DB pension/MPAA and other issues...

C_Mababejive

Hi all,

ive been having a read on this and similar subjects and am just trying to clarify it.

I am a contributing member of a well funded 40/60 DB scheme.

When i have paid 40 years worth of contributions, is there any further point in being a contributing member as surely i will not accrue any further benefits?

My thoughts are that i should cease contributions after the 40th year and then start contributing into the same employers DC scheme??


RE the MPAA,,

If i am a DB pension scheme member and i take my full pension at age 60 , what happens to my MPAA? Can i still contribute upto 40k/ max earnings upto 40k pa?

My plan might be to take my full DB pension at 60 then continue to work and start paaying into the company DC scheme as a means of building a pot and also tax relief as i will be well into the 40% tax bracket.

Thanks all

NoMore

Taking a DB pension does not trigger the MPAA.

I would be more concerned about LTA issues as a full 40/60 pension depending on your salary could be taking a lot of LTA so piling s lot per year in a DC may not be the best idea, you need to check your own circumstances.

C_Mababejive

NoMore said:

Taking a DB pension does not trigger the MPAA.

I would be more concerned about LTA issues as a full 40/60 pension depending on your salary could be taking a lot of LTA so piling s lot per year in a DC may not be the best idea, you need to check your own circumstances.

Thanks,im just wondering how i can find out how much of the LTA ive accrued ... I guess the obvious answer is to ask my pension scheme administrator ? Im not sure how that accrual would be calculated as i dont have a pension pot as such in a DB scheme ?

Albermarle

The LTA on a DB pension is calculated at the point when you take it.
It is 20X the annual pension income+ any lump sum taken.
So assuming you have some approximate idea of what it will pay when you take it, you can estimate the LTA%.
If you take a reduced pension before the normal retirement age for the pension, then it is still only 20X the reduced pension.
DB pensions are treated very favourable by the LTA rules. In reality the multiplier should be more like 30X to be more comparable with a DC scheme.

C_Mababejive

Albermarle said:

The LTA on a DB pension is calculated at the point when you take it.
It is 20X the annual pension income+ any lump sum taken.
So assuming you have some approximate idea of what it will pay when you take it, you can estimate the LTA%.
If you take a reduced pension before the normal retirement age for the pension, then it is still only 20X the reduced pension.
DB pensions are treated very favourable by the LTA rules. In reality the multiplier should be more like 30X to be more comparable with a DC scheme.

Thanks so i have plenty of headroom. My LTA is likely to be about £600k.

hugheskevi

Are you sure you cannot accrue more than 40 qualifying years? Many 60ths schemes permit accrual up to 45 years.

Considerations should include differences in treatment between deferred and active pensions in ill health benefits, death benefits, survivor benefits, early access factors, and differences in revaluation Vs salary link.

ewaste

There are a number of Railway Pension Scheme sections that cap membership at 40 years. Employees can then usually join the Industry Wide Defined Contribution scheme if their employer offers it. 

If the OP reaches 40 years reckonable service before 60 their employer will have to offer an auto-enrolment option. 

Marcon

hugheskevi said:

Are you sure you cannot accrue more than 40 qualifying years? Many 60ths schemes permit accrual up to 45 years.

...and many don't, especially if the governing documents were first established under the old Inland Revenue maximum pension rules (2/3 final salary at the point of retirement ... which sounds so simple...!). Most were set up on this basis, because there have been so few new DB schemes in recent years and very few schemes have changed their rules to allow benefits to build up in excess of this. The only to know what your particular scheme does in this respect is to check.

C_Mababejive said:

When i have paid 40 years worth of contributions, is there any further point in being a contributing member as surely i will not accrue any further benefits?

But you might get the benefit of having your whole pension based on a higher pensionable salary depending on (a) whether you are getting any salary increases after you've done your 40 years (b) the definition of final pensionable salary in your scheme's rules and (c) whether there are any other reasons to remain an 'active' (as opposed to a deferred) member - or possibly even start to draw your pension at that point (check if there are any reductions for early retirement if you've not reached your scheme's Normal Retirement Date).