[Closed] Final Salary Pension Scheme.

What you are earning when you retire. That's your yearly pension. For life.

a certain percentage of what you earn when you finish that should read. The other kind is money purchase/defined contribution you just build up a pot and then buy an annuity with however much money there is. Final salary means you're guaranteed a certain amount, well that's the way it supposed to work.

The risk is born by the provider where as with a money purchase scheme you have the risk.

So say I earn 30k in the same scheme until I retire in 30 years, how much do I get per annum after that? I have no idea about pensions

What is your scheme's accrual rate? Example below is 1/60th per year worked of your final salary.

[i]John is about to retire. He has been a member of his employer’s final salary pension scheme for 40 years. The scheme’s accrual rate for building up pension is 1/60th for each year of membership of the scheme. John’s final pensionable earnings are £30,000 per year.

This means that John can receive a pension of £20,000 per year (40/60 x £30,000) from the scheme.[/i]

http://www.pensionsadvisoryservice.org.uk/about-pensions/pensions-basics/workplace-pension-schemes/defined-benefit-final-salary-schemes

I tried to work out how much I would need to put away each month to get a similar annual income from a defined contribution scheme as I would from a final salary scheme and it was enormous - I needed to earn about 15k per annum more and put it all into a scheme to get the same benefit.

But that was based on some fairly broad brush assumptions and I'm sure I didn't factor a few things in....

Off the top of my head I'm not sure, it's a railway pension so it's pretty good to be honest, I'm just changing jobs to another position on the railway and starting to think about the future. But that's a really good explanation zigzag. I'll check what the rate is later.

All I know from my RMT rep is the final salary pension is a not to miss jobbie. I went in to it a few years back when I hit my 5th year, I assume you're deciding whether to go for it with this window they've opened?

If we're starting to talk specifics also check how they define "pensionable earnings". Things like an annual bonus, overtime etc may (or may not) be included in the calculation.

If I ring the railway pension scheme can they give me inpartial advice?

I'd be very surprised if you can still get into such a scheme if you aren't already in it. It wasn't available when I started in the public sector in 2003, and I understand it went in Network Rail a few years ago as well.

For each year that I work with my current employer I earn 2% of my final salary as a pension - so, do 35 years and I will get 70% of my final salary, index linked as a pension.

That is opposed to a defined contribution, where you define what goes in and the employee takes the risk as to how much the pot has grown when they retire and ( used to have to ) buy a pension for that money.

Yep, getting pretty rare now. They're unsustainable and create a huge liability on companies balance sheets. I'm lucky enough to be in one. On the one hand it's a great pension package and i'm potentially am looking at a reasonably comfortable retirement. But on the other hand I do feel tied/trapped in the current company I work for. The way the pension accrues means that 2/3 of it accrues in the last 10 years or so before retirement so looks like if I want the benefit of the full pension i'm stuck here until retirement. If I were to change jobs then I'd be looking at having to invest a further £30k a year in an investment with as good returns as my pension.

@morecashthandash Network Rail make it available to employees once they've been working for the company 5 years but they have opened a window until 30th of this month for those who never opted into it to change across

Join right away, do not hesitate you lucky bugger 🙂 ask if you can purchase extra years, if you can then buy the maximum possible.

I'm lucky enough to be in one, so much so that I've turned down other job offers on the basis that I'd be worse off pension-wise. Don't thinks there's many employers offering them to new employees as they are simply too expensive, particularly as quantitative-easing is impacting on Government Bonds yields (long-term debt) which is one of the main investment vehicle for pension funds.

Right. This is all brilliant. Thanks so much.

On my contract the wording is "employees are opted in to a defined benefit-final salary scheme on their first day in service....."

My question now is, do I need to change over my old railway pension from a different rail company (Virgin) to the new company (northern) as in, their contracted agreement?

I just left London Underground were they still offer final salary to new joiners. I had the option to buy extra years and turned it down, big mistake on my part. I was in very similar situation where I was always considering the pension and benefits with new job offers. I made the jump 3 weeks ago and am happy I no longer work in the public sector.
If they will let you transfer a private pension into the final salary do it instantly. I went to an Independent Pension Adviser and he took one look at LU pension and said it was the best scheme he had ever seen and could not offer any other shemes which would come close.

