How do I know if my pension scheme is competitive

S

Starting Out

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Hi,

I am currrently in a defined benefit scheme with my employer where I'm contributing 5% of my pensionable salary & my employer is contributing 8%. On top of this they also invest an extra discretionary amount each year based on company profitability.

I'm trying to understand if this is competitive? What kind of rates are being paid in the market for other companies?

Like alot of people I can't see myself working for the same company the next 35+ years. I realise not many employers offer DB schemes so am interested in the transfer value of the money being put aside in my pension fund.

Any thoughts appreciated.
 
Are you sure it is not a defined contribution scheme ?

If its DB then to judge it's competitiveness you need to look more at the promised benefits, not the contributions. If its DB, where is this "discretionary" amount going to .
 
Perhaps it is DB and the OP meant to say an extra amount as determined by the Scheme's Actuary depending on the Scheme's experience?
 
My defined benefit scheme pays out 1/60 * Final Pensionable Salary * Pensionable Service.

The 8% I quoted as my employer's current contributions are based on the current actuarial estimates of the final liabilities of the scheme.

I believe the added bonus based on profitability is treated as an AVC although I honestly am not as familiar as I should be with this element of the plan. Due to the fact that this part is profit dependent I tend to ignore it due to it's uncertainty.
 
If you are working in the private sector and your employer operates a Defined Benefit Scheme as well as a Top-Hat arrangement...it's UNBELIEVABLY COMPETITIVE these days!
 
Would you mind explaining why this is regarded as so competitive please? Is it due to the predictive value of the final pension?

I believe there are revenue limits to the size of your final pension. If I am with my employer for 40 years of pensionable service this would leave me with a 2/3 of final salary pension.

Where do any other contributions like the profitability bonuses go to then? (or if I decided to lodge any AVCs).

I took a look at the pension policy in work today and see that the profitability top ups are put into a seperate defined contribution type scheme.
 
It is due to the guaranteed nature of the final pension.

No investment risk, no logevity risk, no interest rate risk for you...if you stay until retirement and the scheme remains in operation that is!

The extra portion could be used to provide an additional spouse pension (up to 100%) or pension increases (up to in line with CPI or fixed 3%) or to provide a 10 year guarantee.

Yes - that is a top-hat arrangement.
If they are paid by the company they are not AVCs.
If they are paid by you then they are AVCs.

If they are AVCs then you can transfer them to an ARF at retirement, very handy for you if that is the case.
 
I have been thinking about AVCs to be sure to be sure about a comfortable pension, but based on this information, seems this wouldn't really be best use of my money.

My DB pension would provide me with 2/3 of final salary and I could then use the DC portion of my pension to "top up" any loss in pension value post 65 by indexing my pension with these funds.

One final question. Do the revenue allow a person to cash in the DC portion of such a scheme in the form of a lump sum at retirement and still recieve the maximum 2/3 of final pensionable salary. Does recieving a lump sum in any way affect the maximum pension allowable under revenue rules?

Thanks for all the great answers South. Have been very informative. Appreciate it.
 
Starting Out said:
One final question. Do the revenue allow a person to cash in the DC portion of such a scheme in the form of a lump sum at retirement and still recieve the maximum 2/3 of final pensionable salary. Does recieving a lump sum in any way affect the maximum pension allowable under revenue rules?

Thanks for all the great answers South. Have been very informative. Appreciate it.
Click to expand...

No probs Starting Out.

The max 2/3rds includes your revenue maximum tax-free lump-sum of 150% of salary at retirement.

In other words, you can't take 1.5 times salary AND a pension of 2/3rds of final salary.

You could always use AVC to provide for early retirement (because you would not get 40/40ths from your employer on early retirement.

So, to answer your question, the tax-free amount DOES affect the max pension.
 
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