Final salary closing

minty777

What are the usual/normal options when a final salary pension scheme is to close?Been in the pension scheme for 22 years.Not had any official paperwork as yet but i'm trying to get a feel of options to come.

PS: its in the private sector

hyubh

minty777 wrote: »

What are the usual/normal options when a final salary pension scheme is to close?

As if you left the company for another job, i.e. the pension becomes deferred. Public sector schemes moving from final salary to CARE have also maintained a final salary link for pre-CARE membership as a 'standard' protection; speaking very generally, I'd expect less generosity in private sector-land, however with a lot more variability and scope for small-scale bargaining, e.g. surrounding early retirement, or the precise terms of the DC scheme you'd be moving in to (if they are a factor, unions can be helpful here).

minty777

hyubh wrote: »

As if you left the company for another job, i.e. the pension becomes deferred. Public sector schemes moving from final salary to CARE have also maintained a final salary link for pre-CARE membership as a 'standard' protection; speaking very generally, I'd expect less generosity in private sector-land, however with a lot more variability and scope for small-scale bargaining, e.g. surrounding early retirement, or the precise terms of the DC scheme you'd be moving in to (if they are a factor, unions can be helpful here).

Thank you so much

It is the private sector

hyubh

minty777 wrote: »

Thank you so much

It is the private sector

When it comes to the employer contributions for the DC scheme, keep in mind the DB scheme is closing for a reason (namely, too expensive for the employer). As such, if/when the terms of the new DC scheme are being negotiated, look to get a very good employer contribution rate if possible, either indefinitely or at least for a specified number of years (salary sacrifice arrangements that are not uncommon can complicate this however).

Speaking in broad terms, 5% (= what my own own employer pays) and you're looking at a serious pay cut, in effect; 10%-15% would be very good for normal DC standards, however not unreasonable in the context of losing a good DB scheme; and 20%+ would more accurately reflect the loss of benefit, though you'd probably have to be very senior in the company to have any hope of such a rate.

PeacefulWaters

The final salary scheme still forms an important part of your pension provision.

22/60ths* of salary today, indexed until the scheme retirement age.

You should have state pension kicking in too, probably at a different age.

And, going forwards, you can top this up with a defined contribution scheme (funded by you and your employer) together with any other investments you can make.

The flexibility of any new DC scheme may make it easier to plan earlier retirement or plugging the time between your final salary scheme paying out and state pension kicking in. But you will have less money when retired as a result of the change.

(*your scheme may have a different calculator than 60ths).

minty777

hyubh wrote: »

When it comes to the employer contributions for the DC scheme, keep in mind the DB scheme is closing for a reason (namely, too expensive for the employer). As such, if/when the terms of the new DC scheme are being negotiated, look to get a very good employer contribution rate if possible, either indefinitely or at least for a specified number of years (salary sacrifice arrangements that are not uncommon can complicate this however).

Speaking in broad terms, 5% (= what my own own employer pays) and you're looking at a serious pay cut, in effect; 10%-15% would be very good for normal DC standards, however not unreasonable in the context of losing a good DB scheme; and 20%+ would more accurately reflect the loss of benefit, though you'd probably have to be very senior in the company to have any hope of such a rate.

PeacefulWaters wrote: »

The final salary scheme still forms an important part of your pension provision.

22/60ths* of salary today, indexed until the scheme retirement age.

You should have state pension kicking in too, probably at a different age.

And, going forwards, you can top this up with a defined contribution scheme (funded by you and your employer) together with any other investments you can make.

The flexibility of any new DC scheme may make it easier to plan earlier retirement or plugging the time between your final salary scheme paying out and state pension kicking in. But you will have less money when retired as a result of the change.

(*your scheme may have a different calculator than 60ths).

Thank you very much