OP think you need to go to a financial advisor for some of the questions,
mind you you're a lucky bugger still being able to get a final salary pension, our place stopped them about 5 years ago!

My question now is, do I need to change over my old railway pension from a different rail company (Virgin) to the new company (northern) as in, their contracted agreement?

After your first pay with the new company (and your first pension payment), RPMI should contact you to welcome you to the pension scheme. There will also be a form included for you to get a quote to transfer your old pension across.
I've recently joined GWR from Freightliner and got the welcome letter shortly after my first payday.

you want to work for someone like tesco.. was in thier final salry scheme for more than 20 years and left expecting having been told that the 1/60 calculation would hold good etc now in the last 10 years they ve changed their pension scheme 4 times to what is now just a savings scheme and guess what those of us that left can no longer expect our benifits only the amount we put in plus intrest to buy an annuity.. robbing bustards

I have 7 years accrued in a final salary scheme. Cost 5% of salary per year and each year earned 1/60 of final salary, index linked at RPI. Very generous.

Sadly the employer folded as did the scheme and has spent 10 years in and out of court battling for part of the proceeds of the liquidation to make up the scheme deficit. Last judgement was in its favour, but the other parties appealed, so another 10 years of legal battles is likely.

Worse case scenario is it falls into the PPF and I get 90% of my pension.

I costed it up the other day, my fund is worth something like £250k but I only paid a few £k into the scheme, which explains why they're no longer being offered.....

Our company had to put in 37% of annual salary per member to maintain the DB scheme for us last year. Final salary schemes are as dead as a dead thing unfortunately . No organisation can sustain that.

When I retire in 257 days I will get 41/60ths of my current salary. 🙂
I could get to a maximum of 45/60ths but that would mean working another 4 years and I've had enough.

Hmm...not sure how this will work in future...not sure I'd want to be the last into a final salary scheme. There are going to be some serious financial black holes in future years and those who have paid into defined contribution schemes are only going to have so much tolerance for government funded top-ups of under funded final salary schemes. I think there is a real risk that younger entrants to final salary schemes are going to experience the Ponzi effect I.e. Their investment will only pay out to previous investors and there will be nothing left for them.

Their investment will only pay out to previous investors and there will be nothing left for them.

Currently any pension fund collapsing is bailed out by the Pension Protection Fund and deferred pensions get 90% of their entitlement.

My pension was a final salary scheme when I joined.

Then 2 years ago they changed it to a career average scheme when they realised it wasn't sustainable.

So join up now if you can but don't necessarily expect the terms to stay the same until you retire!

We are paying for baby boomers final salary schemes, nobody is going to pay for ours.

the Pension Protection Fund and deferred pensions get 90% of their entitlement.

What wzzzz said, really....

To be fair the were quite affordable 20-30 years or so ago, just that interest rates and hence gilt yields have dived plus companies are more keen on returning money to shareholders than looking after their staff...

Final salary pensions generally work out well if you stay in the job for a long time and your salary goes up substantially towards the end of your career. They are a bit of a con if you're only there for a few years early in your career. I had one 20y ago but it wasn't worth putting up with all the other crap in the job for 40y, even if the company had lasted that long (which was not at all certain, still isn't in fact).

Had two changes to our final salary scheme, first was non protected members having contributions increased to 6% from 5%, the next was closing the door altogether to new members and running a parallel DC scheme which you can opt in and out of.

If I stay with the company till the site begins decommissioning I'll have 12-16 years, if we get the decommissioning contract I may well keep going but whether I get to do so under the same terms is another question as I would technically no longer be an electricity worker unless I was kept on as essential staff.

Final salary pensions generally work out well if you stay in the job for a long time

I completed 43 years last Saturday. 😕

Brilliant. Thanks everyone, as always.

Johnnythelayther: I did this when I transferred between railway pension schemes it was done by evaluating how many years service your existing pension is worth in the new scheme. So for instance if you've been wth Virgin for 15 years and transfer to Northern, it might be evaluated to be worth 10 years (I suspect this might be down to a new job being paid more) if you accept this quote then it would mean your effective start date for the northern pension would be 2006.

