Can someone please help me figure out if my defined benefit pension is any good?

Albermarle

breadandbutter5 said:

leosayer said:

It is a very good deal.

If a bank offered to pay you £362 per year for 20+ years at a one-off cost to you of £2,000 would you take it? You'd be mad not to. 

I definitely would but I doubt I will live for anywhere near 20 years from state pension age in 40 years from now. I'd be lucky if I get to 10.

The state pension age is 68 right now and the average life expectancy is 80 (been decreasing over the past few years). That's 12 years...

However they will keep rising the state pension age over the next 40 years and I doubt the life expectancy will increase much. Maybe I've got a very negative outlook on things but something about not even knowing if / when I'd be able to access this pension doesn't sit well with me.

As explained by others this is a very pessimistic outlook. Maybe being young you assume that most older people drop dead earlier than they do.

In fact when it comes to pensions there are two mistakes that a lot of people make.

One is not saving up enough money ( or in your case building up enough 1/80ths)

The second is underestimating how long they will live.

Possibly a third one is being unduly pessimistic about state pension provision in future. ( Older people vote in greater numbers than younger ones, so no Govt wants to reduce it, in fact the opposite has been happening)

Linton

The benefit is liekely to be £x per year or something less than £x per year with a tax free lump sum. That is very common.

ewaste

Possibly a third one is being unduly pessimistic about state pension provision in future. ( Older people vote in greater numbers than younger ones, so no Govt wants to reduce it, in fact the opposite has been happening)

It's been increasing for those in payment but for later generations it makes the system increasingly unsustainable. Current and future generations are paying increasing amounts in tax without seeing the benefits. Unfortunately once increased the increases are essentially locked in therefore economic growth or pushing the state pension age back are levers to reduce the cost. The Intergenerational inequalities are vast and widening, that's only likely to continue as the 'grey vote' protect their interests.

leosayer

breadandbutter5 said:

Thank you everyone for your helpful comments. I think I learnt I was wrong with a lot my assumptions and it seems that my pension is indeed as good as they say. Thanks again!

You did more than most which is to ask the question and listen to the answers.

It took me until my late 30s to realise how valuable my firm's DB scheme was - I only looked at it in detail when they took it away and discovered I would have to pay around 30% of my salary into new (DC) scheme to replicate it.

af1963

Although the state pension has been going up because of triple lock, fewer people each year are becoming eligible for higher pensions because of SERPS/SSP.  Those who had earned a lot of SERPS/SSP before 2016 will still receive what they'd built up, but nobody has been accruing additional pension since then.  This reduces the overall cost of providing the pension in the long term.

If anyone wants to see the likely electoral result of any government proposing to reduce state pensions, or drastically increasing the qualifying age in the way suggested ( from 68 to 80) - take a look at what happened to the Lib Dem vote among students after raising tuition fees.  Except this would be worse for the party proposing it, because pensioners mostly vote and students mostly don't.

amanda1024

Possibly a third one is being unduly pessimistic about state pension provision in future. ( Older people vote in greater numbers than younger ones, so no Govt wants to reduce it, in fact the opposite has been happening)

I'd say this is realistic rather than pessimistic. Precisely *because* older people vote in greater numbers (and are more likely to vote for the current lot https://www.theguardian.com/politics/2019/dec/21/age-not-class-is-what-divides-british-voters-most), the value of the state pension is being maintained/boosted, but the age of entitlement continues to go up, which affects younger people rather than older people (who are already entitled). This is sometimes contrary to the trend in life expectancy, which went down in 2020 https://analytics.phe.gov.uk/apps/chime/#Life expectancy - no sign of a commensurate reduction in state pension age! For those of us whose work pension is tied to the state pension age, it's a double-whammy.

For OP - your defined benefit *is* a good deal (despite pessimism about state pension age), but if/when you can afford it, it would be worth investing in other retirement options too - e.g. SIPP, potentially Lifetime ISA.

dunstonh

sometimes contrary to the trend in life expectancy, which went down in 2020 https://analytics.phe.gov.uk/apps/chime/#Life expectancy - no sign of a commensurate reduction in state pension age! 

There wouldn't be as the state pension is reviewed every 5 years.   Not every year.   If four of the 5 years it increased and 1 reduced, then it would be the net position that would be considered.

Bostonerimus1

Your DB pension looks good and it will be an excellent benefit if you stay working where you are now for a long time. You should also be contributing to an ISA and given your 6% DB salary contribution I think you should put 10% into the ISA, I assume you won't get to the max contribution. 

LHW99

dunstonh said:

sometimes contrary to the trend in life expectancy, which went down in 2020 https://analytics.phe.gov.uk/apps/chime/#Life expectancy - no sign of a commensurate reduction in state pension age! 

There wouldn't be as the state pension is reviewed every 5 years.   Not every year.   If four of the 5 years it increased and 1 reduced, then it would be the net position that would be considered.

And I believe there is a commitment to give 10 years notice of any changes? If so the likely lead in to any future changes would be at least 15 years.

FIREDreamer

dunstonh said:

I would hope so but it's a gamble isn't it .. In my mind the fact that it's linked to the state pension age (at the date of retirement) is not very favourable. That age is 68 now and it could well be 80 in 40 years' time?

No its not a gamble.  The whole point of a defined benefit pension is that it pays you defined benefits.

If state pension age is 80 in year forty years time, it means life expectancy has gone up another 13 years.  Why do you consider living longer a problem?

I definitely would but I doubt I will live for anywhere near 20 years from state pension age in 40 years from now. I'd be lucky if I get to 10.

Do you have medical conditions that you are going to live significantly less than average life expectancy?
If you don't have any current medical conditions but are paranoid about life expectency, then you could take out life assurance.   With a low pension contribution of 6%, you have excess funds available that you could divert to that

The state pension age is 68 right now and the average life expectancy is 80 (been decreasing over the past few years). That's 12 years...

Where are you getting your figures from?  - they are wrong.
Depending on your age and gender, average life expectancy will be around 87.     A quarter will make 94,  And around 1 in 10 will make 99.

However they will keep rising the state pension age over the next 40 years and I doubt the life expectancy will increase much. 

Not correct.   State pension age is largely aligned with life expectancy.

I am more worried about Labour means testing the state pension. Their own demographic won’t be affected by that to the same degree.