How much is my company DB pension worth?

M

MG01

Registered User
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Hi there,
A quick question - I have a company contributed DB pension (circa 10% of salary), pays out when I reach 65, I've had it for 5 years.

My question is this - when looking at salaries etc. for other jobs I find it hard to evaluate the value of what I've got with this pension and what I would need to suppliment in a new job that didn't have this employer contributed DB pension.

...is there any way of roughly working this out? is there a rule of thumb I could use to figure out how much higher a new salary would need to be to equal the kind of value I hold in a DB pension. Is it possible?
Thanks - answers greatly appreciated.
 
without details about the payouts involved, time to retirement, probability that company will be around at retirement, etc etc this is an impossible question to answer in meaningful way.
 
Apologies - I don't have a financial background.
Time to retirement is 30yrs and the company will most likely be still around then. Regarding payouts I believe the deal is something like 80% of my final salary at retirement with the usual options for lump sum + small pension or single larger pension and there is a death in service + spouses pension also.

Hope that helps - again - any advice is appreciated.
M
 
MG01 said:
Apologies - I don't have a financial background.
Time to retirement is 30yrs and the company will most likely be still around then. Regarding payouts I believe the deal is something like 80% of my final salary at retirement with the usual options for lump sum + small pension or single larger pension and there is a death in service + spouses pension also.

Hope that helps - again - any advice is appreciated.
M
Click to expand...

The best DB schemes out there will have 2/3 salary at retirement. The total contributions required for these are in excess of 20% of salary on optimistic assumptions and above the 30% mark on more realistic/conservative assumptions.

If your employer is only paying a 10% contribution (or is that your contribution?) that would seem insufficient and does not suggest your employer will maintain these benefits for much longer. In the short term you might be better off to continue racking up additional years service on the current deal.

You'd obviously need to look at the salary and pension entitlements of the other jobs. If say another employer was offering a 10% rise in salary and a 10% contribution to a DC scheme you might be as well off taking it.

Sometimes you need to be careful not to overplay the value of a DB scheme as the likelihood of getting everything you are being promised might not be great and the terms for future service can change quite quickly.
 
I would guess that you would need to be saving 15% - 20% of your salary to fund a pension equivalent to what is being offered.

I would also caution that promises of something in 30 years time need to be taken with a bit of sceptism.
 
Thanks for the responses. I looked at my pension statements again last night - you're correct the company is contributing more than the 10% - 2/3 my final salary from the age of 65.

Regarding the skepticism - in the current climate one would have to agree - however other than diversify by running your own pension investments (which I do) there's not much that I can see I can do. It's a very blue chip company, multi-national, not involved in financial services and coping well through this economic crisis - fingers crossed anyway. I would be more worried that with a 30yr span ahead they will seek to buy out the remaining DB pensions (they have moved to DC for new employees, I was one of the last to gain access to the DB scheme)...that'll be another day's post I guess!

I raised this thread because in today's world it seems unusual for people to graduate from college, get a job and then stay there for 40 years - people move around. I mentioned to a friend who works in finance that I was thinking of moving and he suggested that a DB pension fully contributed by the employer was reason enough to never leave that job - it was worth so much. Since then I've been trying to figure this out and put an approximate value on it in NPV-type terms - as in 50K+DB pension = 60K+10% DC or 75K no contribution etc.

Thanks again for the help and keep the advice coming
M
 
At present, to buy a guaranteed pension at age 65, with annual escalation and a spouse's pension of 50% if you die first costs very roughly 29 times the pension amount.

So, for example, if the scheme is to buy you a pension of €33,333 per year (2/3 of €50,000) at age 65 on the above terms, the underlying fund would need to be around €1 million.

Not all DB schemes work that way in practice, but it might be of some use to you if you wanted to compare its value to an equivalent DC scheme.

Liam D. Ferguson
 
Thanks OnOff and LDF - good advice there. It seems the pension is really quite valuable and the thread has definitely helped me put some perspective on what I would need to be looking for if I ever decided to move jobs. It's also shed some light on the whole security of a DB pension.
 
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