career average pension

kidgorgeous

The company i work for offer a career average pension which i am a member of.
The scheme is 1/60th but you can increase this to 1/50 or 1/45. However when you increase the extra years they would only be uprated by a max 2.5% per year. So with inflation being more than that is still worth doing?

JoeCrystal

Well, if it was me, I would immediately start paying the cost of 1/45 knowing it would cost the company considerable more. You have to bear in mind that the target for inflation is generally 2%, how likely that is to occur is a unknown matter. However I would view the fact that 10/45 or 22% of the average salary would be better than 16% of the average salary. Or put it in other way, it potentially represent 37.5% higher.

How worthwhile it is, I really do not know. I suppose you could try work it out on spreadsheet I guess, see the impacts on it. I am not what you meant by "However when you increase the extra years they would only be uprated by a max 2.5% per year." Just how that work exactly? Does that apply all the years or the years already accrued will get uplifted by normal rate?

Cheers

Joe

kidgorgeous

Thanks for your reply. I need to have a read of the terms again.
The pension is increased in line with inflation up to 5%. The extra years
if you go to 1/50 or 1/45 would only increase with inflation capped at 2.5%.

FLAPJACK

Depends on your age, are you likely to stay at the firm long, what are your career plans ..do you want to climb the ladder i.e increase your pay.

1/45 is a winner, again if the extra years are capped at 2.5% if you are young it is still an ok deal.

I'd go for it.

hugheskevi

For me, the cost of the enhanced accrual rate would be the key issue.

If I was paying all of the extra cost myself, I wouldn't be very attracted as the key risks I would be exposed to on the 1/60s pension would be inflation risk and sponsor risk, and putting more money in would exacerbate those risks.

Hence, I would be looking to invest in assets that don't carry inflation and sponsor risk unless the terms of the offer were such that the employer bore some of the cost of the enhancement.

Debt_Free_Chick

kidgorgeous wrote: »

The company i work for offer a career average pension which i am a member of.
The scheme is 1/60th but you can increase this to 1/50 or 1/45. However when you increase the extra years they would only be uprated by a max 2.5% per year. So with inflation being more than that is still worth doing?

Leave the absolute figure aside for one moment ....

Do you see your salary in the future going up by more than the rate of inflation, whatever that might be? Or do you anticipate that your salary will go up roughly in line with inflation or perhaps a little below. By salary, I mean the salary on which your pension is calculated.

Many employers peg any annual increase in basic pay to just a little below inflation and then reward for good performance in other ways such as bonuses. What does your employer do in your case?