Pension Sweet Spot (40% tax)

MEM62

michaels said:

If it were removed it would make the unequal treatment of final salary schemes that are not treated as sal sac even more stark as the amount one would need to invest each year to purchase the equivalent annuity is absolutely vast.

It's a fair point but there cannot be many FS schemes left.  The are just not sustainable.  Back when I was in my early 20's I worked for a company with a final salary scheme for just under 4 years.  When I reach 65 that pension is going to pay out £5k per year.   

michaels

MEM62 said:

michaels said:

If it were removed it would make the unequal treatment of final salary schemes that are not treated as sal sac even more stark as the amount one would need to invest each year to purchase the equivalent annuity is absolutely vast.

It's a fair point but there cannot be many FS schemes left.  The are just not sustainable.  Back when I was in my early 20's I worked for a company with a final salary scheme for just under 4 years.  When I reach 65 that pension is going to pay out £5k per year.   

Tell me about it, my boss who has just retired was similar less than 10 years of DB at the start of his career, I worked out that the value of the FS scheme he is getting would have cost more to purchase as a DC than he was likely paid at the time.


Still a lot of DB in the public sector

ratechaser

MEM62 said:

michaels said:

If it were removed it would make the unequal treatment of final salary schemes that are not treated as sal sac even more stark as the amount one would need to invest each year to purchase the equivalent annuity is absolutely vast.

It's a fair point but there cannot be many FS schemes left.  The are just not sustainable.  Back when I was in my early 20's I worked for a company with a final salary scheme for just under 4 years.  When I reach 65 that pension is going to pay out £5k per year.   

Yep, same here, except that I got all of 9 months in my employers DB scheme and that should be worth over £3k a year at age 60. There are people at my current bank retiring after 30 years in the old DB scheme (that's been closed to new people for over 20 years) and they'll be on six figure pensions, despite not being particularly senior in the organisation.

Like gold dust... I was briefly tempted with a high looking CETV but why give up the security/backbone that even a relatively small DB pension can help to provide...?

Anonymous101

I'm always amazed when I hear about the generosity of modern DB schemes. LGPS for example. When I hear stories like those above I always wonder what the providers were thinking at the time. What assumptions were they using to think that these schemes were sustainable? Obviously life expectancy has increased so that could be a factor but what else?

ratechaser

Anonymous101 said:

I'm always amazed when I hear about the generosity of modern DB schemes. LGPS for example. When I hear stories like those above I always wonder what the providers were thinking at the time. What assumptions were they using to think that these schemes were sustainable? Obviously life expectancy has increased so that could be a factor but what else?

Well with the public sector, the traditional view was you earned less in salary than you could make for a comparable job in the private sector. But in return you were compensated with better pension arrangements as a thank you for your public service (and sometimes with honours/titles as well).

So the slightly romantic take on this is that it is a social contract rather than one based entirely on actuarial calculations. Governments can always put another penny or two on income tax to bridge the gap. Given the sentiment towards the NHS right now, almost surprised it's not been mooted...

I was going to add that my kids will be the ones bearing the brunt of this, as I'll be retired on a beach somewhere before too long. But the reality is that it just means that the Bank of Mum and Dad will be operational for longer, so no escaping it really...