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

Flugelhorn

Silvertabby said:

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 

true - I'll be paying over £300 / month on the state pension alone  - I've paid over 90K in NI, will take 15 years to break even

Bostonerimus1

GunJack 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! 

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

I took a US government job because it had a DB plan. I contributed 9% and there was a 10 year vesting. The average of the final 3 years of service is used to calculate the pension amount with the multiplication percentage chart below. So the OP has a lower contribution than my plan and using the final year salary is also probably better than the final 3 year average my scheme uses. The multiplier on my scheme is slightly better that the OP's scheme early on, but the real benefit kicks in the longer your service and maxes out at 80% of salary whereas the OPs practical max looks to be ~55% ie after 45 years. Of course some of that will be offset by the 3/80th lump sum that the OP will probably get in addition to the pension amount...I think they are a bit confused about that in their initial post so that will be a nice realization for them.

The OP has a good benefit and it can definitely form the foundation of a comfortable retirement and the low employee contribution of 6% should allow them to make additional investments elsewhere to diversify and strengthen their finances.

Albermarle

 Private sector DB's are almost all but gone, or at least closed to new members.

Just to finalise the case for the OP's pension, it is worth pointing out that the reason why nearly all private sector DB schemes have been closed, is because the employers found them far too expensive to fund.

FIREDreamer

NedS said:

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?

No state pension if over £16k in savings or a pension over £25,000 per year or whatever they fancy.

No state has done this yet, but I don’t trust Labour. Never have.

Universidad

FIREDreamer said:

No state pension if over £16k in savings or a pension over £25,000 per year or whatever they fancy.

No state has done this yet, but I don’t trust Labour. Never have.

I know why you'd be concerned about this kind of in depth asset-based means testing, but in my opinion it is very unlikely to happen, for a whole bunch of reasons.

1) That kind of means testing is very expensive. It does not make sense to do it for a benefit to which the vast majority of people will be entitled, unless you intend to claw back money from the vast majority of people making claims.

2) If you intend to claw back money from the vast majority of people making claims, it makes more sense to do this by means that are less invasive/expensive. (Such as by increasing the tax burden - which is a thing we are seeing - watch this space for what happens when the state pension goes above the personal allowance!)

3) Meanwhile, if you do in depth means testing but only skim off the top of the richest people in society, then you just cost the country a lot of money, for no real benefit.

4) The state pension, while technically a benefit, is unique in that it is an earned entitlement. You can fill in missing years of NICs to buy more pension. Any government that chose to take away such an earned entitlement would be open to serious challenge in both the courts and the poll booths.

5) If you take too much money from the rich, they find ways not to pay.

6) If you take too much money from the middle, you erode the middle class, and once people can't aspire to better conditions they stop making the effort and, in many cases, simply retire earlier. This puts them right into the "economically inactive" category that you were hoping to reduce.

7) If you take too much money from pensioners, they start to cost the country more, not less. Their health needs increase, their reliance on other benefits increase, they start to pull working age people out of work and into part time care situations. 

These are all terrible, somewhat avoildable, outcomes for the country.

The problems associated with an aging population are real, and there will be discomfort particularly as the boomer generation passes through the python. But a lot of people don't realise that many seemingly obvious solutions are actually more expensive, and exacerbate the problem rather than resolving it.

german_keeper

No state pension if over £16k in savings or a pension over £25,000 per year or whatever they fancy.

No state has done this yet, but I don’t trust Labour. Never have.

Jeremy was hounded out ages ago, it's back to Tory Lite. No need for the red scare tactics any more.

Silvertabby

german_keeper said:

No state pension if over £16k in savings or a pension over £25,000 per year or whatever they fancy.

No state has done this yet, but I don’t trust Labour. Never have.

Jeremy was hounded out ages ago, it's back to Tory Lite. No need for the red scare tactics any more.

Are you sure about that?  My theory is that if Labour do get in, Starmer won't even have had time to unpack before being kicked out the back door by his Momentum approved replacement.

FIREDreamer

german_keeper said:

No state pension if over £16k in savings or a pension over £25,000 per year or whatever they fancy.

No state has done this yet, but I don’t trust Labour. Never have.

Jeremy was hounded out ages ago, it's back to Tory Lite. No need for the red scare tactics any more.

Good riddance too. A very unpleasant human being. Going off topic now anyway.

theoretica

Something I am not sure has been explicitly mentioned is that final salary schemes look really good after a promotion or above inflation pay rise - the 6% you paid on your starting salary then gives you 1/80th of the higher salary.

swindiff

It will likely be career averaged not final salary. Not sure there are any final salary schemes left.