Pension Discussion

singhini

@Moneycraver05

I totally empathise with you OP. I too have a Final Salary Pension (aka: DB Pension) and worked at my company just 7 years and the latest forecast i got last week suggested i will receive £3,600 a year pension.
To me it looks a bit rubbish, especially when i compare it to the current Cash Equivalent Transfer Value (CETV) stated on the form which is £104,000
At £3,600 a year it will take 29 years to amass the £104,000 

I suspect in both of our cases we are looking at the numbers from an emotional perspective, However, just remember final salary pensions ARE the gold standard and people don't give them up lightly and even i'm not planning on taking the CETV of £104,000 just yet (i/we both need to do more thinking and understanding of our schemes in full and understand all the attached benefits i suspect).

In your case you might want to look at it like this: you paid in £1,400 a year for 4 years and you will (at todays valuations) get back £1,400 a year so that's 4 years to get your money back (happy days). From year 5 onwards its pure gravy (i suspect you will get 15-20 years of gravy).
Another way to look at it is: total of £20,000 invested with £1,400 pension, so that's 14 years and thereafter its gravy (not 29 years like mine). 14 years is still excellent IMHO

A couple of points to note:
(1) your accural rate of 1/48th sounds brilliant (ive never seen it that good, mines 1/60th and ive heard of 1/80th). 
(2) £20,000 probably gets you about £800 a year pension if it was in a SIPP and you wanted to buy an annuity with it (back of a fag pack analysis). 
(3) generally moving a pension may require taking financial advice which will cost money (fag pack analysis i would say minimum of £4,000/£5,000 on your £20,000). Therefore you wouldn't have £20k to put into a SIPP. In your case your going to be taxed and likewise it won't be the full £20,000 your getting.
(4) you haven't said how old your are / how far from retirement you are, and so if that's still a few years away i would look into your scheme and really try to understand it better.

NoMore

There's a dedicated pension forum on this site, which is probably are more appropriate place for this discussion

jimjames

Moneycraver05 said:

Dazed_and_C0nfused said:

Moneycraver05 said:

I am just wondering what other people's takes are on university pensions?

I worked in a university from 2018-2023 an paid in to their pension scheme for 4 years of this. I contributed 6.5% and my employer contributed 16.9% approx (great!... or so I thought!).

After doing some lengthy research, I think I may have finally grasped that unlike other pensions, none of the above mentioned contributions actually mean anything as all I was paying for was a 'membership' which is only beneficial to me if I had stayed with the university for 10 years or more realistically. 

I am now employed by another university, who's pension seems to operate the same. I gather this is a university thing across the board?

If so, I am considering opting out of this pension having paid in for 19 months. I would be refunded my contributions less tax, which I would then put into a Vanguard SIPP. 

Does anybody have similar experience and maybe can provide their input here?

I was told to go to Pension Wise however they state they cannot give personal financial advise and so it seems a bit pointless to wait 4 weeks for an appointment for them to not be able to help in any way.

You really shouldn't do that, if you are insistent on leaving the pension (within 2 years of joining) then you should opt for a transfer out.

You will then avoid paying the (non refundable) tax and find you get the employer contributions included as well.  The difference is likely to be significant.

But why not try and learn what a defined benefit pension actually is.  I have no idea why you think 10 years is relevant, you get a pension based on the scheme rules.  Think of it more like deferred salary.

Leaving a defined benefit pension should not be done lightly. USS (is that your scheme?) might not be as good as it once was but DB pensions are generally the type of pension people will move job to be able to join, leaving it when you can remain a member is an unusual choice and, with all due respect, likely to be more about your lack of knowledge, not the pension being poor.

Of course, there may be something I am missing however the pension provider (both by email and in my account calculations) have stated the above which has prompted me to ask for other people's experiences really. I'm still convinced I must be misunderstanding as it seems a bit of a scam on the face of it.

