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

GunJack

JoeCrystal said:

shortseller09 said:

One word of warning, the employer could, at any point, close the DB scheme and replace it with some form of DC scheme.

However, I vaguely recall that the employer generally replaces the DB pension scheme with the DC contributions at levels much more generous than the bare auto-enrollment minimum. Still, I would love to know which company or organisation breadandbutter5 works for! 

Yeah, our dB is closing this FY, replacement DC is 9% employee 14% employer going forward

Flugelhorn

hyubh said:

Universidad said:

FIREDreamer said:

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

The state pension is already effectively means tested, as it is all taxable income. 

That's a strange thing to say. Insofar as your total income in retirement is such that the tax due is above your state pension amount, you can't say the state pension is being taxed away, unless you also claim you're not being taxed on other taxable income. Which doesn't make much sense.

Were the state pension become actually means tested, people won't be saying 'no big deal, it was effectively means tested already', as they become ineligible for it in the first place.

I feel it is means tested - if I had no other income then it wouldn't be taxed, If I was in the 20% band I would get 80% of it - in the 40% band I'll only get 60% of it 

Silvertabby

Flugelhorn said:

hyubh said:

Universidad said:

FIREDreamer said:

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

The state pension is already effectively means tested, as it is all taxable income. 

That's a strange thing to say. Insofar as your total income in retirement is such that the tax due is above your state pension amount, you can't say the state pension is being taxed away, unless you also claim you're not being taxed on other taxable income. Which doesn't make much sense.

Were the state pension become actually means tested, people won't be saying 'no big deal, it was effectively means tested already', as they become ineligible for it in the first place.

I feel it is means tested - if I had no other income then it wouldn't be taxed, If I was in the 20% band I would get 80% of it - in the 40% band I'll only get 60% of it 

I pay £250 per month tax (20% rate) from my total pension income, including the State pension.

I'd MUCH rather be in this position than pay no tax at all, ie have to live on less than £12,570 per year.

But even 60% of something is better than 100% of nothing 

Silvertabby

JoeCrystal said:

shortseller09 said:

One word of warning, the employer could, at any point, close the DB scheme and replace it with some form of DC scheme.

However, I vaguely recall that the employer generally replaces the DB pension scheme with the DC contributions at levels much more generous than the bare auto-enrollment minimum. Still, I would love to know which company or organisation breadandbutter5 works for! 

Yes, indeed - the accrual rates don't sound like public sector schemes, so it must be one of those VERY rare beasts - a private sector DB scheme that still accepts new joiners.

SarahB16

Silvertabby said:

JoeCrystal said:

shortseller09 said:

One word of warning, the employer could, at any point, close the DB scheme and replace it with some form of DC scheme.

However, I vaguely recall that the employer generally replaces the DB pension scheme with the DC contributions at levels much more generous than the bare auto-enrollment minimum. Still, I would love to know which company or organisation breadandbutter5 works for! 

Yes, indeed - the accrual rates don't sound like public sector schemes, so it must be one of those VERY rare beasts - a private sector DB scheme that still accepts new joiners.

I don't think it's right for me to take a guess at the name of the employer as that is for breadandbutter5 to share if they wish.  

However, I know of someone who works in the public sector and has a 1/80th accrual rate so I wouldn't rule out breadandbutter5 working in the public sector.  The employer is a very large public sector organisation that you will have all heard of. 

Silvertabby

SarahB16 said:

Silvertabby said:

JoeCrystal said:

shortseller09 said:

One word of warning, the employer could, at any point, close the DB scheme and replace it with some form of DC scheme.

However, I vaguely recall that the employer generally replaces the DB pension scheme with the DC contributions at levels much more generous than the bare auto-enrollment minimum. Still, I would love to know which company or organisation breadandbutter5 works for! 

Yes, indeed - the accrual rates don't sound like public sector schemes, so it must be one of those VERY rare beasts - a private sector DB scheme that still accepts new joiners.

I don't think it's right for me to take a guess at the name of the employer as that is for breadandbutter5 to share if they wish.  

However, I know of someone who works in the public sector and has a 1/80th accrual rate so I wouldn't rule out breadandbutter5 working in the public sector.  The employer is a very large public sector organisation that you will have all heard of. 

Public sector schemes used to have an accrual rate of 1/80th - but the largest ones, at least, have since switched to CARE accruals of around 1/50th.  

It may be the case that very senior members may have been able to opt to remain under the old rules - there's a lot going on at the moment - but that wouldn't apply to a new joiner such as OP.

NedS

FIREDreamer said:

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.

It's already heavily 'means-tested' through taxation where your other retirement income already uses your tax allowances:

Those on very low income: No tax, topped up with pension credit

Those on middle retirement incomes: 20% tax

Those on higher retirement incomes: 40% tax

Current fiscal drag due to freezing of income tax thresholds means more and more pensioners are already paying (more) tax. What additional means testing would you envisage?

breadandbutter5

shortseller09 said:

One word of warning, the employer could, at any point, close the DB scheme and replace it with some form of DC scheme.

Oh I didn't think about this...so I better be grateful while I still have it. Hopefully it won't be replaced anytime soon as we have a pretty strong union.

JoeCrystal said:

shortseller09 said:

One word of warning, the employer could, at any point, close the DB scheme and replace it with some form of DC scheme.

However, I vaguely recall that the employer generally replaces the DB pension scheme with the DC contributions at levels much more generous than the bare auto-enrollment minimum. Still, I would love to know which company or organisation breadandbutter5 works for! 

I fear saying the organisation would make me pretty identifiable (we're not that big!) but can confirm it's public sector.

NedS

hyubh said:

Universidad said:

FIREDreamer said:

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

The state pension is already effectively means tested, as it is all taxable income. 

That's a strange thing to say. Insofar as your total income in retirement is such that the tax due is above your state pension amount, you can't say the state pension is being taxed away, unless you also claim you're not being taxed on other taxable income. Which doesn't make much sense.

Were the state pension become actually means tested, people won't be saying 'no big deal, it was effectively means tested already', as they become ineligible for it in the first place.

I absolutely get that argument, but I take the view that by the time I reach SPA, I'm already using my full tax free allowance from my other taxable income (DB pensions that kicked in before SPA), so that additional SP income is being taxed at my prevailing rate.

Maybe if SP paid out at 60 and my DB's kicked in later at 65, I'd view it differently, but that's not the case for me so I do not find it a strange thing to say at all.

NedS

breadandbutter5 said:

shortseller09 said:

One word of warning, the employer could, at any point, close the DB scheme and replace it with some form of DC scheme.

Oh I didn't think about this...so I better be grateful while I still have it. Hopefully it won't be replaced anytime soon as we have a pretty strong union.

JoeCrystal said:

shortseller09 said:

One word of warning, the employer could, at any point, close the DB scheme and replace it with some form of DC scheme.

However, I vaguely recall that the employer generally replaces the DB pension scheme with the DC contributions at levels much more generous than the bare auto-enrollment minimum. Still, I would love to know which company or organisation breadandbutter5 works for! 

I fear saying the organisation would make me pretty identifiable (we're not that big!) but can confirm it's public sector.

Public Sector DB pension schemes will be the last to go, so hopefully you are safe for a while. Private sector DB's are almost all but gone, or at least closed to new members. Without doubt the Unions understand the value of them, and many of their members hopefully do too. My public sector pension scheme is worth at least a third of my salary, and some have suggested maybe approaching 50% of my salary the closer I get to retirement. The cost to remove and replace such schemes would be huge and is unlikely to happen overnight. They will more likely try to chip away at the benefits over time in a less noticeable way.