Best DB pension scheme?

AlabamaW

NHS, Civil Service, LG, university...which is the best DB workplace pension? I'm in my 40's and thinking of looking for a new job. I have a transferable profession and have built up a decent D.C. pension but am trying really hard to save enough to retire at 55. Any thoughts? Happy to have lower salary for a really great pension. 

Dazed_and_C0nfused

You haven't told us what your definition of best is so impossible to say.

Youngest NPA?
Largest accrual?
Biggest standard PCLS?
Lowest contribution rate?
Biggest survivor benefits?
Linked AVC type arrangement allowing additional TFLS?
Most generous terms for transfer in of DC funds?

Universidad

AlabamaW said:

NHS, Civil Service, LG, university...which is the best DB workplace pension? I'm in my 40's and thinking of looking for a new job. I have a transferable profession and have built up a decent D.C. pension but am trying really hard to save enough to retire at 55. Any thoughts? Happy to have lower salary for a really great pension. 

Civil Service has arguably the best accrual rate - how fast you earn the pension.

Some public sector schemes have other advantages, like allowing you to put money into a DC portion and take more as a tax free lump sum (you get to take 25% tax free, but a few schemes count the value of your DB benefits in this calculation, letting you take more without paying tax on it - civil service is NOT one of these).

In most public sector DB schemes your benefits increase in line with inflation. A couple of schemes actually increase by slightly more than CPI each year. (TPS is one)

The police and fire service are about the only schemes still open that let you retire before state pension age, without reduction.

When it comes to Universities, be careful. There are two main schemes - TPS, and USS. USS is a very, very poor DB scheme in its current incarnation. Surprisingly, that's the one in play at the older, typically more prestigious universities. TPS on the other hand is still pretty good, though salaries are often lower in these instituations (they tend to be former polytechnics).

Marcon

AlabamaW said:

NHS, Civil Service, LG, university...which is the best DB workplace pension? I'm in my 40's and thinking of looking for a new job. I have a transferable profession and have built up a decent D.C. pension but am trying really hard to save enough to retire at 55. Any thoughts? Happy to have lower salary for a really great pension. 

You do realise you won't be able to draw your pension until at least age 57 (minimum pension age rises from 55 to 57 in 2028) - and that taking it so far before a scheme's retirement age means you'll have an actuarial reduction of around 40% to 50%?

All the public sector DB schemes are excellent, so possibly focussing on finding a job you'll really enjoy for the next decade or more would be a sensible compromise - or see if you can get a much better paid job in the private sector with hefty DC contributions.

Flugelhorn

Agree  with @Marcon the listed DB schemes are excellent BUT if you take it v early eg 57 there are big actuarial reductions, also you will not have a particularly long time in the job to build up contributions. eg the best of the NHS pensions were for those who had been in the organisation for 30+ years and didn't retire until 60 (in the old scheme) 

JoeCrystal

Bank of England wins on the lowest contribution rate as it is still non-contributory, although the accrual rate is only 1/95th of the average salary yearly. 

Sarahspangles

People keep telling me that taking a DB pension early with actuarial reduction doesn’t mean losing out financially, as you’re drawing about the same amount by the time you hop off your twig, it’s just spread over more instalments and a longer period. I haven’t validated this though.

However I’m still planning to use my DC pensions first, then draw my DB pensions (LGPS/NHS) when I can take them unreduced. I feel it will be easier to take temporary or part time contracts in my early 60s if I find I need more cash.  And if I do, I can pause drawdown and even pay more into the SIPP which holds my DC pot, whereas you can’t ‘switch off’ a DB pension already in payment even if that would suit you for tax purposes, plus you can’t replenish it. 

Pat38493

Sarahspangles said:

People keep telling me that taking a DB pension early with actuarial reduction doesn’t mean losing out financially, as you’re drawing about the same amount by the time you hop off your twig, it’s just spread over more instalments and a longer period. I haven’t validated this though.

However I’m still planning to use my DC pensions first, then draw my DB pensions (LGPS/NHS) when I can take them unreduced. I feel it will be easier to take temporary or part time contracts in my early 60s if I find I need more cash.  And if I do, I can pause drawdown and even pay more into the SIPP which holds my DC pot, whereas you can’t ‘switch off’ a DB pension already in payment even if that would suit you for tax purposes, plus you can’t replenish it. 

This is supposed to be the case as it's the duty of the pension trustees to ensure that everyone gets the benefits they are entitled to (at least on average as of course nobody knows when they will die in advance).

What you proposed is the classic and safer choice because I guess it will maximise your guaranteed inflation proof income when you are older.

If you run some modelling with your DC and DB funds, and depending on your numbers, you may find that theoretically you should be able to retire a bit earlier by taking the DB early and using the DB and DC together - this is mainly because the DB income kind of cushions you against SOR scenarios and makes you less likely to run out of money if there are bad financial losses in the first 5 years or so of your plan.  However on the flip side you don't have the psychological comfort of that guaranteed income in your last years.

This latter approach is also much more likely (but not guaranteed) to allow you to leave a significant legacy if you want to do so.

Silvertabby

JoeCrystal said:

Bank of England wins on the lowest contribution rate as it is still non-contributory, although the accrual rate is only 1/95th of the average salary yearly. 

During my LGPS days, I was often asked if that was the best pension they could have.

I used to reply that that while there were other pension schemes out there, the LGPS was one of the best because.......list benefits.

Couldn't really tell them that the LGPS was nowhere near as good as my AFPS75!

Universidad

Sarahspangles said:

People keep telling me that taking a DB pension early with actuarial reduction doesn’t mean losing out financially, as you’re drawing about the same amount by the time you hop off your twig, it’s just spread over more instalments and a longer period. I haven’t validated this though.

The civil service pension scheme currently has an actuarial reduction of about 40% if you retire ten years early, so a 10,000 pension becomes 6000 per year.

With that reduction then give or take, if you die before the age of 83, you'll take home more money by retiring early. If you die after age 83, you'll take home less over a lifetime. To the tune of about 4,000 per year, either direction.

This is supposedly cost-neutral, and in practical terms that's probably good enough, since when you will die is a guessing game that nobody wants to win. It certainly won't stop me retiring early!

Life expectency is currently 81-ish. However, on average retirees live to be older than the life expectency number. (Because there is still a slight skew downwards from deaths before retirement).

Sarahspangles

Pat38493 said:

If you run some modelling with your DC and DB funds, and depending on your numbers, you may find that theoretically you should be able to retire a bit earlier by taking the DB early and using the DB and DC together - this is mainly because the DB income kind of cushions you against SOR scenarios and makes you less likely to run out of money if there are bad financial losses in the first 5 years or so of your plan.

Fortuitously I’m in exactly this position from 60, because one of my db pensions falls under Rule of 85