Final salary-- Is it your Final salary ??

nyck

Before i call my pension provider and look silly ,i thought ill ask my stupid questions on here



This is with reference to the Railways Final salary pension scheme

This just an exaggerated example



If I paid into the pension for the full 40 years and say 39 years I was on the lowest grade £20k and then the last year i got a promotion to director £80k

would my final pension be based on £80k even though i contributed at the £20k level for 39 years




thanks

Kynthia

You need to read the terms of your pension scheme. However yes in theory that's how final salary schemes work but you'd typically need to earn £80k for at least a full year for the whole £80k amount to be used.

One scheme I know looks at your best 12 months of earnings in your last 3 years of employment. Another is more complicated and uses either the best 12 months out of the last 13 years or the best average 3 years. These amounts are indexed up to today's value before being compared, to ensure a like for like comparison.

crv1963

Theoretically yes. There would of course be scheme rules and HMRC rules and regulations that may prevent this happening though. My scheme is as described by Kynthia the best rolling 12 months or year out of the last three years.

kidmugsy

nyck wrote: »

If I paid into the pension for the full 40 years and say 39 years I was on the lowest grade £20k and then the last year i got a promotion to director £80k

would my final pension be based on £80k even though i contributed at the £20k level for 39 years

Yes, that's one of the reasons that FS schemes have had to be scrapped. I know two people who had late career temporary promotions, one of whom also had a large late career permanent pay rise. Their pensions are much more than they had expected for nearly all their careers.

At least those two cases were honest: there are also tales of bogus late career promotions.

eastcorkram

I'd often wondered the same, but the other way round. ie earning good money, but nearing retirement, easing down, taking a less demanding role or whatever, and earning a lot less in your final year or two.

AnotherJoe

It depends, its very variable. I know In some jobs people are forced to retire and then rejoin, because if its something like an average or your last years salary, and suppose you go part time or easier job your salary may drop and so your pension could be really much lower.

Happened to a friend of mine, not sure of the exact details but gist is she was a headteacher then took a different lower paid job in teaching (different school) to wind down and she had to retire by a particular date or the new lower pay would be used for her pension. I think I've seen this mentioned for NHS as well. Also in these cases there are rules about rejoining.


So you wont seem stupid if you ask and you need to know the exact details of your scheme

crv1963

eastcorkram wrote: »

I'd often wondered the same, but the other way round. ie earning good money, but nearing retirement, easing down, taking a less demanding role or whatever, and earning a lot less in your final year or two.

Yes this applies to NHS Scheme (1995) that I am in but you can request to preserve accrued years/ earnings I'm not sure what the time limits are for the request, but even so it can lower the pension slightly. If you don't then it can lower it markedly.


The new scheme is career average so doesn't make such a marked reduction.

Kynthia

eastcorkram wrote: »

I'd often wondered the same, but the other way round. ie earning good money, but nearing retirement, easing down, taking a less demanding role or whatever, and earning a lot less in your final year or two.

Going part time doesn't usually reduce the salary used as the calculation often uses the full time equivalent salary. Downgrading could but it depends on how long you do it for and the time range your scheme uses to find your best salary. A scheme which looks for your best salary for the last 13 years would mean you could downgrade for quite a few years without any impact. Then some people opt out of the pension when taking a lower paid job, and perhaps rejoin but requesting to keep the two periods unlinked. There's also the option of partial/phased retirement in some schemes.

Brynsam

AnotherJoe wrote: »

It depends, its very variable. I know In some jobs people are forced to retire and then rejoin, because if its something like an average or your last years salary, and suppose you go part time or easier job your salary may drop and so your pension could be really much lower.

Common misunderstanding (and easy to see why). If you go part time, your pensionable salary continues to be based on full time equivalent. Your pensionable service for the period in question is pro-rated e.g. if you work one full calendar year at 40 hours a week and then another full calendar year at 30 hours a week, you will be credited with 1 year and 9 months of pensionable service.

OP, the question you need to ask of your scheme is twofold: the definition of Pensionable Salary, and the definition of Final Pensionable Salary.

nyck

Brynsam wrote: »

OP, the question you need to ask of your scheme is twofold: the definition of Pensionable Salary, and the definition of Final Pensionable Salary.

Ill call them tomorrow

Im pretty sure my Pensionable Salary is just my basic annual salary with no bonuses , overtime etc looking statments they send me each year.

Their website is pretty good ,as you adjust figures it shows you the amount you will get if you retire early/later than 60 or adjust the lump sum you take.
thanks

AnotherJoe

My bad on part time, but the key point is,assume nothing about how it works, check or you could really lose out depending on the circumstances of your last few years.