Don't know if they still do it like that any more and the RPMI folks are duty bound to give you impartial advice. If you have a lengthy service (since privatisation for instance) then it might be worth leaving it where it is (bearing in mind that the pension will be frozen at the fraction of your current salary you are currently paid and have served.

For me, it is one of the main barriers to swapping jobs and companies in the rail industry (that sounds all "oh boo hoo us and our final salary pension schemes" but it is precisely this problem that made me sit down and try to work out what it's worth in comparison to defined contribution schemes)

Hello mate, seems you get what I mean with the railway pensions. I worked for Virgin for 7 years and have started working as a trainee driver for northern this week, which (eventually) will be far better paid.

you want to work for someone like tesco.. was in thier final salry scheme for more than 20 years and left expecting having been told that the 1/60 calculation would hold good etc now in the last 10 years they ve changed their pension scheme 4 times to what is now just a savings scheme and guess what those of us that left can no longer expect our benifits only the amount we put in plus intrest to buy an annuity.. robbing bustards

I would look into that if I were you. My understanding is that accrued pension rights are considered to be your property or similar and are thereby protected by human rights legislation. Let me see if I can find a link...

EDIT Not right now but perhaps tomorrow.

Cool! Well done and good luck! What did you do for VT then? Train Manager?

The pension issue is a bit of a nightmare and I think it's a complete gamble whether you're better off freezing the VT pension and starting a new one or transfering. My transfer was due to redundancy from NR, the new salary at a TOC was about £10k less than I had been on and the pension transfer was favourable in terms of length of service (I only 'lost' about 3 months) so I transferred, but if you move because of a step up in salary then it will be nowhere near as clear cut.

I say RPMI are duty bound to be impartial and I'm sure they will be - they will present you with the facts: "your existing pension is worth x years in the new one" and "if you freeze your pension it will be worth y at your time of retirement". The decision will then be all yours!

Thinking about it, if you are starting on a trainee salary (especially if it's at or below your current salary) then it might be worth transferring and fixing your start date before your vast pay rise once you qualify, if you see what I mean. 😉 The gamble being that you may not qualify or your employment is short lived for some reason.

Final salary schemes were fine when we lived for 5 to 10 years after retiring, crazy any still exist.

OP you need to read the pension terms but if its a fairly old scheme it may be final salary, normally the pay out would be something like 50-60% of salary assuming you had worked say 30 years. As others have stated you would accrue say 1/60th of final salary for each year worked upto a maximum of 30 years. So 30/60 = 50% for example

More recenty they switched to career average before largely being discontinued. You should check what it says.

With people living longer and investment returns all over the place its very expensive and even really impossible for the company to "save" enough to pay for such a pension with a degree of certainty. Imagine an employee who is successful and gets some good promotions, in their final years of working they could be earning double, treble or more what they where making earlier in their career. As such final salary is a goldmine for them and a headache for their employer. There used to be a wheeze / understanding where longstanding and loyal employees where given a large payrise in the final 1 or 2 years of their employment, eg 20% plus. Of course this was the also a pension rise of 20% for the rest of your life.

Now such pensions are very rare, almost exclusively government jobs and surprise surprise MPs and EU MEP have very generous final salary pensions, someone like Corbyn with 30 years as an MP will get £50k a year which has a market value of £1.6m of which he has contributed zero. Of course if MPs award themselves some more big payrises his pension will go up some more

someone like Corbyn with 30 years as an MP will get £50k a year which has a market value of £1.6m of which he has contributed zero

Keep making stuff up why don't you.

MPs’ contribution rates increased by 1.85% to: 13.75% (for members with a 1/40th accrual rate); 9.75% (1/50th accrual rate); and 7.75% (1/60th accrual rate)

My pension was a final salary scheme when I joined.

Then 2 years ago they changed it to a career average scheme when they realised it wasn't sustainable

Career average schemes are still very good, they are still a defined benefit scheme. If you know you aren't going to get much of a pay-rise for the rest of your working life, they aren't that much different from final-salary.

