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Different Employer Schemes

2

Comments

  • Mistermeaner
    Mistermeaner Posts: 3,024 Forumite
    Part of the Furniture 1,000 Posts
    hyubh wrote: »
    Huh - where's the money come from then...?

    What I mean is the company does not pay money into a pot that is explicitly any individuals'. Op made reference to final salary scheme where he pays 9% and company contributes 19% - this doesn't make sense.

    Quote the whole paragraph and it makes more sense!
    Left is never right but I always am.
  • hyubh
    hyubh Posts: 3,744 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    What I mean is the company does not pay money into a pot that is explicitly any individuals'.

    OP never claimed otherwise.
    Op made reference to final salary scheme where he pays 9% and company contributes 19% - this doesn't make sense.

    Of course it does, and indeed that's how a multi-employer DB scheme usually works - i.e., after every payroll period, employer contributions at a given rate are paid over to the scheme along with employee contributions. For sure it's still different to a DC arrangement given the employer still has a liability, but it's not nonsensical.
  • Mistermeaner
    Mistermeaner Posts: 3,024 Forumite
    Part of the Furniture 1,000 Posts
    I understand how it works but as a comparitor it's meaningless and given the lack of other info provided regards this scheme it makes me wonder if the details provided are correct.
    Left is never right but I always am.
  • Darozzi wrote: »
    Membership of this scheme required a contribution of 9% of my pay (with the company adding another 19%).
    Despite what others have said, the company is not committing to add 19%.

    That may be an estimate of the cost to it but in reality it will pay the balance of the cost - whatever that may be.

    That might be less than 19% - I once worked for an employer who had managed to invest the pension fund sufficiently well that for many years it did not need to pay anything more. On the other hand, many employers are having to dig deep to make up shortfalls.
  • Hello


    In response to some of the questions and requests for further clarification:


    I am 33 years old. My current 'pot' is approx. £70k. This is a result of employer contributions since I first started work. Currently my employer adds £430 to this every month. This is not a deduction from my wages, it's part of the benefits provided to employees by the firm.


    The job I have been offered is a Final Salary/DB scheme. The details are 1/60 accrual rate. So assuming I stay there for 5 years, that would equal a pension of approx £6,000 per year when I retire. The cost to me during those 5 years would be 9% of salary, with the employer paying an additional 19%. So in other words the scheme is supported by a total contribution of 28% of salary made by the employee and employer. That £6k would be revalued in line with inflation up until I retire.


    As I understand it, supposing I left the scheme after 5 years, I would also have the option of transferring the contributions of myself and my employer to another scheme. By my calculations, 28% over 5 years would be around £100k. So I could transfer £100k to another scheme, or remain as a preserved member in the scheme and get £6k a year from retirement until death....


    My main concern at this stage was the fact that 9% of my pay would be deducted from my salary each month, which would be quite a shock as I have never previously had to make an employee contribution to my pension before - even though ultimately my pension would be benefitting.


    I've probably misunderstood a whole bunch of this and have a call with the HR department from my prospective new employer later today to go over the details. But I appreciate the feedback received thus far - many thanks :-)
  • xylophone
    xylophone Posts: 45,746 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    There is usually an explanatory booklet about the DB Pension Scheme - ask for a copy?
  • AlanP_2
    AlanP_2 Posts: 3,539 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    Darozzi wrote: »
    Hello



    As I understand it, supposing I left the scheme after 5 years, I would also have the option of transferring the contributions of myself and my employer to another scheme. By my calculations, 28% over 5 years would be around £100k. So I could transfer £100k to another scheme, or remain as a preserved member in the scheme and get £6k a year from retirement until death....



    That transfer "pot" is one where DB and DC schemes differ. If you were describing a DC pot your £100k would be approximately correct. It may be more it may be less depending on investment returns and market prices at the time you transfer.

    With a DB scheme there is no "pot" there is a "promise to pay £x at Age-y" so the notional transfer value is calculated be the scheme administrators on a case by case basis at the point in time when it is requested.

    In practice if you are moving to a new employer their pension scheme admin people will contact your current employer and ask for the information they need and will use that to calculate what benefits this will "buy you" in the new scheme.

    You then make a comparison between what you have preserved with the old employer and what the new employer is offering and make a decision on whether to transfer or not. There is no problem having a deferred DB pension from an old employer, or even more than 1, you don't need to keep it all together.

    For example when I joined my current employer I transferred one old pension scheme into this one and left another one where it was deferred.
  • El_Torro
    El_Torro Posts: 2,003 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    Darozzi wrote: »
    Hello


    In response to some of the questions and requests for further clarification:


    I am 33 years old. My current 'pot' is approx. £70k. This is a result of employer contributions since I first started work. Currently my employer adds £430 to this every month. This is not a deduction from my wages, it's part of the benefits provided to employees by the firm.


    The job I have been offered is a Final Salary/DB scheme. The details are 1/60 accrual rate. So assuming I stay there for 5 years, that would equal a pension of approx £6,000 per year when I retire. The cost to me during those 5 years would be 9% of salary, with the employer paying an additional 19%. So in other words the scheme is supported by a total contribution of 28% of salary made by the employee and employer. That £6k would be revalued in line with inflation up until I retire.

    Based on the above if you stay where you are your pension pot when you retire at 68 will be worth approximately £426k (in today's money) which will buy you an annuity of £15.2k per year, index linked.

    On the other hand if you go to your new job and work there for 35 years until you retire at 68 then you will receive a pension of £37.6k per year. Also your current pot of £70k (assuming you don't add to it) will be worth £157k and will buy you an annuity of £5,600 per year index linked.

    Your priorities may differ but I think that's a pretty big benefit when comparing the two jobs.
  • I reckon you want to take the job - seems like a good deal

    Don't see the harm in asking for more money though
  • Mistermeaner
    Mistermeaner Posts: 3,024 Forumite
    Part of the Furniture 1,000 Posts
    There's sometimes a big tail off if you want to go early with DB so they keep you hanging in there where dc gives you a bit more flexibility.

    Also you're not putting much in the dc pot; you could change that and get more tax relief etc

    I've not checked the maths, assuming it's right it is quite compelling but points above something to perhaps consider.

    Personally if I was in a DB scheme I would add also look to set up a sipp to provide a flexible bridge.

    Also based on nothing but I would expect future legislation to favour dc.
    Left is never right but I always am.
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