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

Bostonerimus1

SarahB16 said:

Bostonerimus1 said:

Universidad said:

Bostonerimus1 said:

if you always got annual pay increases less than inflation and then your pension is uprated by a bigger amount then CARE will be ok. But it says something about the way pensions and wages have been eroded if that's the case.

I recently took a look at my own pension expectations and reality in light of this, and I wouldn't have described the CARE pension that replaced the FS pension as "ok" by comparison; it was markedly worse. However, the degree of difference is certainly masked by the years of salary supression.

I think the reality is that a salary average that takes inflation into account is going to be worse than a FS calculation that has had both inflation increases already baked in along with those due to promotion. CARE is a way to reduce pension amounts. My scheme went from single year maximum salary to 3 year peak average in a contract negotiation to mitigate health insurance cost increases.

Final salary pension schemes would simply be based on your final salary and unfortunately for many there are no inflation increases baked in.  What they are seeing is their salary increase by less than CPI inflation which therefore means (assuming no promotions/significant salary uplift) their forecast pension being eroded in real terms as the salary they leave on is worth less in real terms and that is what their final salary pension scheme is based on.  

For many in career average pension schemes their pension benefits will have recently increased by 10.1% but their salary won't which means that for those people in career average pension schemes they are better. 

It all depends on whether your salary keeps up with inflation as to whether you are better off or not.  

It's a sad story when you can work somewhere and what you get paid goes down in "real terms" the longer you've been there. Falling behind inflation is obviously an issue for many public servants and if there are no promotion or experience increases either you can see why so many are annoyed and leaving. Having a CARE pension be better  than FS says more about poor salaries than good pensions.

ewaste

I think the main exception would be the CARE Schemes with an active member revaluation rate above CPI e.g. the NHS with a CPI+1.5%. Although many roles in the public sector have a progressive pay scale. Therefore as per usual older members at the top of band benefit more than younger members progressing through their career. 

Bostonerimus1

ewaste said:

I think the main exception would be the CARE Schemes with an active member revaluation rate above CPI e.g. the NHS with a CPI+1.5%. Although many roles in the public sector have a progressive pay scale. Therefore as per usual older members at the top of band benefit more than younger members progressing through their career. 

Looking back at the OP and they say they have a "final year salary" pension. Maybe this has been discussed along the way, but the OP should definitely find out if they are in a true FS scheme or if some salary averaging is involved.

ewaste

Bostonerimus1 said:

Looking back at the OP and they say they have a "final year salary" pension. Maybe this has been discussed along the way, but the OP should definitely find out if they are in a true FS scheme or if some salary averaging is involved.

Indeed, the other things they need to look for are the common cost control measures like a Pensionable Pay Cap. Many schemes still advertise themselves as Final Salary but scratch the surface and it's a very different story. 

Andy_L

Bostonerimus1 said:

SarahB16 said:

Bostonerimus1 said:

swindiff said:

Mine is currently only 1/85th and CARE. No definitive source hence my comment not sure.

My DB was final salary and then went to average salary of final 3 years, which is better than career average, but companies are looking to reduce pensions when they can and will without employee and union push back.

If you don't mind me saying I don't think we can generalise and say that final salary is better than career average. 

For example, if somebody does not receive pay rises which exceed CPI inflation (and this is the case for the majority of people in the public sector) then career average would provide a higher pension. 

Of course, if you progress to more senior posts and receive a higher salary then yes you would be better with the final salary. 

Sure, if you always got annual pay increases less than inflation and then your pension is uprated by a bigger amount then CARE will be ok. But it says something about the way pensions and wages have been eroded if that's the case. When I worked in US government service people generally progressed up the "GS" levels with experience and so got annual inflation rises and regular job progression and associated wage increases, so "final salary" would always be better than career average, even if it was uprated for inflation.

Don't know what its like in the US Gov but, over here organisations generally have a decreasing number of people at the higher levels (sometimes with a bit of a blip at certain levels) so its not possible for most people to keep progressing up the grades and spine point increase for those who don't promote either don't exist (eg the Civil Service) or stop after a few years

Andy_L

ewaste said:

I think the main exception would be the CARE Schemes with an active member revaluation rate above CPI e.g. the NHS with a CPI+1.5%. Although many roles in the public sector have a progressive pay scale. Therefore as per usual older members at the top of band benefit more than younger members progressing through their career. 

or a CARE scheme that accrues at a faster rate than the DB scheme.

Bostonerimus1

The US Federal Government has General Service levels ie GS. There are 15 levels and 10 steps within each level. Going up a level is a significant promotion where you will take on more responsibility, going up a step is relatively common and you get that for experience and good work. If you get to step 10 then you will go up a level if you keep working well. As a PhD I started at GS12-3. You get annual cost of living increases as well as the salary increases that go with a higher GS level/step.

https://www.opm.gov/policy-data-oversight/pay-leave/pay-systems/general-schedule/

GrubbyGirl_2

My NHS Pension is based on 1/80th of final salary X years in post.  In 40 years time you will be earning much more than you do now.  Just to give you an idea my current pension is 10 times my first years salary as my final salary was 20 times my first years salary.  You can't beat a final salary pension especially of you stay in the same firm and are ambitious

Andy_L

Bostonerimus1 said:

The US Federal Government has General Service levels ie GS. There are 15 levels and 10 steps within each level. Going up a level is a significant promotion where you will take on more responsibility, going up a step is relatively common and you get that for experience and good work. If you get to step 10 then you will go up a level if you keep working well. As a PhD I started at GS12-3. You get annual cost of living increases as well as the salary increases that go with a higher GS level/step.

https://www.opm.gov/policy-data-oversight/pay-leave/pay-systems/general-schedule/

Totally unlike the UK civil service then. 

german_keeper

As a civil servant who wasn't promoted between 1993 and my retirement in 2022, and who suffered a salary drop of over 20% compared to CPI in the period since 2010, I don't even want to work out how much higher my pension would be if I had been in an Alpha type scheme my whole career rather than the Classic scheme. Even with NPA of 67 and actuarial reduction applied it would have been much higher. But with NPA of 60 in career average with annual CPI increases? Blimey it doesn't bear thinking about. So final salary is not best for everybody.

Still I managed to partially retire at 54 and fully retire a week before my 58th birthday so can't complain too much.