It really isn't a scam, quite the opposite and really down to lack of understanding if you think that. DC pensions with a pot will go up and down, you'll never know how much you get back. DB pension will offer a guaranteed pension every year for life and you'll know exactly what you will be getting (subject to inflation increases)

jimjames

singhini said:

@Moneycraver05

I totally empathise with you OP. I too have a Final Salary Pension (aka: DC Pension)

It's actually known as a DB pension. A DC pension is very different and a pot you contribute to that has no final salary link.

Marcon

Moneycraver05 said:

Dazed_and_C0nfused said:

Moneycraver05 said:

I am just wondering what other people's takes are on university pensions?

I worked in a university from 2018-2023 an paid in to their pension scheme for 4 years of this. I contributed 6.5% and my employer contributed 16.9% approx (great!... or so I thought!).

After doing some lengthy research, I think I may have finally grasped that unlike other pensions, none of the above mentioned contributions actually mean anything as all I was paying for was a 'membership' which is only beneficial to me if I had stayed with the university for 10 years or more realistically. 

I am now employed by another university, who's pension seems to operate the same. I gather this is a university thing across the board?

If so, I am considering opting out of this pension having paid in for 19 months. I would be refunded my contributions less tax, which I would then put into a Vanguard SIPP. 

Does anybody have similar experience and maybe can provide their input here?

I was told to go to Pension Wise however they state they cannot give personal financial advise and so it seems a bit pointless to wait 4 weeks for an appointment for them to not be able to help in any way.

You really shouldn't do that, if you are insistent on leaving the pension (within 2 years of joining) then you should opt for a transfer out.

You will then avoid paying the (non refundable) tax and find you get the employer contributions included as well.  The difference is likely to be significant.

But why not try and learn what a defined benefit pension actually is.  I have no idea why you think 10 years is relevant, you get a pension based on the scheme rules.  Think of it more like deferred salary.

Leaving a defined benefit pension should not be done lightly. USS (is that your scheme?) might not be as good as it once was but DB pensions are generally the type of pension people will move job to be able to join, leaving it when you can remain a member is an unusual choice and, with all due respect, likely to be more about your lack of knowledge, not the pension being poor.

Hi,
Thank you for your response.
I'm not sure if you're familiar with university pensions? Just that i've done research over the past few weeks due to my lack of understanding in general and sadly they do not work in the same way (whereby you build a pension pot with a deferred salary so to speak). My scheme isn't USS but another similar scheme tailored to my university.

Unfortunately for this reason, it's not possible to transfer out and there are no funds to transfer out (which makes me feel sick to say). Basically, i'm paying for a 'membership' to a pension scheme rather than building a pot. This 'membership' comes with 'benefits' of 1/48th of my annual salary. Having looked at the calculations of my pension with my previous employer, Between me and my employer, we paid in approx. £5000 over the first year. In this same year, I have been given 'benefits' of £340 (equal to 1/48th of my salary). In the following year, I accrued the same and so my annual pension went up to £700ish. The same happened for the following two years and so my annual pension for 4 years, is apparently just shy of £1400 / year for 4 years (even though, myself and my employer paid in £20000). This is why I mentioned 10 years - it was just a random number but I was basically saying that it would benefit me if I stayed with the same employer due to the accrual of 'benefits' but they're currently threatening redundancies which means I likely won't be with them for even the next year.

Of course, there may be something I am missing however the pension provider (both by email and in my account calculations) have stated the above which has prompted me to ask for other people's experiences really. I'm still convinced I must be misunderstanding as it seems a bit of a scam on the face of it.

Thank you once again for your response.

Many universities set up their own defined benefit schemes for non-academic staff, and if you have an accrual rate of 1/48th, that's fantastic. As for transferring out - why on earth would you want to? But you certainly could, and have a statutory right to do so until you are within one year of reaching your scheme's Normal Retirement Age.

You are misunderstanding something which is a massive perk of your job. Have a look at https://www.moneyhelper.org.uk/en/pensions-and-retirement/pensions-basics and that might help you get your head round what is clearly befuddling you completely at present. Have you read the scheme booklet (or online information) provided by your employer to explain the scheme?

