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Company Pension Scheme Query

Hi all,

I and several others in the office are in the Company's final salary pension scheme, which still applies the 2/3rds maximum rule despite the recent Government changes to pension schemes.

Several of us will actually be "overpaid" at retirement, meaning the pension we receive will be capped at 2/3rds of final salary. Some are already at, or even over, the 66% mark. This means we are paying in to the pension scheme for nothing. Is there anything we can do please? Some have asked about this and about stopping paying into the pension scheme, and apparently have been told they can't do this. Is this correct, and if so why would this be?

The way I see it is if we were to resign and leave then we would still get the max pension at retirement age, without wasting any more contributions for nothing!! Thanks.

polybear

Comments

  • EdInvestor
    EdInvestor Posts: 15,749 Forumite
    These people may be able to help give them a ring.

    http://www.pensionsadvisoryservice.org.uk/occupational_pensions/
    Trying to keep it simple...;)
  • chesky369
    chesky369 Posts: 2,590 Forumite
    Goodness, what fortunate people you are - a final salary scheme which is continuing to run - AND with lots of long-service members. Can't be too many of them left. (schemes, not members)
    Ask to see a copy of the Rules of the Scheme. If it is as you've been told, then you'll just all have to retire early (poor things). How old are you?
  • polybear wrote: »
    Hi all,

    I and several others in the office are in the Company's final salary pension scheme, which still applies the 2/3rds maximum rule despite the recent Government changes to pension schemes.

    The changes only applied to the maximum pension you would be allowed to recieve, within the tax rules. The change did not make any change to the benefit promised by the company.
    Several of us will actually be "overpaid" at retirement, meaning the pension we receive will be capped at 2/3rds of final salary. Some are already at, or even over, the 66% mark.

    If the company's promise is capped at 2/3 of salary, then no-one is accruing more than this. I know what you mean - that if you have 44 years service, you think you're entitled to 44/60 or 73% of salary, but you're not. The company has stated that it's promise is no more than 2/3 of salary.
    This means we are paying in to the pension scheme for nothing. Is there anything we can do please? Some have asked about this and about stopping paying into the pension scheme, and apparently have been told they can't do this. Is this correct, and if so why would this be?

    You should be able to opt-out of the pension scheme, but there may be some drawbacks - check carefully. In particular, I imagine you would lose the death in service benefits.

    As for your contributions .... well, you are still getting death in service benefits and they, alone, probably cost more than the amount you pay. What you've paid in is irrelevant - it's nowhere near the cost of providing your pension and probably as little as only 20-25% of the total cost.

    But remember, your pension is not based on what you pay. It's based on what the company promises. Your contributions are just a (very small) share of the total cost.
    The way I see it is if we were to resign and leave then we would still get the max pension at retirement age, without wasting any more contributions for nothing!! Thanks.

    polybear

    Your contributions are not wasted. Resigning seems a little drastic, not least as there are other considerations, besides your pension entitlement ;)
    Warning ..... I'm a peri-menopausal axe-wielding maniac ;)
  • Ian_W
    Ian_W Posts: 3,778 Forumite
    Part of the Furniture 1,000 Posts Photogenic
    Wouldn't it also be the case, and someone please correct me if I'm wrong, that if you stopped paying into the scheme the final salary your pension would be based on when you stopped paying - rather than when you retired?

    So stop paying in now and retire in 10yrs time and your final salary for pension purposes - given even moderate pay rises - could be about 70% of your actual final salary. If so, it rather defeats one of the great benefits of a final salary scheme - that it's a defined % of the money you're earning at retirement.
  • Ian_W wrote: »
    Wouldn't it also be the case, and someone please correct me if I'm wrong, that if you stopped paying into the scheme the final salary your pension would be based on when you stopped paying - rather than when you retired?

    So stop paying in now and retire in 10yrs time and your final salary for pension purposes - given even moderate pay rises - could be about 70% of your actual final salary. If so, it rather defeats one of the great benefits of a final salary scheme - that it's a defined % of the money you're earning at retirement.

    It depends on how the promise is worded. Either, you earn 1/60th for each year, with an overall limit of 40/60. So you've earned the full amount after 40 years. If you then leave, that 40/60 cannot be cut back (unless you opt to recieve the pension before NRA).

    I have also worked in schemes where the promise is40/60 at NRA, earned equally over your entire working life. So if you can do 45 years to retirement (unusual these days, but not impossible), then you actually earn 1/67th each year. Again, when you leave, you'll get what you've earned, but this will be less than 40/60 if you stay for less than 45 years e.g. 40/67th = 59% and not 66% of final pay.

    As ever ..... check what the rules state. You can only enforce payment of the benefit that the rules give you.
    Warning ..... I'm a peri-menopausal axe-wielding maniac ;)
  • DRS1
    DRS1 Posts: 575 Forumite
    Part of the Furniture 500 Posts Name Dropper Combo Breaker
    I think IanW and Debt_free_Chick have identified two different issues; one is about salary increases and the other about how the pension formula works if you opt out. You need to think about both things.

    On the salary issue you need to compare your anticipated salary increases between opting out and NRA with the inflation protection available under the scheme. If you do opt out the pension earned up to the date of opting out should be revalued until NRA at a rate which may be something like RPI up to 3% (again check the rules).

    I think you would be best served by making a list of the questions identified in this thread and asking your pension scheme's administrator for the answers - may be easier than trying to make sense of the rules, if you are not familiar with the jargon.
  • Thanks for all the replies - I'll do as has been suggested and write to the pension trustees for a copy of the rules and subsequently to ask them some specific questions. Thanks for the help.

    polybear
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