E
37/40ths of final salary
In a defined benefit pension scheme the employer promises to allow you retire on a proportion of your retiring salary. The employer takes all the risk. So if the fund does better than expected the employer can take this. If the fund does worse than expected the employer has to make up the difference.what happens to the extra money?
I would get a quote from your HR/Pension provider - they can calculate if you are overfunding on your AVCs.
The max pension you can get from a scheme is 2/3rds of final taxable earning - with pension increases of CPI or 3% ( whichever greater) , and spouse's portion of 100%. If your scheme pension plus the AVC converted to give those additional benefits is greater than this, then your scheme pension will be reduced. So effectively you will lose the AVCs.
I thought the main benefit of AVCs is to fund for a better pension on early retirement. For example if you are getting 40/60ths at your normal retirement age, then if you retire 5 years earlier the revenue will allow you a max pension of 35/60ths. However a pension scheme that pays you 40/60ths at normal retirement age will not pay you 35/60ths if you retire 5 years early - they will reduce it by more than that to allow for the fact that they are having to start paying your pension 5 years earlier than they had planned. So, AVCs will allow you to bring it back up to 35/60ths. I hope I've got this right! Any comments by those in the know would be appreciated.
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