Leaving a job with final salary pension

Kezar241

Hi, I'm looking for a bit of help regarding moving jobs and leaving a final salary pension.

I have just had word that I was successful at a job interview and the company want to discuss a formal offer on Friday this week. If I accept this job I will be walking away from a final salary pension (currently 3% contributions but about to rise to 6% contributions and defined benefit of 1/60th final salary for each year). I have been with the company for almost 6 years and would have another 36 years if I retire at 65.

The new company offers a defined contributions scheme that is pretty average. I have not negotiated salary yet but would like to get an idea of the equivalent salary increase I would need to match my loss in pension.

Obviously there are so many variables it is impossible to put an accurate figure on it but has anybody else been through this or know where to start in coming up with a figure?

BobQ

Do you know what the employers contribution is into your current pension? To provide a final salary pension it is probably about 20% of your salary in a addition to your own contribution.You could ask the administrators.

So you would need a salary that was about (20+3+3)% more than your existing salary. But there are many factors to consider as you say.

Kezar241

Thanks BobQ.

When I started in my current job I was only paying 1.5% and the company was paying 18.5%. Since our increases in contributions I'm not sure if the company are reducing theirs or just maintaining it at 18.5%. I suspect the latter as there was quite a shortfall predicted so your estimate of 20% wasn't far away at all!

I suppose I hadn't realised how lucky I was until looking into this recently. I'm not sure if a rise in the region of 20+% is possible but with a good justification I might be in with a chance.

atush

A DB pension is generally worth about 25% of your salary. We cant compare as you didn't give the % of the new scheme. But you'll need a substantial rise in pay.

agarnett

I would say that 25% of salary is a serious underestimate of the worth of a healthy DB pension scheme.

Fact is that even some DC schemes that have replaced frozen DB schemes cost the employer in excess of 20%.

One very good DB scheme - with good info in the public domain because the sponsoring employer is a PPP - reckoned it cost as much as 44% of salary a few short years ago. (see p.7 of that document)

Don't underestimate the value of these things or the (relatively greater) beneficent culture of an employer that still supports a DB scheme and is actively seeking ways to continue it.

taking_stock

at your age it's probably a max of 15%, maybe a bit less....
with defined benefit, the contribution is notional and calculated by the scheme actuary as an average.


for example, if your scheme gave you 60ths on a salary of 30k, then the benefit would be £500 p.a..


Now, for a 60 year old to 'buy' £500 pa of index-linked pension with surviving spousal 50%, that would cost about £16k on the open market. So a 59 year old would be getting a benefit of about 50%!


For a 29 year old, the 16k is uprated by inflation (say 2.5% pa) but then 'discounted' by investment return (say 7.5%) over the 31 remaining years, so closer to 11% of salary.

Bootsox

agarnett wrote: »

I would say that 25% of salary is a serious underestimate of the worth of a healthy DB pension scheme.

Fact is that even some DC schemes that have replaced frozen DB schemes cost the employer in excess of 20%.

One very good DB scheme - with good info in the public domain because the sponsoring employer is a PPP - reckoned it cost as much as 44% of salary a few short years ago. (see p.7 of that document)

Don't underestimate the value of these things or the (relatively greater) beneficent culture of an employer that still supports a DB scheme and is actively seeking ways to continue it.

I agree, the value of DB schemes are vastly underestimated. Such schemes often come with early retirement due to ill health benefits, widow(ers) pensions and dependent's allowances.

DB CETVs are often quoted in the mid/high £100k's, no chance of saving that over an ordinary working lifetime.

All at employer's risk.

DBs are so generous, I believe it unlikely that any employer would offer enough of a salary uplift to compensate for the loss (without a significant promotion/more responsibility).

Bit of a trap really.

elantan

My husband gets 37% paid by his employer on top of his 4% contribution, not sure if that helps or not but I would be looking for a substantial pay rise if I were in your shoes

Good luck

BobQ

It is difficult to make this judgement as the range of views expressed here indicate. 25% is probably a reasonable guide (including the employee contribution). But the answer will be very dependent on your future career. If you stayed with the same employer and did the same job for 30 years 15% might be a better figure, but if you got a few promotions the pension accrued to date would be worth a lot more.

Another consideration is that it is unlikely that your present employer will still have a FS pension scheme in 20 years time. They might have a DC scheme by then.

A

atush

atush wrote: »

A DB pension is generally worth about 25% of your salary. We cant compare as you didn't give the % of the new scheme. But you'll need a substantial rise in pay.

My 25% estimate was based on a single person with no spouse or dependents to get any survivors pension.

With dependents, you'd be looking at 30% of salary or more, depending on the scheme and the death benefits.

but really you can't say without more info on the scheme they a re leaving?

WobblyDog

I've left jobs with DB pensions twice. The first was for a 25% pay rise, the second because I really hated the job.

If your current job is tolerable, I would be tempted to stick around unless there are other factors involved. If you do decide to stay, do you have any options for buying extra years, so that you can make the most of your current DB scheme (which probably won't be open for ever anyway) ?