My employer has ended the final salary pension.

tomstickland

We were informed last week that our company have decided to end the defined benefit (guaranteed pension) scheme and replace it with a defined contribution scheme.

I can see why they've done it; in promising a pension they were taking on all the risk of the scheme. With the new scheme they just pay their bit and the employees pay their bit and whatever happens happens.

The current deal is:
employee pays a minimum of 2.5% of salary
company pay a bonus at 11% of salary

I think this is still a pretty generous offer. Am I correct?

Lorian

I'd pay some attention to where its being invested.

And ensure you are still going to get the defined benefit pension for existing service.

OldNelly

Tom,

I'm glad you brought this up, I'm pretty sure we work for the same company!

I will be interested to see what replies you get.

tomstickland

You're "pretty sure" then!

dunstonh

Investment is king. A 2% difference per annum in performance can go almost double the retirement income depending on length of time to go.

Can you clarify, is that you paying 2.5% and them paying 11%? Just want to make sure I am not confusing that "bonus" up.

tomstickland

Minimum offer is that I pay 2.5% of my salaray and they give me another 11% of salary. ie: they don't take 11% of my salary, they give me 11% extra.

chesky369

Do you mean they pay 11% of your salary into the pension scheme? They don't give it to you do they?

clairehi

Sounds like the 11% is salary sacrifice then.

IMO this is "pretty generous" for a money purchase scheme, yes. I would run the numbers through the FSA calculator to get a rough idea of what it would pay at retirement.

https://www.pensioncalculator.org.uk/pages/home.php

tomstickland

No, I mean I pay 2.5% of my salary into the scheme and they pay their own money into it, and the amout they pay is calculated as being 11% of my salary. ie: they don't take 11% of my salary off me, they pay their money in at that rate.

lipidicman

Tom,

If your assertion about the 11% is correct then I don't see how you can go wrong. 2.5% is a small price to pay

With mine I have to pay in 6% to get 14% from my employer (from memory). This is still final salary (average of last few years I believe) so it is a no brainer.

Curious_Moose

So what's the state of the closing DB scheme? Ask for a copy of the latest Actuarial valuation and that will give you an idea of how much money there is in the scheme compared to the liabilities. Or at least when the valuation was done. If it is in deficit, what steps will the company be taking to reduce the deficit?