Defined Benefit help

simon_blay

Hello,

I am a bit confused about the workings of a DB scheme. If a company offer 1/60th of final salary for each year of service, and you have worked there for 30 years, would that mean that they pay 30 x half of your salary on leaving when you reach pensionable age to purchase an annuity or whatever you chose?

Any simple help would be greatly appreciated!

Cheers,

Si

jem16

A final salary scheme works on pensionable service and final salary.

If you are on a 1/60ths scheme and contribute for 30 years you have accrued 30/60ths which is one half.

If your final salary is £30,000 your pension will be £15,000pa. There is no annuity involved.

simon_blay

Cheers for that!

what about inflation, does the 15k p/a increase at same rate?

seven-day-weekend

Yes, they are usually index-linked.

simon_blay

Thanks a lot, I have a personal finance planning exam in a week, and whilst it is an interesting subject, it must be the most confusing thing i have ever learnt! Each topic area is do in depth!

novice-saver

seven-day-weekend wrote: »

Yes, they are usually index-linked.

It depends on the individual scheme - you need to look at the terms.
( Some are "limited RPI" - say up to 3.5% or RPI, which ever is lower ).

From my perspective, Government backed ones look better in that respect, but are commonly 80ths per year for the "ordinary bloke" (MP's voted themselves 40ths).

Also beware early retirement factors: you may have 30/60th but if you retired 5 years early (for example) you might only get 80% of your expected pension, as it will be paid out for 5 extra years.

simon_blay

cheers for the info

Andy_L

novice-saver wrote: »

From my perspective, Government backed ones look better in that respect, but are commonly 80ths per year for the "ordinary bloke" (MP's voted themselves 40ths).

They tend to be a mix of 1/80ths but with a 3x Lump sum or 1/60ths with no lump sum. Generally taken as being roughly equivalent to each other