Final Salary Pension Confusion

goldeneagle69

I am currently a member of the Tesco Defined Benefits pension scheme. I know this is going to change soon, but I am trying to work out how much money I currently have in the scheme and how much I will get back assuming that I stay working for Tesco until I retire.

I am 48 years old and have been paying approximately £85 each 4 week period into the scheme for the past 6 years. I believe that this equates to about 5% of my salary, and that Tesco are paying more into this than I am. Does anybody know how much Tesco are paying in? I heard somewhere that it is about 11%. How do I find out what the total amount is that is saved up?

My main question is based on the fact that this is a Final Salary pension, which is what is confusing me. Lets say that between now and when I retire, I reduce my hours down and as such my annual salary goes down because of this. At the moment I am earning around £21K per year, but when I retire in say 16 years this could be only £10K. Will my pension be based on the £10K (ie my final salary) or on 1/60th of my annual salary for each year I have worked and will work for Tesco? If it's all based on the £10K then I am wasting my time paying into it now?

dunstonh

but I am trying to work out how much money I currently have in the scheme

Nil. its a defined benefit scheme. It doesnt accrue a value. it accrues benefits based on pensionable salary and years of service.

Does anybody know how much Tesco are paying in?

its doesnt matter to you directly. They pay in what is required.

My main question is based on the fact that this is a Final Salary pension, which is what is confusing me. Lets say that between now and when I retire, I reduce my hours down and as such my annual salary goes down because of this. At the moment I am earning around £21K per year, but when I retire in say 16 years this could be only £10K. Will my pension be based on the £10K (ie my final salary) or on 1/60th of my annual salary for each year I have worked and will work for Tesco? If it's all based on the £10K then I am wasting my time paying into it now?

This type of question is typically covered in the scheme booklet or a flyer issued by the administrators. If you cant find it, then ask the scheme administrator.

goldeneagle69

Nil. its a defined benefit scheme. It doesnt accrue a value. it accrues benefits based on pensionable salary and years of service.

So if I was to leave Tesco at some point, you're saying that there would be nothing that could be transferred to another company? That would mean that people are wasting their time paying into the pension unless they guarantee to stay there until they retire? I thought the current Tesco pension was supposed to be one of the best around.

goldeneagle69

This type of question is typically covered in the scheme booklet or a flyer issued by the administrators. If you cant find it, then ask the scheme administrator.

I have never seen a flyer or booklet anywhere in the store. Who are the administrators? It's not just me who is confused by this. I guess all the talk of changing the pension has made people think about it a bit more.

LeoTLion

goldeneagle69 wrote: »

So if I was to leave Tesco at some point, you're saying that there would be nothing that could be transferred to another company? That would mean that people are wasting their time paying into the pension unless they guarantee to stay there until they retire? I thought the current Tesco pension was supposed to be one of the best around.

Usually with DB schemes if you leave before retirement then you become a deferred member. This means you benefits are frozen at the point of leaving and paid to you at the scheme normal retirement age.

jem16

goldeneagle69 wrote: »

So if I was to leave Tesco at some point, you're saying that there would be nothing that could be transferred to another company?

No he's not. If transferring a CETV ( Cash Equivalent Transfer Value ) would be requested. However that value would not necessarily equate to similar values of the benefits provide by the Tesco scheme.

That would mean that people are wasting their time paying into the pension unless they guarantee to stay there until they retire?

Not at all. You can either transfer with a CETV or leave the pension where it is ( ie as a Deferred Member) to take at the scheme's normal retirement age.

I thought the current Tesco pension was supposed to be one of the best around.

It is.

jem16

goldeneagle69 wrote: »

I have never seen a flyer or booklet anywhere in the store. Who are the administrators? It's not just me who is confused by this.

Then ask for the scheme booklet via your HR or pension department. You are entitled to it.

https://www.ourtesco.com/office-handbook/your-pay/all-about-pensions/

jem16

LeoTLion wrote: »

Usually with DB schemes if you leave before retirement then you become a deferred member. This means you benefits are frozen at the point of leaving and paid to you at the scheme normal retirement age.

Not frozen as that has a specific meaning and does not apply here.

The pension will be calculated at the time of leaving but usually will increase in line with inflation until NRA.

LeoTLion

Do all deferred DB scheme benefits increase in line with inflation?

goldeneagle69

Thank you all for your replies. They were really helpful.

hyubh

goldeneagle69 wrote: »

I am trying to work out how much money I currently have in the scheme and how much I will get back assuming that I stay working for Tesco until I retire.

While the deal to close the scheme might still maintain a final salary link, at the present moment in time I'd assume that when it closes, it will be like you left the scheme because you left for a new job elsewhere: in other words, the 'final salary' used to calculate your benefits will be 'as at' the scheme's closure, not your date of retirement.

Does anybody know how much Tesco are paying in? I heard somewhere that it is about 11%. How do I find out what the total amount is that is saved up?

The contribution amount (employee and/or employer) has no direct bearing on the pension amount - rather, you're owed whatever the scheme has promised, and Tesco will be on the hook if the invested contributions fail to stretch far enough.

My main question is based on the fact that this is a Final Salary pension, which is what is confusing me. Lets say that between now and when I retire, I reduce my hours down and as such my annual salary goes down because of this.

Usual thing in a final salary scheme is that the 'final salary' used is full time equivalent, with any periods of part-time working being pro-rated downwards to determine the length of membership. Also, the pay figure used can actually be an average over a number of years rather than literally the 'final' salary. However, the precise rules will depend on the scheme.

If it's all based on the £10K then I am wasting my time paying into it now?

I very much doubt that...!