Defined Benefit Pension and Standard Fund Threshold

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Tom189

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I'm on a Defined Benefit Pension. It's a Final Salary Scheme with an accrual rate of 1/60 for each year’s membership, therefore 40 pensionable years gives an annual pension which is 2/3’s of the pensionable salary. I'll have completed 40 years when I reach 65. Currently, the pension fund is very healthy.

For argument's sake, if I stay with the company until the age of 65 and have a final salary of €110K, my pensionable salary will be approximately €66K,

Annual Pension value = 1/60 x €66,000 x 40
However, €66,000 x 40 = €2,640,000 which exceeds the Revenue limit of €2,000,000.

If I decide not to take a lump sum payment, is the maximum annual pension value €2,000,000 / 60 = €33,333 ??

Sorry if the question is a bit basic, I don't know too much about the workings of pensions.

Thanks
 
Not sure where your numbers are coming from. If your pensionable salary is €66,000, you are entitled to a pension of €44,000 with 40 years service. To get the value of that, you need to:

1. Work out retain pension benefits up to 31/12/2013. Multiple the value of the pension accrued to that date by 20.
2. Work out value of pension benefits from 01/01/2014 to age 65. Multiple the value of that pension by 26.
3. Add the two values together and you have the value of your pension.


Steven
www.bluewaterfp.ie
 
the 2m limit isn't a cap on the pension size. it just means amount retired in excess of that are taxed heavily. For DB's they actuarially reduce the pension to pay the tax due at retirement.

if the pension payable at retirement is 44k you don't have anything to worry about as on first principles the capital value is 44k X 26 = 1.144m. Any AVCs would be added to this aswell.
 
Presumably if you have a DC pension fund plus deferred db pension (pre 2014) it’s DC pot + DB x 20?
 
Zebedee said:
Presumably if you have a DC pension fund plus deferred db pension (pre 2014) it’s DC pot + DB x 20?
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Correct, but the multiplier for the DB varies depending on a range of factors, such as retirement age, type of pension etc.
 
Thanks for your response. I had thought pre 2014 accruals had a flat factor of 20. I must look up the legislation again. Thanks.
 
Zebedee said:
Thanks for your response. I had thought pre 2014 accruals had a flat factor of 20. I must look up the legislation again. Thanks.
Click to expand...
Correct. But post 2014 accruals are valued based on retirement age. So a 26:1 for retirement age 65 or a higher factor for earlier ages.
 
Thanks. My deferred db service accrued up to 2002 (the glory days of db!). The rest is dc.
 
Strictly speaking the post 2014 revalutation will have the higher factors applying, even on pre 2014 service.
 
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