Understanding final salary scheme

Magpie100

Hello MSE-rs,

I'm trying to make sure I understand my current workplace pension scheme but finding it difficult!

It's a final salary scheme and I have been in it for 17 years. Trying to work out how the numbers work - the summary of benefits says the following: accrual rate is 1/60 X final pensionable salary X pensionable service. So does this mean, for example: 42,000 (current salary) X 17 (years) (divided) by 60? That gives me a figure of £11,900. But is that what I can expect to have paid out per year once I retire? I'm confused as the summary says '1/60 X final pensionable salary X pensionable service, (so multiplied, not divided for the 1/60 bit) but that obviously just gives a huge amount of ££ which is clearly wrong!

My second question is what happens with a final salary scheme if I decided to work part time in the future? According to the above formula, if I worked part time with a pro-rata lower salary then the multiplier would drop significantly, and so would my pension. But, the money I would have paid in on a higher full-time salary would still be in my pension pot, surely? And if that was the case, then if I wanted to work part time would it be better for me to do that at a different company (I'm aware I will never get in to a final salary scheme again!) - and leave the 'final pensionable salary' as high as I can (i.e. a full time wage).

I'm sure these are really basic questions, but even though I have all the info from my workplace I still find it difficult to understand all of this! I am 44 so nowhere near retirement yet, but I am considering moving jobs and I really need to understand exactly what I'd be giving up if I did (or what I should try and negotiate to equal in a new position).

Thanks for your help in advance!

M100

MarcoRolo

Hi,
Multiplying by 1/60 is the same as dividing by 60 so I think that answers your first question...and you’re right about how the pension is calculated. That will be what you get at the scheme retirement age, but would be reduced if you took the pension early.
On your second point, I think it will be calculated based on how much time you’ve spent part time versus full time. Moving to part time with your current company won’t reduce the amount of pension you’ve accrued in the past, will just reduce what you accrue going forwards as you’re earning less.

jimi_man

Hi


Yes, you've got it right. You accrue 1/60th per year so after 17 years you've got 17/60ths - or just over a quarter of your salary as a pension. The 17/60ths is x £42000 (your salary) which does indeed give you £11,900 per year for life.


If you work part time then you accrue it more slowly, so if you drop to 50% then effectively you'll only accrue the equivalent of 1/120th per year (that's not exactly how it works but makes it easy to understand). However what you've paid in to date will still stand. So if you did 10 years of 50% then that would be the same as five years of 100% - another 5/60ths - so you'd be on 22/60ths which would be a pension of £15,400 a year for example.

hyubh

Magpie100 wrote: »

It's a final salary scheme and I have been in it for 17 years. Trying to work out how the numbers work - the summary of benefits says the following: accrual rate is 1/60 X final pensionable salary X pensionable service. So does this mean, for example: 42,000 (current salary) X 17 (years) (divided) by 60? That gives me a figure of £11,900.

I agree with what the others have said. Beyond that, worth checking what counts as 'pensionable' salary, as it may not be the same as basic salary.

Magpie100

You've all been incredibly helpful - thank you. That does make perfect sense.

GunJack

..and iif you do leave for another job, that pension to-date you've earned will become deferred, so will be waiting for you to claim at the scheme's normal retirement date (or actuarially reduced if you take it before srd), but probably will increase by CPI whilst deferred...just make sure you keep in touch with the scheme administrators, and keep them up-to-date of any change of address, etc.

Albermarle

It may be worth keeping in the back of your mind that many private companies have closed their final salary schemes , as the cost of funding them is so high . If this happens then you keep all the rights you have already accrued until the scheme closes . In fact to be more accurate it closes to new members and existing members can make no more contributions or accrue more benefits. It remains an active fund of money , being invested by the trustees for making future payments .
Usually all current employees are moved on to a much less generous DC scheme .
Another point is that you may well be offered a CETV ( cash equivalent transfer value) in future to try and buy you out of the scheme.
If they do there are numerous threads on this subject on the forum you should read.
The other point is that you

Magpie100

@Albermarle - yes - this scheme has been closed to new members since 2003. That's one of my issues, really - I am considering looking for another job, but I'm aware that I will probably never get in to such a good pension scheme again. That in itself is not a reason never to leave, but I want to at least try and understand exactly what I'm giving up!

The summary of benefits says this about leaving: 'For members leaving the scheme now, your pension at date of leaving would increase each year to your retirement date in line with prices up to a maximum of 2.5% pa.'

But what are these 'prices' it refers to?!

Thanks again for all the help so far. M100

Magpie100

Oh - one further piece of info - it says: 'The level of increase that will apply to your pension is dependent on when you joined the Scheme. Further information on this is available on request from the Pensions Manager.' <shrug>

GunJack

Magpie100 wrote: »

The summary of benefits says this about leaving: 'For members leaving the scheme now, your pension at date of leaving would increase each year to your retirement date in line with prices up to a maximum of 2.5% pa.'

But what are these 'prices' it refers to?!

Thanks again for all the help so far. M100

It means the value will increase by CPI (consumer price index, i.e. inflation) up to a max uplift of 2.5% every year*

* or if you're really lucky, RPI (the "old" measure of inflation) which is usually a bit higher. Still got the 2.5% cap though...

GunJack

Magpie100 wrote: »

Oh - one further piece of info - it says: 'The level of increase that will apply to your pension is dependent on when you joined the Scheme. Further information on this is available on request from the Pensions Manager.' <shrug>

This may mean that if you joined before a certain date, you get RPI uplift, or after said date it's CPI (read with previous post). Check with scheme administrator for the detail.