Career average defined benefit

R

roytheboyo

Registered User
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Hi All,
I am hoping to be offered a public sector job (local authority) in which the pension will be career average defined benefit. I understand basically what that means, but can someone point me in the direction of calculations/comparison between this and the final salary defined benefit schemes.
Cheers,
Roy
 
Not being facetious, but what's the point?!

In any case, unless you know what your reckonable salary is going to be throughout the whole of your service, and at the date you retire, you won't be able to calculate it.

Under a final salary defined benefit scheme - such as most PS workers at present have, you get a pension entitlement of 1/80 for each year of service, up to a max of 40/80 if you serve 40+ years. And then when you retire your salary on pension will be 40/80 x Final salary. So if you get promoted in your last couple of years of service, you could get a much higher pension than you would have if you weren't promoted.

Whereas under a career average DB scheme, you still get 1/80 for each year etc... but your salary on pension will be 40/80 (assuming you work the full 40 years) x Average Salary. In this case being promoted for the last couple of years will earn you only a marginally higher pension...

Consider an example of someone who starts as an Executive Officer in the Civil Service, works for 40 years, and gets promoted every ten years:

Under a final salary DB scheme they will retire at point LSI1 of the Principal Officer scale at €100,446. So their pension will be based on 40/80 of €100,446 = €50,223.

The same person on a career average DB scheme will retire on the same final salary, but their pension will be (1/80 x 30,516 + 1/80 x 32,687.... etc), and a quick guesstimate is that their pension will be €32,292.

So in that specific instance the career average DB pension will be 36% lower than a final salary DB pension. But at the end of the day it's all a redundant exercise, the day of the final salary DB pension are gone.
 
Thanks Mandelbrot, your reply is much appreciated.
The point is that i am considering moving from a final sal DB to Av DB, for slightly higher salary. I am 28, so lets say i start on 50k, that 1/80 of 50k will be worth very little in 30-35 years time. As i understand it the younger i am the more the difference will be as inflation will be eating away at that 1/80 of 50k.
 
Well then I can see why it's not a redundant exercise.

But obviously pension is only one consideration.

What's more important from the financial point of view is the comparative salary prospects between the two jobs. If the new job is likely to improve your opportunities for progression to the extent that the average salary in that job may catch up with the likely final salary in the current one then it would go a long way to addressing the balance.
 
Inflation wont come into it. Your €50k in year one will be revalued in line with CPI up to your retirement date and the same for every other year.
 
My understanding of the Av DB was that your final salary would be calculated as an average of the max at your time of retirement of the grades you worked at all along your career taking into acount the number of years you worked at those grades

say 10 years grade 3 and 10 years grade 4 you get your final salary for pension purposes at 50% max of grade 3 plus 50% of max of grade 4

Its weird that youd be forced into the AV DB if you transfered from one PS/CS pension to another.

Will you have a break in service if you move, will you go straight from one to another? if you took the job that is?

When did you start are you a class a or d?
 
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