Valuing a final salary pension

tuftyclub

I have read the board in hope of finding an answer to this .... but the other final salary questions don't seem to answer this. I know that this is always going to be a finger in the air judgement - but does anyone have any idea about how to financially value a final salary scheme against a money purchase one?

I realise that the stock market and the value of annuity's are unpredictable... but am considering moving job and wondering how much to factor in for a rough estimate of losing my final salary scheme.

I am 36, single and unlikely to marry or have children. I earn 29K and have been in a 1/60 pension scheme for around 9 years. However my salary is not rising much - even though others are being recruited to do the same job on considerably more money - they don't get the final salary scheme and it doesn't take a rocket scientist to work out that those on the final salary scheme are being kept down salary wise. I'm opted out of SERPS, and have no other pension arrangments though I have healthy enough savings and no debt

Obviously I'd prefer a job with final salary pension - but I realise this is unlikely - and want to know what sort of offer makes it worth my while ?

i.e 29K with final salary worth 32K with money purchase etc.....

thanks for any advice.

dunstonh

A final salary scheme is worth around 15% of your salary for a 60ths/80ths final salary scheme. What you contribute to that should be deducted from that figure. i.e. if you pay 5%, then its worth 10%.

That is very rough and crude calculation but it should give you an idea.

So, assuming 5% contributions, your salary would have to be at least 10% higher with that 10% going towards your retirement planning.

I'm opted out of SERPS, and have no other pension arrangments though I have healthy enough savings and no debt

Most final salary schemes contract you out of SERPS/S2P but you dont get the benefit of contracting out as that goes towards the occupational pension. That leaves you with just the basic state pension.

tuftyclub

thanks , I really appreciate your advice ......

:-)

Mortgage_&_debt_free

Far be it from me to disagree with Dunston but I believe that 15% is a conservative estimate.

I'm in the LGPS and understand the employer conts alone will be around 18%-20% of salary.

The most compelling factor to bear in mind is that it is guaranteed (ATM!) so it's almost irrelevant what it equates to, you get the money at the end however much they have to pay into it.

jem16

Mortgage_&_debt_free wrote: »

Far be it from me to disagree with Dunston but I believe that 15% is a conservative estimate.

I'm in the LGPS and understand the employer conts alone will be around 18%-20% of salary.

According to the LGPS website your contributions are 6% and the employer's contributions is double yours approximately, so around 12% - total 18%

The most compelling factor to bear in mind is that it is guaranteed (ATM!) so it's almost irrelevant what it equates to, you get the money at the end however much they have to pay into it.

Yes it is irrelevant if you are in a final salary scheme. However the OP was wondering what the value would equate to should he move to a job without a final salary scheme so in this case it's relevant to know the approximate value.

omg_3

I pay 6% into a final salary scheme. The company payed 25% for the last 2 years. I do not think you should look at what is paid in BUT need to look at what you would have to pay to receive a similar pension on retirement.
If you earn £40k and have 30 years at 60'ths, you have a pension of £20k. To get this from a personal pension, you would need a pot of £400k. I have no idea what contributions this would require to build up.
BTW, I know very little about pensions, so please check all figures yourself as well

peterg1965

I'd like to know roughly what my 'pension pot' is currently worth, and what it will be worth when i retire from my current job at 55. I am in a non contributory final salary scheme, I could take retirement now but will probably retire at 55 (14 years time) with a £36K pension (index linked) and 3 times tax free lump sum. Is the rule of thumb 20 times annual pension? Making it worth about £720K.

dunstonh

You should get a statement of benefits periodically. Usually annually. This will tell you what you have currently accrued and what pension you will get if you remain employed until retirement.

There is no rule of thumb as it could be a 60ths, 80ths or if you are really lucky a really low figure. The benefits are based on years of service divided by the accrual rate. i.e. 30 years on an 80ths scheme would be 30/80ths which is 37.5% of your pensionable salary.

Mortgage_&_debt_free

peterg1965 wrote: »

I'd like to know roughly what my 'pension pot' is currently worth, and what it will be worth when i retire from my current job at 55. I am in a non contributory final salary scheme, I could take retirement now but will probably retire at 55 (14 years time) with a £36K pension (index linked) and 3 times tax free lump sum. Is the rule of thumb 20 times annual pension? Making it worth about £720K.

If it helps the LGPS total pot is as you surmise, 20 x annual pension + lump sum + any other funds (AVC, etc).

The real benefit for me is that the 25% tax free lump sum is calculated on the whole pot, the net effect being it's possible to take up to 100% of my AVC as a tax free lump i.e. tax relief on way in & tax free on the way out. Being greedy I just wish I was a HRT now & BRT in retirement!

HTH

peterg1965

dunstonh wrote: »

You should get a statement of benefits periodically. Usually annually. This will tell you what you have currently accrued and what pension you will get if you remain employed until retirement.

There is no rule of thumb as it could be a 60ths, 80ths or if you are really lucky a really low figure. The benefits are based on years of service divided by the accrual rate. i.e. 30 years on an 80ths scheme would be 30/80ths which is 37.5% of your pensionable salary.

Interesting. I have never had a statement of benefits, I only see the published annual rates of pension based on Grade and time served. The only time I have heard of anyone getting a valuation of their pension is in cases of divorce where the individual is required to pay about £175 to obtain a pension valuation to be dissected as part of a settlement. The scheme I am on is roughly a 70th scheme I believe. Oh to be on the MPs 40th scheme! Agree, it must be difficult to have a decent 'rule of thumb' particular if some pension schemes have compulsory retirement at 55 and others much later.

evergreen

Quote
'The real benefit for me is that the 25% tax free lump sum is calculated on the whole pot, the net effect being it's possible to take up to 100% of my AVC as a tax free lump i.e. tax relief on way in & tax free on the way out. Being greedy I just wish I was a HRT now & BRT in retirement!'



I have about 25 years in the civil service plus some AVCs. Does that mean I can take my AVC pot as a lump sum?

Thanks