How to save 12.5% ... Employee choice

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Henny Penny

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A friend of mine is required to take a cut equivalent to 12.5% reduction in salary. The employer has allowed the staff to choose how they will find the savings ...my friend works part time.

Option a
Lose pension( db currently employer contributes 10%) and reduce hours or salary by 2.5%

Option b
Reduce working hours by 12.5%

Option c
Reduce salary by 12.5% ...currently at top of scale so increment not a factor

Option d
Reduce working hours by annualizing hours and working term time only.

Your suggestions for pros and cons of various options are welcome. Thanks.
 
Interesting.

Option C seems to be work the same hours for less money, so seems a worse deal than the rest.

Options B/D are both reducing hours, but a different pattern of work throughout the year. Only your friend can decide which pattern suits their home life.

So, it's really a straight choice of reducing hours/money now or reducing pension contributions.

My opinion is to drop the hours now, and keep the pension contribution. if you can afford to.

If the family finances are close to the bone already, I would drop the pension contribution for the immediate future.
 
Option a to be avoided. Defined benefit pension is royalty when it comes to pensions. In addition there is a 10% contribution from the employer.

For option b to d your friend has to decide what suits her. Also she'd need to calculate which is best tax wise.
 
How can you have a DB scheme with a fixed contribution by the employer? The whole point of (and why DB schemes are so good) a DB scheme is that employer has to adjust their contribution up or down to ensure the promised defined benefit is achieved (and the employee is the one making a fixed contribution). A DB scheme with a fixed employer contribution sounds like a DC scheme to me...

Anyway, options b and d sound the best in that the hourly pay stays the same so (a) the employer isn't getting something for nothing and (b) if things pick up, it's easier for the employer to ask for extra hours as needed - would be a bigger decision to put hourly rate back up. Fewer hours, either weekly or termtime, would free up your friend to pay less for childcare if that's applicable and/or maybe take a 2nd job if necessary.
 
That's not how defined benefit works. The reason they are good is that no matter what is contributed, when you retire you will get x amount of pension. If there is a shortfall in the pension fund employer has to pay up. Of course that doesn't always happen. Waterford Wedgewood and there was another high profile case but I forget who.
 
I think you need to define 'part-time' before anyone could look at the options. Is it 3 days a week etc.
 
Thanks for the replies. To clarify - I said db pension (this is my own and I'm holding onto it for dear life!) .. my friend has a dc pension. She works 17.5 hours per week - 3 short days (6 hours).
Pension is not a real priority for her.
Working part time already is not signing on for any benefits - and would prefer not to.

I presume that if reduced hours are taken as unpaid leave in one chunk - say 5 weeks off there will be a break in service for PRSI contributions etc. Also reducing working hours will naturally reduce holiday leave entitlement.

As always I'm grateful for the replies.
 
Bronte said:
That's not how defined benefit works. The reason they are good is that no matter what is contributed, when you retire you will get x amount of pension. If there is a shortfall in the pension fund employer has to pay up.
Click to expand...
Are you sure? DB schemes have to get annual actuarial sign-off of their funding levels - they can't merrily contribute 10% for 40 years, get to the employee's retirement age and say, oops, not enough money but sure no problem, we'll lash in the extra 500K needed now... The employer is told each year how much they need to contribute to keep on track to whatever DB they have promised - a defined 10% contribution makes no sense in the contect of a defined benefit scheme.
 
I it were me I'd go with Option A; ditch the DC pension and take a 2.5% reduction in hours (net pay may see little difference) . . unless I was in a position to qualify for FIS in which case I'd ditch the pension but offer to do 19 hours (min. for FIS) for the same wages (or 2.5% less if necessary). I'd also be trying to work in a yearly €250 tax-free voucher (saving USC, PRSI & Tax - albeit at the lower rate) with the employer saving employer PRSI.
 
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