company pension contribution

[Deleted User]

Thank you Greenglide, I replied before I received your post.
Billy

kidmugsy

Your income for 16/17 (at least the part you've told us about) is going to be £34k + approx £12k = £46k. To stay in the 20% income tax band (£43k) you need to make a gross pension contribution of £3k.

[Deleted User]

Hello kidmugsy,
Thanks for the reply. Are you of the opinion that there is no further restrictions upon the amount I can pay into new dc scheme ? (in the situation I have described)
Thanks
Billy

kidmugsy

thetimewill wrote: »

Are you of the opinion that there is no further restrictions upon the amount I can pay into new dc scheme ? (in the situation I have described)

In principle there are restrictions, but it seems most unlikely that they will catch you. It's not too hard to find out; you'd need to ask the old DB scheme how much the value of your DB pension is expected to increase by in 16/17. Unless you've recently had a big pay rise, the answer is likely to be miles below the £40k limit. And even if it weren't, you could presumably carry forward unused allowance from the previous three years. So, all in all, it doesn't look as if you have anything to worry about.

P.S. (i) The 20% employer contribution to the DC scheme is unusually good.

(ii) If you are worried about the finances of the old scheme, you could consider transferring out to some sort of personal pension. You'd need to consult an IFA about this.

GunJack

think I'd be inclined to take the db pension as soon as able, bank/invest the lump sum, and have the 90% protection on the 16k p.a. pension, get in before it all goes t*ts-up....even if it meant a small amount of 40% tax for 2 yrs....

PensionTech

You realise that even if your pension is in already payment, you'll still end up in the Pension Protection Fund and be subject to the 90% protection if the scheme collapses?

Granted, you'll have taken the lump sum while the going's good, but that still might not be enough to offset the penalty you'll get for taking your pension early. And, as you say, the additional income tax.

I'm not saying that taking the pension early is definitely a bad idea - it might not be - but it might not be as clear-cut as you might think.

Also, with regards to transferring into a personal pension - another valid point, and also possibly a good idea, but if the deficit is that bad then there's a good chance your transfer value will be reduced for underfunding. So the transfer value might not be worth it - you'd have to know the figures and talk to an IFA to work that out.

greenglide

You realise that even if your pension is in already payment, you'll still end up in the Pension Protection Fund and be subject to the 90% protection if the scheme collapses?

But if you are over the scheme's normal retirement age at the time that the company fails the PPF pays 100% (subject to the cap of £37,420.42).

See here http://www.pensionprotectionfund.org.uk/Pages/compensation.aspx

It is 90% if under the scheme retirement age.

jamesd

thetimewill wrote: »

M y employer is stopping our final salary db pension wef 01/07/16. I can access my pension at that date and join a new dc scheme. I am male aged 60.

Is age 60 the normal retirement age for the scheme? If not, what is its normal retirement age and what are the actuarial reductions for taking it early?

Assuming that 60 is normal retirement age you already qualify for:

1. 90% protection from the Pension Protection Fund until your pension starts to be paid.
2. 100% protection from the PPF once it is being paid.

Either of those will increase at least with CPI inflation each year in retirement.

thetimewill wrote: »

My employer will pay 20% of my salary into new dc scheme.

That's generous, 6% or so is more typical.

thetimewill wrote: »

Salary £34000 pa DB pension £ 16000 pa plus lump sum £100000. (cetv value £ 400000)

thetimewill wrote: »

Question : what is the limit or restriction on the amount I can contribute to new dc scheme if i take my benefits from the final salary db scheme at that (or any other) date?

£34,000 a year plus the 20% your employer pays, as the gross amount. Reduce your part by 20% to allow for the basic rate income tax relief. There are two limits that are relevant to you:

1. The £40,000 a year limit. This includes money paid into pensions for you by anyone, including you and your employer. You can go over this one by using unused amounts from the past three years.
2. The amount or earned income you have in the tax year, so £34,000, which is the limit on what you can pay in yourself.

In your case your employer can pay in their 20%, £6,800, and you can pay in your £34,000, for a total of £40,800. Assuming that you have £800 that you didn't use in the last three years.

To get your own £34,000 gross you'd pay in 80% of that, so £27,200.

You can afford that much but one of the rules that matters to your situation concerns thinking of how before you get the lump sum. So ask again once you have taken the lump sum and we can explain without risking limiting your options. If you have savings, for now plan to use them because it's a great deal. Yes, it's daft, but that's what the rules are.

The fact that you have a pension income as well as the work one makes no difference to how much you can pay in in your situation. It does mean that some of your pension contribution will give you higher rate 40% income tax relief. To get that without waiting until after the end of the tax year and filing a tax return you can just tell HMRC in a letter how much you will be paying in and ask them to adjust your tax code to give you the relief.

PensionTech

But if you are over the scheme's normal retirement age at the time that the company fails the PPF pays 100% (subject to the cap of £37,420.42).

Good point, for some reason I was only thinking about failure before NRA. The cap does depend on when the member retired though. It's about £5k less than that for people who retire at 60. But it doesn't look like the cap will be an issue here.

Edit: I've just remembered why I was only thinking about failure before NRA. Since the decision for the member is between retiring now and retiring at NRA, if the scheme fails after NRA, his pension will already be in payment anyway - so he'll still qualify for the 100%. If it fails before NRA then he won't qualify for the 100% whether his pension is in payment or not.

[Deleted User]

Thanks to all for the information. I now have a clearer understanding of my contribution sums and also the possible outcome for different situations.
The normal retirement age for the db scheme is 62, therefore I have a 10% penalty for early access. ( the figures above are after deduction) The scheme is closing 30/06/2016 and the fund will increase annually by one of the inflation measures . I fully intend to stop work at 62,so will only have 2 years in the new dc scheme. The employers contribution will decrease over 4 years until it pays 10% and members pay 10%. From all the info provided here, it seems I will not have a lot more protection if I take the pension now. I still cannot shake off the fear of suffering a possible loss of benefit if all goes wrong.
I now have a lot of info to digest and consider. Thanks again to all,
Billy