say private but you describe occupational defined benefit.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • thenap80
    thenap80 Posts: 437 Forumite
    Part of the Furniture 100 Posts Combo Breaker
    I'm not sure what it is to be honest. I just know the money comes out of my wage each month. What do u mean by saying it makes no difference if I go part time? But then say it depends on how much u pay in. Surely then if I am full time I pay more in and then get more out at the end. Is that what you are saying?
  • CLAPTON
    CLAPTON Posts: 41,865 Forumite
    10,000 Posts Combo Breaker
    you absolutely need to know whether it is a 'final salary ' type scheme (or defined benefit) or a defined contribution type scheme
  • thenap80
    thenap80 Posts: 437 Forumite
    Part of the Furniture 100 Posts Combo Breaker
    It is a final salary pension scheme if that helps. I know that much!!
  • Hi,

    There are broadly 2 kinds of pension schemes. A Final Salary also known as Defined Benefit scheme and the other one is known as the Defined Contribution or Money purchase scheme.

    If you have a Final Salary Pension scheme which alot of people dont have anymore as most of the employers have withdrawn it, then your pension would be based on your final salary. On the other hand, the money purchase scheme is not based on your final salary but the actual value of your pension pot. Its not guaranteed by your employer unlike final salary scheme and is based on investment returns.

    However, you may have a money purchase scheme where the employer is contributing towards your pension as a certain % of your basic salary. In that case, if you did go part time, it would reduce your salary and also your employer's and your contribution towards your pension. However, in this case it wouldn't make a difference if you would go full time in the final 2 yrs before retirement.

    The other option is to take up a private pension with any company e.g. Zurich, Scot Eq, Standard Life etc etc .This wouldn't have to do anything with your employer but you will get pension based on how much you contribute towards it during your lifetime. However, the disadvantage is that you wont have the luxury of your employer contribution as you probably have now.

    Thus, its very important to find out exactly what kind of pension you have with your employer. Contact the HR or pension department and they would be able to give you more details.

    Cheers.
  • dunstonh
    dunstonh Posts: 120,150 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    What do u mean by saying it makes no difference if I go part time? But then say it depends on how much u pay in. Surely then if I am full time I pay more in and then get more out at the end. Is that what you are saying?


    Personal pensions are based on fund value. The fund value goes up with the more you pay in. Its not based on years of service or even if you are employed (As you can pay up to £3600 a year into them if you are not employed or low income). So, what you earn is irrelevant.

    Defined benefit occupational schemes are based on years of service and worked out against your pensionable salary. So, if your pensionable salary goes down, then potentially (depending on the scheme rules) the pension you get will go down. If its a career average scheme it could have an impact as well (although part time often has a higher pensionable salary but accrues years slower).

    Pension is a word that covers many different types of schemes. Its a bit like vehicle can be a car, lorry, helicopter, sail boat etc. Without knowing the type, its impossible to say.

    Whilst the term "private pension" doesnt exist, it is often used by mistake by people and indicates a personal pension. However, what you describe doesnt sound like a personal pension but an occupational defined benefit scheme.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • CLAPTON
    CLAPTON Posts: 41,865 Forumite
    10,000 Posts Combo Breaker
    thenap80 wrote: »
    It is a final salary pension scheme if that helps. I know that much!!

    if its a final salary scheme then you need to find out the rules; are you allowed to take your pension and still continue working parttime at the company?
  • thenap80
    thenap80 Posts: 437 Forumite
    Part of the Furniture 100 Posts Combo Breaker
    I am 100 percent certain it is a final salary pension scheme. So with this in mind, does that mean the pension that I get is based solely on the salary I earn in my final year. So if I went bk to being full time in my 30th year, I would be taking home a pension the same as people in the same boat as me but who didnt go part time mid-career.

    Thanks
  • thenap80
    thenap80 Posts: 437 Forumite
    Part of the Furniture 100 Posts Combo Breaker
    CLAPTON wrote: »
    if its a final salary scheme then you need to find out the rules; are you allowed to take your pension and still continue working parttime at the company?

    I can only take pension when I leave company. If I carry on working, do not get it.
  • dunstonh
    dunstonh Posts: 120,150 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    So with this in mind, does that mean the pension that I get is based solely on the salary I earn in my final year.

    No. It depends on scheme.

    It can be an average of your best 3 years in the last 10 or an average of your previous 3 years or average over your whole pension membership or any sort of variation depending on scheme rules.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
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