A colleague asks me for help, the scenario is as follows:
For six years at start of their career, they didn't pay pension conts, as had 2yr contracts, not permanent
The six years are pensionable, great
However, the 1.5% S+C contribution was not paid, and must be paid
HR say their are two options:
(1) pay at retirement, "clawback" out of pension lump sum, cost is 1% of pensionable salary for each year for which the Spouse & Childrens’ was not paid. This payment is called the ‘clawback’
(2) The ‘clawback’ can also be paid during your service (i.e. before retirement) by paying an extra 1.5% of pensionable salary for each year not paid.
Which seems better? (1) or (2)?
I am looking into this issue. The Pensions scheme booklet says the clawback is 1% of final salary for each missing year. So the cost at retirement seems to be (1% of final salary)(x6) = 6% of final salary
Or else it seems that HR suggest you can pay 1.5% * 6 = 9% of ongoing salary, although the Scheme Booklet doesn't mention this.
Surely you'd think it would be cheaper / lower rate now, and a higher rate in the future?
I wonder is the difference anything to do with tax relief?
For six years at start of their career, they didn't pay pension conts, as had 2yr contracts, not permanent
The six years are pensionable, great
However, the 1.5% S+C contribution was not paid, and must be paid
HR say their are two options:
(1) pay at retirement, "clawback" out of pension lump sum, cost is 1% of pensionable salary for each year for which the Spouse & Childrens’ was not paid. This payment is called the ‘clawback’
(2) The ‘clawback’ can also be paid during your service (i.e. before retirement) by paying an extra 1.5% of pensionable salary for each year not paid.
Which seems better? (1) or (2)?
I am looking into this issue. The Pensions scheme booklet says the clawback is 1% of final salary for each missing year. So the cost at retirement seems to be (1% of final salary)(x6) = 6% of final salary
Or else it seems that HR suggest you can pay 1.5% * 6 = 9% of ongoing salary, although the Scheme Booklet doesn't mention this.
Surely you'd think it would be cheaper / lower rate now, and a higher rate in the future?
I wonder is the difference anything to do with tax relief?