Calculating equivalent monthly cost of a non-contributory final salary pension?

LovelyBoy_2

Evening all, long time lurker and saver, first time poster.

For comparison of my current reward package with anything else that is on offer during job hunting, I've hit a bit of a stumbling block.

I'm very fortunate that my employer offers a non contributory final salary pension scheme, but I'm really struggling to find out what I'd have to pay into any other pension scheme to get an equivalent package and I turn to the forum for help.

My status :
Been in scheme for 10 years
Assumed Retirement in 20 years time

I have all the facts at my fingertips and can post them in answer to any questions, but am unsure what is of use to those of larger brains. Better to post nothing and be thought a fool than post away and remove all doubt...

All help gratefully received.

JoeCrystal

Generally, it is often quoted as rule of thumb that in order to potentially get 2/3 of final salary pension in private pension scheme, you would need to pay in 25% of your salary for forty years. Any chance you work for John Lewis or Bank of England, there is not that many non-contributory, final salary pension scheme left in this country! You have to bear in mind that since it is final salary, the cost of providing certain amount of salary could increase massively toward last decade if you get good pay rise and so on.

As for other job, do they offer contribution into company pension scheme? To be honest, outside defined benefit schemes, there is very little that can match such certainty and incomes sadly. I am sure other people can offer their suggestions on it.

Cheers

Joe

CLAPTON

round about 25% of salary is about right

RichandJ

We have one where the employer puts in 36% (and deficit conts) for non-cont'y members. It is 50ths though.

OP, what is the accrual rate ? E.g. 60ths, 80ths etc.

LovelyBoy_2

Thanks all - to answer the above, it's 60ths. To quote from my pension statement "Lifetime Pension is calculated at an accrual rate of 1/60th for each year of pensionable service and would be be payable for your lifetime. Pension earned in service after 1 Oct 2008 is reduced by the amount of LEAF." Current LEAF (Life Expectancy Adjustment Factor for those who are curious) is running at 0.982. Looking at the case study related to my employer (JLP) on the DWP website, I read that "LEAF = The cost per £1000 of pension in 2007 divided by the cost per £1000 of
pension at retirement." i.e it's to offset the cost of increasing life expectancy.

atush

I would say more like 30% of salary, should there be extra benefits in the death in service area?

RichandJ

OP, easiest way is to contact the scheme administrators & ask for a copy of the current Schedule of Contributions, this should give the current employer percentage.

Debt_Free_Chick

RichandJ wrote: »

OP, easiest way is to contact the scheme administrators & ask for a copy of the current Schedule of Contributions, this should give the current employer percentage.

But strip out any deficit reduction contributions as these are effectly "catch up" contributions for pensions already accrued, not the forward looking contributions for pensions accruing in the future. You need the "Future Service Contribution Rate".

LovelyBoy_2

Thanks to all for the responses - the rule of thumb was what I was after, and other avenues of investigation have thrown up the same. The additional comments re. other info to obtain from my employer have been most useful. Cheers all.

ler01kjh

..........

taking_stock

20 - 25% is indeed a good rule of thumb, as an average across a full career.

as mentioned, however, it is worth reiterating that the cost of providing this pension increases significantly as you get older.

for example, imagine a 59 year old on a salary of £30k in a 1/60ths scheme, with a retirement age of 60.

they will accrue a preserved pension of 500p.a. in that year and to buy that amount (cpi indexed, 50% surviving spouse of same age, both non-smokers etc) would cost almost £20k!! (according to current annuity tables). obviously that amounts to 67% of income.