DB Scheme With Restricted Salary Increases

cloud_dog

Hi

(thought I may have enquired about this previously but couldn't find a thread from me with it in so...)

I have a DB scheme which I am currently an active member. A while ago the company decided to keep the scheme running for existing members but have limited any ongoing salary increases (pensionable pay) to 1%. (this wasn't a consideration a couple of years ago as there hadn't been any salary increases for a number of years).

I am wondering if it might be worth discussing the option of ceasing contributing towards the DB scheme and see if I can enrol/continue in the DC scheme?

The reason I'm looking in to this is that deferred pensions are increased in line with CPI (5% pre-April 2009 and 2.5% post April 2009), and I have approx 18 years pre-April 2009 service and approx 11 years 2009 onwards. Would these increases actually benefit me more than continuing with a limited 1% rise with salary increases?

Would it be treated as a 'deferral'?

Brynsam

cloud_dog wrote: »

The reason I'm looking in to this is that deferred pensions are increased in line with CPI (5% pre-April 2009 and 2.5% post April 2009), and I have approx 18 years pre-April 2009 service and approx 11 years 2009 onwards. Would these increases actually benefit me more than continuing with a limited 1% rise with salary increases?

Would it be treated as a 'deferral'?

If you leave active membership and don't draw your pension, then you do indeed become a 'deferred' pensioner.

What's the accrual rate for active members - i.e. how much do you built up for each extra year of active membership of the DB scheme?

How much does your employer contribute to the DC arrangement/how much do you have to pay in to become a member? Will your employer match extra contributions?

Linton

mmm


- If you continue as a member of the DB scheme another year you gain an increase of 1/29th (3.4%) of your pension by being in the scheme a year longer plus possibly 1% from a wage increase, so 3.4%-4.4%
- if you leave the DB scheme and there is no great increase in inflation you get say 2.5% increase in your pension plus an unknown amount of money to put into the DC scheme.


So will this unknown amount of money be sufficient to pay for say a 2% increase in your pension? That should be easy to work out since you know the amount of money, use a Safe Withdrawal Rate of say 3.5% and compare it with the known DB pensions.



Another factor is risk vs flexibility, especially if you wish to retire early.

Brynsam

Linton wrote: »

- If you continue as a member of the DB scheme another year you gain an increase of 1/29th (3.4%) of your pension by being in the scheme a year longer plus possibly 1% from a wage increase, so 3.4%-4.4%

Not necessarily - depends what the current accrual rate is - may not have been constant during OP's period of membership.

cloud_dog

Linton wrote: »

Another factor is risk vs flexibility, especially if you wish to retire early.

Flexibility was a consideration (as per one of my previous thread conclusions).

cloud_dog

Brynsam wrote: »

Not necessarily - depends what the current accrual rate is - may not have been constant during OP's period of membership.

It has varied.

1/60 x Final Pensionable Earnings x Pensionable Service to 30th June 2002 x ERF
Plus
1/70 x Final Pensionable Earnings x Pensionable Service from 1st July 2002 to 31st March 2007 x ERF
Plus
1/80 x Final Pensionable Earnings x Pensionable Service from 1st April 2007 x ERF

So for me that is approx 12 @ 1/60 plus 5 @ 1/70th plus 12 @ 1/80th.

cloud_dog

I've just looked up the current Group Personal Pension Plan contribution amounts and it appears the company has 'dumbed down' their contributions percentage in line with the introduction of the 'workplace pension', contributing 5.5%.

In the old days, prior to the introduction of the workplace pension the company used to contribute 12% for the replacement DC scheme. I'm becoming a little less enamoured with my brilliant (?) idea.

Brynsam

cloud_dog wrote: »

I've just looked up the current Group Personal Pension Plan contribution amounts and it appears the company has 'dumbed down' their contributions percentage in line with the introduction of the 'workplace pension', contributing 5.5%.

In the old days, prior to the introduction of the workplace pension the company used to contribute 12% for the replacement DC scheme. I'm becoming a little less enamoured with my brilliant (?) idea.

It was an idea worth considering, especially if you were more interested in having some flexibility than maximising pension income. But 5.5% is highly unlikely to buy you the same amount of pension you'd accrue if you stay where you are...

LHW99

You could always start your own personal pension or SIPP and pay into that alongside the company DB to give you a bit of flexibility

cloud_dog

As a result of a previous thread and coming to the conclusion that I lacked sufficient flexibility I started making additional contributions in to my DB AVC (DC) scheme. I have taken this option as I benefit from SS. I have also executed a partial transfer of this account in to my SIPP so as to prove I am able to transfer these funds without the need for pension transfer specialist advice.