BT Pension Scheme- Confused.com

Gadfium

I apologise in advance if this is a really dumb set of questions.

I have been in a BT pension scheme (Section C) since 1999. I currently contribute 7% of my earning and (I believe) that my employer contributes a further 7%)
I applied for a CETV in 2010 (divorce), which gave me a transfer out quotation of £82K.
I recently asked for a current valuation, and was told that the current pension pot is estimated at £243K

I am now trying to do some retirement planning, but am confused about what is actually in there. I wish to retire at 60, with a pension of £35k per annum.

Does the CETV give the true value of the pot, or is that a representation of what has been paid in? Or is the more recent pension pot value of £243K is the value as it stands now, or a projection to retirement age?

I am 43 Y.O. and am earning about £75K gross (but was earning a pittance when I started in 1999).. I can't believe that what I have contributed so far could have grown to £243K in 13 years??

Thanks in advance for any help offered.:T

dunstonh

There is no fund value on this pension. There is no pot. It is a defined benefit scheme. This means it will pay you a defined income in retirement. It is not based on a fund value or investment returns. So, you cannot compare it to a personal pension or money purchase pension which would have a value.

You need to focus on the benefits in retirement as that is what is important.

Gadfium

Thank you for your answer dunstonh.

Now I am really confused!

BTPS have written to me and told me that the "current pension pot is estimated as £243,421.08".

Can I use this value to do some modelling? How do I estimate how much I need to invest to give me a ballpark pension amount?

JoeCrystal

Look, as dunstonh pointed out, that pension value does not really matter in slightest. as you got defined salary pension scheme which are like gold dust. What does your latest statement say about how much income it will pay you when you retire? If it is insufficient, then you would need to figure out just how much income you need and work out how much it requires by using pension calculator like this one.

Do not be surprised at just how much it will cost to do it through your own mean. I am assuming that you do know how BT pension scheme work right?

EDIT: Sorry to nitpick at it but BT do not contribute seven percent. More like 20% and could be much higher. You are very lucky.


Cheers

Joe

dunstonh

Can I use this value to do some modelling?

no

How do I estimate how much I need to invest to give me a ballpark pension amount?

You dont need to estimate. You look at the pension forecast that they issue annually to active members telling you what your benefits are. They are based on your years of service and pensionable salary. Not some investment fund.

The scheme retirement age for section C is 65 for post 01/04/09 membership but 60 for membership prior to that. You can take the whole pension at 60 but the 65 scheme age part will be reduced.

All you really need to do is look at your pension forecast but another way is to take the number of years of membership and your current pensionable salary and multiply it by the required figure to give you a rough idea. It is an 60ths scheme. So, 30 years of service would be 30/60ths which is half your pensionable salary.

That should give you a good guide to what sort of range you are looking at. You may have to calculate it it in two chunks as post April 09 entitlement is on 80ths basis. (although lump sum is on top of that whereas the 60ths version is before lump sum. So, you could roughly use 80ths for the lot if you intend to take lump sum. That is a quick and dirty way of doing it. Hence why the annual statement they issue is better.

(I believe) that my employer contributes a further 7%

Doesnt matter what they pay as they fund the benefits. Not you directly.

BobQ

Gadfium wrote: »

Thank you for your answer dunstonh.

Now I am really confused!

BTPS have written to me and told me that the "current pension pot is estimated as £243,421.08".

Can I use this value to do some modelling? How do I estimate how much I need to invest to give me a ballpark pension amount?

As Dunstonh has told you this is a defined benefit scheme with benefits that relate to your salary. Some of it is a final salary scheme but at some point (2009) it changed to a career average scheme (read the scheme booklet). Either way the benefits relate to the salary you earn not any fund.

The final salary part will relate to your final salary in 2009 plus index linking, or it may be related to your final salary when you leave the scheme.

If you have just received a large increase in salary this may explain the difference in CETV since the valuation may be based on your current salary.

The CETV is just that a valuation of the benefits at that time if you were to transfer the pension to another employer, or in the case of a divorce, to transfer a part to your spouse.

mania112

To clarify, the CETV is BT telling you "this pension doesnt have a money value, it isn't invested in any assets, but if you want to take the pension somewhere else, this is what we will give you."

CETV's appear generous because the scheme likes to get rid of them - but the benefits they offer are (almost) always far greater than the CETV shows.

Somewhere in your paperwork (the most recent one preferably) will have an annual pension value - this figure is real and shows how much each year will get, if you retired now - and this figure can be projected forward to retirement age.

Gadfium

Great answers, and thank you.

I haven't really looked into this in any depth before, so you guys and gals taking the time to answer my questions is really appreciated.
I didn't realise how lucky I am with this scheme.

As a rough rule-of-thumb, I can use years-of-service X 1/80 final pensionable salary. So if I retired tomorrow, I would (roughly) get a pension of (£75K / 80) x 13 = £12.18K per annum?

What are the advantages of AVCs? Should I consider starting some?

jem16

Gadfium wrote: »

As a rough rule-of-thumb, I can use years-of-service X 1/80 final pensionable salary. So if I retired tomorrow, I would (roughly) get a pension of (£75K / 80) x 13 = £12.18K per annum?

That's the idea yes. Only thing that would alter this would be taking the pension earlier than the scheme's rules allow. Then you tend to lose an amount of roughly 5% pa.

What are the advantages of AVCs? Should I consider starting some?

AVCs are virtually obsolete now unless there is a tie in with the main scheme which allows you to take the tax free lump sum from the AVC pot as opposed to commuting pension from the main scheme. I don't know if the BT scheme allows this. Not many do.

As a higher rate taxpayer, extra pension payments could be good if you expect to be a basic rate taxpayer when you retire. That way you get 40% tax relief but only pay 20% tax when you retire. However you can use a personal pension for this. It doesn't have to be AVCs.

mania112

Yeah if your salary has only recently jumped to decent levels, you a) probably have more disposable income available for contributions to another pension and b) might not have been saving into a pension at a high enough level before the pay rise.

So you should consider paying into another pension to meet your retirement income targets.

AVC's (as mentioned) are less 'special' than they once were, and essentially now have the same properties as a standard personal pension.

Check the benefits of your AVC, but if you have no special features you might prefer a separate personal pension, which will have a wider fund choice.

Gadfium

Hmm...looks like I am going to have to seriously think this through.

If I stay in the company till I get 20 years (another 7 years) then the pension will be at 1/4 of current earnings, which is short of where I want to be.
Investing in another pension doesn't appeal too much. I think that I prefer the idea of cash or cash/stocks.
I've currently got savings of about £50K in cash and stocks (invested in BT Sharesaves) which leaves me open to fluctuations in BT shareprice.

Debts stand at £106K in two mortgages. One is £45K (in a tracker, currently at 3.49%). The other is £61K (also in a tracker at 1.49%). I'm overpaying on the smaller debt, and predict to have that cleared in 4 years.