MPs’ contribution rates increased by 1.85% to: 13.75% (for members with a 1/40th accrual rate); 9.75% (1/50th accrual rate); and 7.75% (1/60th accrual rate)

So, an MP, who is paid by the government in the first place, has to pay some of that money back to the government, in order to receive money from the government for ever more after they retire.

I content that public servants don't pay for their pensions. The government does.

The 'contribution' figures only enable a like-for-like comparison of salary with the private sector.

I content that public servants don't pay for their pensions. The government does.

The 'contribution' figures only enable a like-for-like comparison of salary with the private sector.

How would you like the pension provision to be made then?

I pay into a Local Government Scheme, as does my employer (the taxpayer, if you like). This is then invested, by a private company into the market, just like any other private scheme.

I think there's a bit of a misunderstanding that public servant pensions are 'paid by the government', they're not, they still accumulate funds that are invested and held separate to general pension provision and public spending.

From what I can remember, Corbyn used to give chunk of his salary to the local party plus his expenses were negligible. Why not, for example, have a pop at Cameron or Osborne, and how we reward the failure of the rich kids? Can't see it somehow.

[quote=mrmonkfinger ]MPs’ contribution rates increased by 1.85% to: 13.75% (for members with a 1/40th accrual rate); 9.75% (1/50th accrual rate); and 7.75% (1/60th accrual rate)
So, an MP, who is paid by the government in the first place, has to pay some of that money back to the government, in order to receive money from the government for ever more after they retire.
I content that public servants don't pay for their pensions. The government does.
The 'contribution' figures only enable a like-for-like comparison of salary with the private sector.

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So the £400+ a month I pay, I dont really pay?

The scariest things about pensions are:

A) that most of the people who have them don't understand how they work,
B) those that don't (and some that do) think they can ignore planning for their retirement as it's 'too complicated'
C) That the ignorance of A and B is accepted, generally, as okay.

It's not, especially as it's not really that difficult to understand and at some point will be pretty important to your financial security

That's not aimed at the OP by the way, who's obviously doing the right thing by trying to understand.

The scariest things about pensions are:

I'd say the biggest issue is that most people simply can't afford to save enough to build a fund which will make any real difference...

I have a civil service pension from the 8yrs I worked there. If I live to 65 then the returns bear no relation to the contributions I made. The lump sum payment significantly exceeds the conributions, let alone the annual payments after that. However, in the next 25 yrs I fully expect the government to find some way to renege on it, whilst moving the state pension age away faster than I'm getting older.

I fully anticipate having to work until I die or no longer possess the mental faculty to. at which point I won't really care what happens anyway.

logans run anyone?

I'd say the biggest issue is that most people simply can't afford to save enough to build a fund which will make any real difference...

*sweeping generalisation alert*

Generally, that's because people leave it too late. If you go by the rule of thumb that you take the age at which you start saving for retirement and halve it to give you the %age of your income that you should be saving, if you start at 20 then that's 10%, which isn't a huge amount.

Most people wait until 40+, so they need put away 20%+, which is obviously quite a chunk.

@bunrep I put in 25% and will get nonwhere near an MP's payout. I'm on the bus on the way to the airport but when I've got some time I knock up a spreadsheet to show what MP's contributions would buy and how much they'd have to save to hit their pension.

An MPs job isn't the best paid but the pension is very very generous. There are plenty of other examples.

if you start at 20 then that's 10%, which isn't a huge amount.

That's 10% which a lot of people don't have, e.g. minimum wage job, or sub minimum wag gig-economy job working for Sports Direct etc

I fully anticipate having to work until I die or no longer possess the mental faculty to. at which point I won't really care what happens anyway.

The only problem with that is that there will be no jobs suitable for us to do at age 75+

Best get saving now.

For any job you consider the full package.

I.e. nobody would do an MPs job without the gold plated pension, it just doesn't pay enough for the responsibility.

What is upsetting is that I agreed to do my job with a good pension, and that has been taken away from me. Had I taken a different job at the start of my career path, I would now be much better off at retirement age.

Its too late really to retrain.