Defer final salary pension

consulgail1

Hi,I have 40 years in a final salary company pension.I don't have to pay any contributions for the next 3 years till I am 60.pension will increase with my salary.company has offered a deal to defer my pension now and they will contribute 15% of my salary for the next 3 years into a new DC scheme .I can contribute nothing or as much as I want.I realise that by doing this my DB pension will only increase with inflation but new DC scheme with 15% contributions should more than compensate for this.Death in service in new scheme is better as well.This seems to be to good to be true.Looking for advice on why they are doing this,is it to limit the DB schemes liability or is there a catch I can't see.

kidmugsy

Is there, by any chance, a scheme rule that means that you would normally get a higher pension entitlement for each of the next three years, having already paid in your forty years' worth of contributions? That could add substantially to the scheme liabilities, but by an uncertain amount. Whereas the employer's offer would cap those liabilities, and the 15% is at least a certain liability that doesn't depend on longevity and future inflation.

Just a guess: you'd have to check.

hyubh

consulgail1 wrote: »

Hi,I have 40 years in a final salary company pension.I don't have to pay any contributions for the next 3 years till I am 60.

This would suggest there is a maximum accrual of 40 years. Is that the case, or as kidmugsy wonders, would you still be earning additional pension for more than 40 years?

company has offered a deal to defer my pension now

According to the scheme rules, is there a difference between retiring from active and retiring from deferred? E.g., does the normal retirement age go up?

I realise that by doing this my DB pension will only increase with inflation

This makes it sound like there isn't, in fact, a 40 year cap on accrual in the DB scheme. If not, what's the accrual rate (will be one or more fractions, e.g. 1/60 or 1/80)?

consulgail1

40 is the maximum years,for the next 3 years until you are 60 pension accrued up to 2007 will increase buy rpi. +0.5%.Pension accrued after 2007 till 2018 will rise with salary.Don't know if rules are different for deferred pensions regarding retirement age.pension is a 1/60 scheme

hyubh

consulgail1 wrote: »

40 is the maximum years,for the next 3 years until you are 60 pension accrued up to 2007 will increase buy rpi. +0.5%.Pension accrued after 2007 till 2018 will rise with salary.

Thanks. Just to confirm though, it is definitely that way round? Presumably your pre-2007 membership is valued from a base of your salary after 40 years? Also, in your case, I assume 'pension accrued after 2007 till 2018' means 'till 2015', or whenever it was you reached 40 years?

Don't know if rules are different for deferred pensions regarding retirement age.

What about increases in deferment? Both with respect to the excess, and the revaluation method used for the GMP (assuming you're still contracted out - maybe you aren't?).

That said, in general, it looks like the offer has been made assuming the case of someone who hasn't reached 40 years yet. In your case you're already in a state of quasi-deferment given all pre-2007 service (= the bulk of your membership) no longer has a final salary link... so frankly, my first inclination matches yours (i.e., grab it with both hands).