Leaving a job with final salary pension

PennyForThem_2

Did I read it correctly that OP has another 31 years to go? Surely happiness in job and challenges for advancing factor in here as well as thinking about pension?

Sobryma

Your current employer may even provide an indicator, my previous scheme was around 26% employers notional contribution - increased since I left to 35%. Alternatively your annual statement should have a Pension Input value which will give you a guide.

To be honest I doubt you will make up gap on salary rise - but good luck anyway.

lawriejones1

So you're 29? That's far too young to be sitting there and waiting it out...! It also assumes things won't change which, sadly, they often do.

If retirement income is important, open a SIPP alongside your workplace pension. That's what I did, and I just add a small amount to top up my contributions to a decent level.

zagfles

Sobryma wrote: »

Your current employer may even provide an indicator, my previous scheme was around 26% employers notional contribution - increased since I left to 35%. Alternatively your annual statement should have a Pension Input value which will give you a guide.

To be honest I doubt you will make up gap on salary rise - but good luck anyway.

For someone close to retirement, a 1/60th final salary scheme is probably worth around 50% of salary. It's quite easy to work out:

Every year's service gets 1.67% of salary as an index linked annual payment, and rates for an index linked annuity at 65 (with 5 year typical guarantee plus spouse benefits) are about 3-3.5%.

Divide the two.

So as an example, on £30k, a year's service would get you £500 of index linked pension, and buying that same £500 pension would cost you about £15k.

It's far more complicated for younger people as you need to account for investment growth and earning growth. The year you accrue in the final salary scheme will increase with your earnings (if you stay in the scheme). In a DC scheme the money put in will be invested and (hopefully) grow.

If investment growth and earning growth are the same, then the result is the same. If investment growth is higher than earnings growth (as I think is usually assumed) then a year's final salary pension is worth less for younger people than for older people.

Other complications are accounting for whether the scheme is contracted out or not, final salary schemes usually are, and employee contributions. ISTR a figure of around 7% for contracted out, so take this off plus employee contributions, to work out what employer contribution/salary hike you'd need to make up for switching from the DB to DC scheme.

Of course all that is likely to change in the future, I can't see many final salary DB schemes lasting for much longer, even the public sector are moving towards CARE type schemes. And contracting out is ending in less than a year.

FatherAbraham

lawriejones1 wrote: »

If retirement income is important, ...

Surely one of the most provocative things ever written on this discussion board.

Warmest regards,
FA

232607

If it helps, my previous BD was a 1/66th scheme and funded by 27.5% Co contribution + 5% from myself, ie 32.5%.
A simple ratio to your 1/60th scheme brings this 32.5% up to nearly 36% & I suspect this is the sort of funding level needed to sustain your current DB.

Regards.

Bootsox

Having spent my entire working life in the UK electricity industry (HV transmission), I was talking to an ex-colleague the other day and he reminded me of the "golden handcuffs" nature of DB pension schemes, i.e. nobody can leave as it is impossible to get a sufficient renumeration package to offset loss of same.

However, it is this same arrangement that I believe has kept the lights burning in this country since the major privatisation in the early nineties.

Dependent on the utility, the DB has not been an option for new entrants for circa a dozen years. With the skill set requirements to the industry being difficult and challenging, the matter of retaining key personnel will not be such an easy ride for these companies in future.

lawriejones1

FatherAbraham wrote: »

Surely one of the most provocative things ever written on this discussion board.

Warmest regards,
FA

I meant in the context of choosing whether to stay at a job or move, but I think you knew that :-)

232607

Bootsox wrote: »

Having spent my entire working life in the UK electricity industry (HV transmission), I was talking to an ex-colleague the other day and he reminded me of the "golden handcuffs" nature of DB pension schemes, i.e. nobody can leave as it is impossible to get a sufficient renumeration package to offset loss of same.

However, it is this same arrangement that I believe has kept the lights burning in this country since the major privatisation in the early nineties.

Dependent on the utility, the DB has not been an option for new entrants for circa a dozen years. With the skill set requirements to the industry being difficult and challenging, the matter of retaining key personnel will not be such an easy ride for these companies in future.

Couldn't agree with this more.
When my company shut the DB 18 months ago the biggest fear for the management was an increase in staff churn. This is now coming true, mainly by people finishing earlier than they otherwise would. People close or over 55 are are getting wise & loading heavily in to the new DC by living off savings that were doing "didly squat" in bank account Etc & in some cases salary sacrificing down to minimum wage.
As much as DB's were very good, the downside was they were very inflexible for finishing early. A DC gives that flexibility.
I'll probably end up with all my working life having been in a DB baring the last 10 years in a DC.
I'm more than happy with this & wouldn't swop it for a full working life of DB.

Regards.