pensionable salary = basic pay - single person basic state pension ???

XSen

Hi everyone,

I used to work for Sky (BSkyB) and I just discovered that the way they calculate the pensionable salary is : pensionable salary = basic pay - single person basic state pension

They explain it in their FAQ:

What is “pensionable salary”?
A. “Pensionable salary” is defined as your basic salary minus the single person basic state
pension, which is £5,727.80 per year for the 2013/14 tax year. So if your basic salary is £8,000 per year, your pensionable salary is £8,000 - £5,727.80 = £2,272.20. This is the figure we use to calculate your pension contributions.

This means that I have contributed less than I thought and they have also contributed much less (as basically the deal is you put X% and they put 2X%), saving themselves quite a bit of money.

I can't see any a definitive & official definition of the pensionable salary;lots of places say that each company/plan can define it. But isn't the full basic pay supposed to be included at least?

Is this practice legal? widespread?
My new employer bases it on my full basic pay... so at least not everyone is doing it...

xylophone

This is a form of clawback/integration.

http://www.mycompanypension.co.uk/Integrating-With-The-State-Pension-Preserved-Members-DB

FatherAbraham

XSen wrote: »

Is this practice legal?

Yes.

Warmest regards,
FA

neilvw

Similar to the band of earnings which the auto-enrolment minimum percentages apply to - in that case, between the Lower Earnings Limit (LEL) in National Insurance (this year, £5,824 p.a.) and the Upper Earnings Limt (£42,385 p.a.).

It seems the level of Basic State Pension (now £6,029 p.a.) and the LEL were closely aligned until a few years ago - perhaps on the basis that you shouldn't earn entitlement to the BSP unless you were earning an equivalent amount [in at least one job]? The levels have drifted apart due to the triple lock on BSP increases.

Paul_Herring

xylophone wrote: »

This is a form of clawback/integration.

http://www.mycompanypension.co.uk/Integrating-With-The-State-Pension-Preserved-Members-DB

That seems to be dealing with (older) defined benefit schemes - is this one more relevant?:

http://www.mycompanypension.co.uk/What-Earnings-Are-Used-in-Calculating-My-Pension-Active-Members-DB#pensionable

What I personally find surprising is the fact that it's apparently legal for a company to disregard the first slice of income (equivalent to what the state pension is at the time in this instance) when it comes to calculating the figure for auto-enroled pension contributions (which is where this FAQ came from.)

Would it be legal, for example, for them to exclude "the basic salary of someone in your position which is £(happily what you're getting at the moment)" and to use the result (zero in this case) as the basis for the %age contributions?

kidmugsy

Since a company is under no legal obligation to offer a DB pension at all, it would seem to be pretty silly to interfere with their definition of pensionable pay. Anyway, the OP signed up to those terms so that's that.

XSen

Thanks for the responses; it might be legal but I find it very cheeky

I was also a bit confused when reading the link from xylophone as it talked about defined benefit (where it could make some sort of sense) when mine is defined contribution. But it seems it doesn't matter in the slightest...

Paul_Herring

kidmugsy wrote: »

Anyway, the OP signed up to those terms so that's that.

The Q+A in the OP is taken directly from a document describing the current auto-enrolment stuff - see link in my previous post...

neilvw

Ah, so it is referring to auto-enrolment. The FAQs are well out of date: the lower end of the earnings band (linked to the NI LEL) is now not aligned with the full single-person Basic State Pension level as I detailed earlier. (The actual earnings trigger is currently £10,000.)

Even less objectionable as it's the government-enforced thresholds.

xylophone

is this one more relevant?:

That one seems to relate to active members while the OP said

I used to work for Sky (BSkyB)

so I had assumed that he was deferred member of a DB Scheme where integration is more common than one might suppose - in particular, it seems to have cropped up in old bank DB schemes and also in the old Railway Scheme.

In practice though, it seems to me that though he was in a DC scheme, the principle is similar - the scheme takes account of the BSP on the basis that the employer is paying employer's NI and wants some bang for his buck?

xylophone

And talking of banks and clawback, these articles from 2001 and 2015 are instructive..

http://www.theguardian.com/money/2001/nov/10/personalpensions.pensions

http://www.professionalpensions.com/global-pensions/news/1465136/rbs-strikes-clawback-deal-avoid-tribunal