Can I compare a CARE pension with a standard pension?

Yorkshireman1977

I've been offered a new job, and the pension offered is 8% employer contribution and 4% employee contribution. My current company has a CARE/Career Average scheme, which I've been in for 3 years, with the previous 7 years in a Final Salary Scheme at the same company. The new role is slightly higher pay, and has better long-term earning potential, but is there a way to roughly calculate the pot I'd get at the end in both schemes (taking the job Vs not taking the job)...?

My gut feel is that I will be massively out of pocket come retirement, if I take the new job, but maybe not?

Thanks in advance...

Chris

JoeCrystal

It is generally accepted that DB pension scheme is worth between 25% to 33% of your pay. You can always outline your income, accrual rates and the years of service so we can see the difference but frankly, in term of index-linked retirement income, your current job is unbeatable compared to all the investment risk you will bear in your new job.

Yorkshireman1977

Thanks JoeCrystal, that's what I suspected... However to offset this weaker pension, I wanted to understand how much more I'd need to earn to make it more equal. I'm on £53k now, where as the new job is £65k, however the new job rises to £75k after 3yrs, so would the extra £22k make the new job more lucrative overall?

I will need to get my accrual rates tomorrow, and I'm assuming I'll work another 25yrs. So to keep it easy imagine both jobs increase at the same rate over that period.

Thanks,

Chris

Ps. What is DB please?

JoeCrystal

DB mean Defined Benefit. Well, does your seven year service in final salary element is still linked to your final salary in the future? If so, then it is even more valuable.

Yorkshireman1977

Just looked up DB (Defined Benefit)... So 25% to 33% of pay would mean a pension of between £13,250 and £17,490 per annum, is that right? Assuming £53k was my average salary over the 25years.

So to compare I'd need a salary that makes the 8% + 4% contributions yield the same. Is there anyway to calculate the pension of 8+4% of £60k over 25years? Maths isn't my strength, as you've no doubt gathered.

Yorkshireman1977

I'm not sure, I'll need to check, but that's a very good point, thanks. I was ignoring the Final Salary as it's closed now.

JoeCrystal

Assuming you start afresh with this pension pot at new job and want index-linked income with 5% increase every year and 50% spouse income. If you are 43 and retiring at 68, and the return is 5% a year then it may yield £4,000 per year. That's all. Of course, the market may crash beforehand reducing your pot by half or worse. On other hand, it may do better. There is a reason why these kind of schemes are considered gold plated, especially for someone on high salary! Whatever you are paying atm in term of contribution, they are almost certainly be peanuts and wholly not relating to the true cost of the schemes.

Yorkshireman1977

Ok, so basically it doesn't matter what they offer me as a salary, or as a contribution, I just have to accept the new pension will be considerably smaller than my current CARE pension. Does that sound right?

JoeCrystal

Yorkshireman1977 wrote: »

Ok, so basically it doesn't matter what they offer me as a salary, or as a contribution, I just have to accept the new pension will be considerably smaller than my current CARE pension. Does that sound right?

It depend on the accrual rate, contribution rate you are currently paying really. Hopefully, once you got your hands on the detail tomorrow but it seems unlikely that 12% is sufficient to replace advantages of potentially final salary linked and CARE scheme. Another thing to bear in mind that your current scheme may have Death in Service, Ill Health Retirement and so on which may not be available at all in the new scheme.

AlanP_2

Yorkshireman1977 wrote: »

Just looked up DB (Defined Benefit)... So 25% to 33% of pay would mean a pension of between £13,250 and £17,490 per annum, is that right? Assuming £53k was my average salary over the 25years.

So to compare I'd need a salary that makes the 8% + 4% contributions yield the same. Is there anyway to calculate the pension of 8+4% of £60k over 25years? Maths isn't my strength, as you've no doubt gathered.

Not really, your DB pension will be whatever it is based on your salary and accrual rate and number of years worked - your statements should show you what it is worth now and probably an estimate of what it will be at the scheme pension age.

The 25-33% figure is an estimate of how much extra salary you would need to earn to "breakeven".

So, if new employer is putting in 8% you could logically want an extra 17-25% salary to compensate for what you are giving up.

kidmugsy

Yorkshireman1977 wrote: »

I'm not sure, I'll need to check, but that's a very good point, thanks. I was ignoring the Final Salary as it's closed now.

You do need to check. Some schemes that have converted from Final Salary to CARE have based the eventual FS pension on the salary at the time of swapping over to CARE. That's what the university scheme USS has done, for example. Oof!