Defined benefit - Early leavers

A

An Amadan

Guest
Continuing on from the previous post re: defined benefit schemes, I have an opportunity to join one of these schemes (work for a semi-state body; first pension) very soon. It is apparent from the link given to Aileen Power's article in the SBP that I should count myself as one of the lucky ones. She says:

"If you are a public servant and have one of what are widely agreed to be the best pensions in the country - count yourself lucky. Public sector defined benefit schemes, also known as final salary schemes, provide a pension based on final salary and years of service. The maximum pension is two thirds of final salary, based on 40 years of full pensionable service."

My question is in regard to what happens if one leaves a defined benefit scheme early e.g. if I was only to stay with the company for another 3-5 years (which in the current working environment is very possible). Do the benefits of this type of scheme only become advantageous if one contributes to it for a long period? In this "early-leaving scenario" would I better off asking if the company could contribute at the same rate to a personal pension scheme (equity-based)?

It may be instructive to note that it is also possible that in a few years the company may dispense with the defined benefit scheme for defined contribution.

Any advice would be appreciated (or where to start looking).

An Amadan
 
DB Schemes....

tend to favour those that stay the term and give poor value for those that leave very early. Have a word with the trustees/advisors for the scheme. They will give you a better idea.
 
DB & early leaving

As already stated, a DB pension might for example promise two thirds final salary after 40 years. Therefore, if you leave after 20 years, you get one third etc. ie. one sixtyth of final salary for every year of service. (how do you spell that?? I mean one divided by sixty anyway!) It's still a very good deal no matter how short a period of service you have in my opinion.
 
An Amadan,

As far as I know, if you leave a commercial semistate db scheme (funded) early you have a number of options:

If you leave after two years you can defer your benefits;
this means that when you reach retirement age you can draw down a pension which is a proportion of the salary you were earning when you left based on the number of years you served. To the best of my knowledge this "leaving salary" is not indexed for general inflation or wage inflation. If inflation took off you could face a significant loss. Also as mentioned in another thread if the semistate is not around in 20 years (Irish Fertilisers etc) and the fund cannot fully meet its liabilities you may not get as much as you expected.

Another option is, if you are leaving to take up an other semi state (local authority, civil service health board) which offers a similar scheme. Some of these bodies operate a "knock for knock scheme " which means they might accept transferees together with their years service. If you are accepted you can transfer your service to the new scheme.

A third option is to get a transfer bond and transport the value of you pension into a third party pension fund. (Others who contribute to this discussion group are far more qualified to comment on this option). If your retirement date was a long way away and you took the view that the markets were going to perform well this might be the best option.

I hope this is of use to you. I am far from a pensions expert and would advice you to talk to the trustees of your prospective pension fund and also get your hands on the scheme booklet which outlines the benefits. Some of the best people to talk to in this regard are employees two to three years short of retirement or the pensions administrators in the company. I would also talk to an independent pensions advisor who would provide a better view of the "bigger picture".

Some of these schemes have "hidden" benefits in the form of "Spouses and Childrens" benefits and "Death in Service" benefits. It would be worth your while to find out about these as well.

Good luck in the new job,
ajapale
 
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