Final salary pension ending

Therese1

Please be kind....my head is screwed on but not with pensions!!

My employer is closing our final salary pension and going to a cash-builder one( I don't fully understand it all!)

I am 46 and have 24 years on the original scheme and for the last 5 years paid 5% contribution ...
New scheme starts in 6 months time. My contrib will remain employer will pay 12%.

I appreciate I need to sit down and work out properly but just seeing if you guys can point me to ideas...

Is there any point in me paying anything into the scheme in the next 6 months to boost the final salary pot? This could be lump or monthly... I have savings earning virtually nothing just now!!

What about after the new system??

I would like to go to 4 days per week...will it make a big difference if I do this before the changeover?

Any other things I should consider....

Many thanks!

Your_Hero

Therese1 wrote: »

Is there any point in me paying anything into the scheme in the next 6 months to boost the final salary pot? This could be lump or monthly... I have savings earning virtually nothing just now!!

You should continue your membership in the final salary. This will increase your pension benefits.

I would like to go to 4 days per week...will it make a big difference if I do this before the changeover?

If it's a final salary scheme, then it will make a difference because your pension is calculated on your salary upon leaving the scheme.

If it's actually a career average scheme (but you've incorrectly referred to it as final salary), then probably not much difference. Without the full details, it's hard to say.

Any other things I should consider....

Many thanks!

The new scheme should be a Defined Contribution scheme. Your money will probably be invested in a "default fund". This will be very different to your current scheme because all the risk is transferred from the employer over to you. However, they are paying 12% which is a generous amount.

Southend1

Your_Hero wrote: »

You should continue your membership in the final salary. This will increase your pension benefits.


If it's a final salary scheme, then it will make a difference because your pension is calculated on your salary upon leaving the scheme.

If it's actually a career average scheme (but you've incorrectly referred to it as final salary), then probably not much difference. Without the full details, it's hard to say.

The new scheme should be a Defined Contribution scheme. Your money will probably be invested in a "default fund". This will be very different to your current scheme because all the risk is transferred from the employer over to you. However, they are paying 12% which is a generous amount.

Final pensionable salary would normally be the same for part or full time if the job is at the same grade? It's the service credit that is pro rated. E.g. A 0.5 fte employee would get half a year's pensionable service each calendar year they work.

12% employer contribution is generous for a DC scheme but is unlikely to provide anything like the level of benefit the FS scheme did

kidmugsy

Southend1 wrote: »

but is unlikely to provide anything like the level of benefit the FS scheme did

True; the conspicuous advantage of the DC scheme is that it will be more flexible about how and when the OP draws the money out. Mind you, that assumes that Mr Osborne's reforms survive: I'm not sure that all of them will even survive the next government.

Still, if the OP pays £5 (£4 after tax relief) and the fund receives £17, it's pretty clear what to do.

rpc

Your_Hero wrote: »

If it's a final salary scheme, then it will make a difference because your pension is calculated on your salary upon leaving the scheme.

In our scheme and others that I am aware of, the salary used for the calculation is the full time equivalent salary. If you work part time, you accrue less than one year of benefits per year of service.

It works out cheaper for the schemes that way - accruing full years based on part time hours, then jumping to full time adds a huge cost. Accruing fractional years for part time workers keeps it all fairly neutral.

kangoora

I think the OP was asking if it would be worthwile putting in additional payments for the next 6 months before it migrates to a DC scheme.

OP, you'd have to look at your scheme documents, some additional payments go in as AVCs which probably wouldn't affect your FS pension. Other shemes allow you to 'buy' extra years but that would be covered in your current pension paperwork.

Seabee42

Although it is a final salary scheme, you would think upping your salary at the end would increase your benefit, generally there are specific rules that deal with part timers in most schemes. Can you imagine someone who went from 1 day a week to say 5 just to get a higher benefit (effectively 5 times as much?) and there not being a rule to manage this?

That being said check with the rules of your specific scheme. In all the schemes I run it would just affect the period in which your hours had changed i.e. if you upped your salary for the last 6 months due to a change in hours, those 6 months only would be based on a higher salary. Any general payrise would affect it all.

I hope this helps.

Therese1

Thanks very much to all of you for your suggestions. I know that I need lots more info and hope to get something later this week from work which might help (I may come back here if you don't mind!)

Hero - unfortunately I don't have the choice to stay in the final salary scheme!

Kidmugsy - what is clear for me to do!? )

Kangoora - yes thats what I was thinking - I thought it might just be AVC's (I don't really understand it all though!) but wasn't aware that buying extra years might be an option - will know more when i get the info!

Ha Seabee - I have heard that some folk might do something like this but I wasn't thinking that - I'd put a bet that if I did go down to 4 days that there would be NO inclination for me to go back to 5....I can see from an employers view its only fair to count the part time years separately at the end anyway!

kidmugsy

Therese1 wrote: »

Kidmugsy - what is clear for me to do!? )

Contribute your 5%. Believe it or not, there's the odd mug who wants to cut off his nose to spite his face, and refuse to join a new scheme.

Therese1

Ah no worries on that score....no choice but to go with new scheme and I'm actually looking to work out what extra to pay in not less��

Therese1

So I got more info today....and whilst I don't like it !! I'm resigned that there's nothing I can do about the £10k per year projected "loss" in my pension!!!

So....now to think how best to move forward!?

My pension to date will stay as it is today (or as 6mths when new system starts) that is protected. Going forward the only option is Cash Builder....employer contributions 12% mine 5%. This is "projected" as a £4k pension at 60.

Can someone please explain the pros and cons of me adding to this by either....

Increasing my contribution by say 5%

Or

Making AVC's say £250 (half my current savings direct debit)

Or just sticking as I am with a decent savings pot and keep adding to that??

Oh one other question ...assuming I stay full time for now...would my adding to the pension as above make any actual difference to my gross salary for tax rate purposes? I know I'll pay less tax but I mean will my gross pay be reduced and therefore maybe take me out of the 40% band?? I'm close and it's the car and any (minimal no guarantee) bonus' tax that takes the biggest hit!!

Thanks!