dB final salary scheme help

Philb84

Thanks for your replies so far, I did mean to put more info after the first message.

I am currently still an active contributing member in the DB final salary pension but my final salary pension will be based on my 2013 wage regardless what will be in my pot when I come to NRA. This has had a massive impact on my pension, with me recieving 1/3 of what I could have expected should there had been no change to the scheme.

I get a cetv every year and also receive an annual pension statement from both the DB and DC schemes. My DB final salary pension figure can only now increase when I begin to draw from the pot at retirement age with pay rises as long as the fund is fully funded.

If I deferred my pension pot, it would rise with inflation from that date but this is capped at 2.5%.

I am considering a couple of options so any views would be appreciated from anyone that has been through the same predicament. Don't worry I will be getting some financial advice before making a decision.

Option 1 (which I am currently doing)

Continue to contribute to the DB scheme with my full 2013 pensionable salary and top up into the DC pension with my difference in salary from 2013 (which would be any pay increase, but this is currently a very small amount)

Option 2,
Defer my dB pension and contribute my full pensionable salary to the DC scheme.

Option 3,
Transfer my DB final salary pot to the DC and fully contribute to the DC scheme with my pensionable salary. I know I have to do this at some point in my career before retirement age.

tacpot12

I'm curious why you have to take option 3 at some point before retirement?

sheslookinhot

I think you need professional advice. Why would you continue contributions to your DB Scheme if your benefits are eroding?

hyubh

Philb84 wrote: »

My DB final salary pension figure can only now increase when I begin to draw from the pot at retirement age with pay rises as long as the fund is fully funded.

Surely you are accruing more reckonable service however, while you remain an active member? I'm also not sure what the final caveat refers to ('... as long as the fund is fully funded') - DB schemes in this country ultimately rest on the principle of the sponsoring employer being around to fulfil the defined benefits promised, not on these promises being contingent on the success of an investment fund.

xylophone

Were you given the option of deferring the pension in 2013 and contributing only to the DC Scheme?

If so, why did you not take this option then?

What do you see as the benefit to you of continuing to contribute to the

DB pension?

Why would you have to transfer the DB into the DC before retirement?

Marcon

tacpot12 wrote: »

I'm curious why you have to take option 3 at some point before retirement?

To avoid losing the statutory right to transfer (i.e. one year before a scheme's Normal Retirement Date, or 6 months before if the Rules so provide). OP, worth checking if you can transfer immediately before you start to draw your benefits, which would mean you could put off the decision until the 11th hour, should you so wish.

Marcon

hyubh wrote: »

Surely you are accruing more reckonable service however, while you remain an active member? I'm also not sure what the final caveat refers to ('... as long as the fund is fully funded') -

If OP already knows his/her final pensionable salary - and they do - it is possible to work out what the pension will be at normal retirement age, assuming they remain an active member throughout. This 'known figure' will, as OP says, only start to increase once the pension is in payment.

Completely agree with your comment about the fund not needing to be 'fully funded'. OP, you might want to check who told you that - it isn't accurate.

Philb84

The reason I didn't defer at the time was uncertainty of the DC scheme which the company set up with friends life/ now Aviva. The company gave us scenarios of each options when they made the changes and they didn't print a realistic picture of what I could expect. The change was forced on us at the time with very little help or understanding from a personal point of view.
The benefit of staying in the scheme is that it is protected much for than a DC scheme. Also the company are putting in 16% into my dB scheme as apposed the 10% they would put into my DC.

I do know the exact dB figure I will receive at NRA, this is given in a statement every year, this will not change and is not like a DC scheme prediction depending on how your personal fund is performing.

The reason for transferring is due to the pension they are offering me with regards the size of my pot. For example I could have 1million pound pot and they are only offering me 20k PA at 65. If I was to transfer that to a DC scheme and buy my own pension at retirement I could get considerably more and at a younger age. Also gives me other options like drawing down etc.

The fact is from at least 2013 to 2018 pensioners from the dB scheme had not had a pay rise on their pension due to the fund being in defecit, only in 2018 did they start recieving a pay rise once the fund was in surplus.

hyubh

Philb84 wrote: »

The benefit of staying in the scheme is that it is protected much for than a DC scheme.

Still don't get this, sorry. If you left the DB scheme, presumably your DB pension at NRA would be much less than the projected one in your current statements, because the reckonable service will be cut short? Ergo, the benefit of staying in is additional reckonable service.

Also the company are putting in 16% into my dB scheme as apposed the 10% they would put into my DC.

The employer contribution rate for a DB scheme is largely irrelevant - if it proves less than needed, then the employer just has to put the additional money in later. In fact, assuming the 16% figure is quoted for all members, it will overstate the assumed funding cost of your own pension given you have many years to NRA - put another way, your continued membership effectively subsidises the membership of those close to NRA or in payment.

I do know the exact dB figure I will receive at NRA, this is given in a statement every year

Surely that's dependant on no future changes to the accrual rate? (And indeed, not changing job before NRA.) What you have 'guaranteed' is your accrual to date, not future accrual to NRA.

The reason for transferring is due to the pension they are offering me with regards the size of my pot. For example I could have 1million pound pot and they are only offering me 20k PA at 65.

20K at 65 assuming you defer now, or 20K at 65 assuming you stay an active member until then...?

The fact is from at least 2013 to 2018 pensioners from the dB scheme had not had a pay rise on their pension due to the fund being in deficit, only in 2018 did they start receiving a pay rise once the fund was in surplus.

Are you referring to discretionary increases in payment? Ignoring GMP complications, pension on service before 1997 has no required indexation by law, pension on service after must have at least inflation capped to 5%, and pension on service from 2005 can be inflation capped to 2.5%. (That said, many schemes provide for above-statutory pension increases.)