Final Salary pension, capped

Eisenhorn

I joined a Final salary pension scheme just over 10 years ago, sounded great.

however 7ish years ago it was capped in how much it could increase by. My own naivety I didn't understand what was happening and the company simple said go seek IFA on the letter it sent out at the time, however my colleagues at the time (all near retirement age I realise now) weren't fussed, and my parents being old school just heard final salary scheme and so there advice was stay where you are.

But what always stuck in the back of my head was
The pension cannot never increase by more than 2% or inflation whichever was lowest per year (regardless of Pay rise/new job).
Contributions are based on your current salary

Since then I've had several different jobs in the same company, and managed to double my salary.
The pensionable salary though is based pretty much on what it was when it first got capped.
Pensionable 16k
Actual 32k
This should end with a pension just over 12k at current estimate, to which I contribute 16% (increasing to 17% next april), the company contributes 10%.

It's not unreasonable to think that I will work my way up a few more rungs of the ladder in the next 33 years, and based on senior people around me that would be salaries 100k+. which I would be paying 16/17% on, for a final salary pension which in the best climate of +2% each year would be 23k. Over the course of my career I see the divide widening between my actual salary and my pensionable salary.
To my mind, if you have two people both who were on the same salary when it got capped, one moved jobs, one stays in the same place. Then they both end up with the same pension at the end, but have contributed disproportionately, so that would suggest the person with large increases in salary should get out, and do something else with the money.

The question is, am I paying too much for what I'm going to get out of this?
I'm wondering whether I'd be better in a private pension, either putting that monthly contribution in full, or some of it and the rest going into other investments (house deposit, portfolio).

I do realise the best thing I could do with be to go see an IFA, however I've checked with three now and their prices have ranged from 750-1000 for the answer, which I don't have available

Keep_pedalling

Are you sure you have your facts correct? that sounds very strange. Which company scheme are you in?

PeacefulWaters

It sounds like you should cease contributing to this scheme.

But your post feels confused and doesn't really help anybody get a feel for the cost of staying in v the cost and company contributions of an alternative DC scheme.

RADDERS

The final salary scheme where I work was capped approximately seven years ago, but where I think ours is different is we only pay pension contributions up to the capped salary amount. So on my pay line I have pensionable salary and non pensionable salary so my contributions are only payable on the pensionable part.
The reason the staff agreed with this was it was either this or the final salary scheme would close and we would have to join the new defined contribution pension scheme that the newer members of staff are members of.

AnotherJoe

At first glance this seems wrong but is obviously worth investigating. Hopefully you are wrong and the misunderstanding can be cleared up.
Is there no department t work that can clearly explain what the rules are to make sure you understand them?
Do you really not have one thousand pounds? Borrow it on a credit card if not because what you'll be spending / wasting each year, if you are correct, is way more than that.
And sort your finances out so you can afford unexpected expenses like this.

Eisenhorn

Keep pedalling - I've asked the question of my HR dept who have confirmed the pensionable salary max 2% increase per year, and the contribution is against my actual salary. So, as far as I'm aware the facts are accurate. The company is RBS, this is their old scheme which closed to new people about 6months after I joined.

PeacefulWater - Confused I agree, it's why I'm posting. I have no idea whether the amount I'm contributing is a reasonable amount for the end pension suggested.
My guy says get out

Radders - If both were capped I wouldn't be concerned. If that were the case though my contributions should be around the £200 mark instead of the £400

sandsy

Are you absolutely sure that's how it works? I've never heard of such a thing.

The contributions should be based on the same salary as the benefit or there's a massive cross subsidy going on from higher paid to lower paid. That really doesn't sound like something the trustees should agree to.

xylophone

Were you a member of the scheme at 30 9 2006?

Is this your scheme booklet?

https://rbs.tbs.aon.com/RBS/media/default/PDFs/Current%20Pension%20Plan/G-Group-Pension-Fund-booklet.pdf

hyubh

sandsy wrote: »

Are you absolutely sure that's how it works? I've never heard of such a thing.

Googling for it, I quickly came to this:

https://rbs.tbs.aon.com/benefit-learn-more/Current-Pension-Plan/Current-Pension-Plan-UK

https://rbs.tbs.aon.com/RBS/media/default/PDFs/Current%20Pension%20Plan/G-Group-Pension-Fund-booklet.pdf

Pretty much as the OP says.

The contributions should be based on the same salary as the benefit or there's a massive cross subsidy going on from higher paid to lower paid.

Surely the cross subsidy isn't that, but from younger members like the OP to older ones? A cross subsidy from higher to lower paid would be more like the CARE public sector schemes with their salary-tiered contribution rates.

bigadaj

Eisenhorn wrote: »

Keep pedalling - I've asked the question of my HR dept who have confirmed the pensionable salary max 2% increase per year, and the contribution is against my actual salary. So, as far as I'm aware the facts are accurate. The company is RBS, this is their old scheme which closed to new people about 6months after I joined.

PeacefulWater - Confused I agree, it's why I'm posting. I have no idea whether the amount I'm contributing is a reasonable amount for the end pension suggested.
My guy says get out

Radders - If both were capped I wouldn't be concerned. If that were the case though my contributions should be around the £200 mark instead of the £400

A quick google leads to a scheme booklet for rbs, with a defined benefit scheme that closed in 2006 - have you seen this.

It doesn't seem to have any of the issues you describe, a fairly standard sixtieths scheme from my brief perusal.

hyubh

Eisenhorn wrote: »

This should end with a pension just over 12k at current estimate, to which I contribute 16% (increasing to 17% next april), the company contributes 10%.

Is the additional 10% rate classed as deficit ('past service') contributions? I ask because the items I found idly Googling didn't mention it, and instead seemed to insinuate that the 16% ('typically 15%') is costed to pay for the DB benefits alone.

Also, and more substantively, reading the website it seems that there is no particular employer contribution benefit to joining the company DC scheme were you to opt out of the final salary plan, since the 10% DB contribution would just come out of 16% currently going to the latter, and you would be free to take the balance as pay. Is that correct? If so, I'd be inclined to opt out completely and just contribute to your own pension outside of work, as you've been thinking of.