That said, I've rarely come across anyone who is quite so confused, and the fact that you are still confused after doing 'lengthy research' suggests you might need something in addition to 'yet more reading'. Have you spoken to your HR department, especially the Pensions Officer (most universities still have one), and told them your 'take' on the pension scheme you are currently struggling to appreciate? It's costing your employer a lot of money, and they need to know that not all employees recognise the best pension scheme they are ever likely to join! See if they would be willing to arrange a pension seminar or similar for employees who are in this scheme (rather than USS) - or at the very least review their pension communications to employees.

singhini

@jimjames
Well spotted, thanks (ive updated my post) 
Note to self: don't write email in the middle of the night!

Fink_Nottle

Moneycraver05 said:

I worked in a university from 2018-2023 an paid in to their pension scheme for 4 years of this. I contributed 6.5% and my employer contributed 16.9% approx (great!... or so I thought!).

I always find it a bit odd when employers brag about how much they contribute to a DB pension. Perhaps they're obliged to do this, but it's not especially useful to the average future pensioner (and I wonder if this had added to the OP's confusion a little).

The important numbers for me are (were) what do I pay and what do I get for that? And then, is it good value? In my case, my two DB schemes were terrific value, and I'm pleased to have them.

(One of them went through a period where shortfalls were substantial, and the employer had to chuck more cash in, showing the irrelevance of their original claims of paying in x% on my behalf).

The OP's first pension (@ 1/48) looks like excellent; the other one (@ 1/80), obviously not as good, but I'd still bite their hand off.

Marcon

Fink_Nottle said:

Moneycraver05 said:

I worked in a university from 2018-2023 an paid in to their pension scheme for 4 years of this. I contributed 6.5% and my employer contributed 16.9% approx (great!... or so I thought!).

I always find it a bit odd when employers brag about how much they contribute to a DB pension. Perhaps they're obliged to do this, but it's not especially useful to the average future pensioner (and I wonder if this had added to the OP's confusion a little).

The important numbers for me are (were) what do I pay and what do I get for that? And then, is it good value? In my case, my two DB schemes were terrific value, and I'm pleased to have them.

(One of them went through a period where shortfalls were substantial, and the employer had to chuck more cash in, showing the irrelevance of their original claims of paying in x% on my behalf).

The OP's first pension (@ 1/48) looks like excellent; the other one (@ 1/80), obviously not as good, but I'd still bite their hand off.

In these days of mainly DC provision, employees get very hung up on how much the employer pays in, and unfortunately fail to understand the value they are getting from a DB scheme - as this thread demonstrates with ghastly clarity.

Knowing that the employer has to lob in a very hefty slug of cash is the only way many people will get any sort of grasp on how valuable a DB pension is. Even then any employer contribution is misleading, since the figure they see is a composite based on the whole pensionable payroll, rather than being applicable to them personally. The older you are the more valuable a DB scheme is...and pretty much any DB scheme is fantastic value for the employee. There are schemes around with a 1/120th accrual rate and an employee contribution in double digits - and the employees are more than delighted with the deal.

SacredStephan

Marcon said:

There are schemes around with a 1/120th accrual rate and an employee contribution in double digits - and the employees are more than delighted with the deal.

And by comparison, the NHS 2015 Scheme has an accrual rate of 1/54th and an employee contribution in single digits and some employees still opt out.

Marcon

SacredStephan said:

Marcon said:

There are schemes around with a 1/120th accrual rate and an employee contribution in double digits - and the employees are more than delighted with the deal.

And by comparison, the NHS 2015 Scheme has an accrual rate of 1/54th and an employee contribution in single digits and some employees still opt out.

Depends on earnings. Contributions edge into double digits for those earning close on £50K and above: https://www.nhsbsa.nhs.uk/member-hub/cost-being-scheme

It's a pity that the days when employers could make pension scheme membership a condition of employment (abolished in 1988) are long gone!