Final salary pension question

[Adwillsy]

Hi everyone,

I have recently accepted a job with a final salary pension which I'm aware its very rare and good to have. My only question is how would this effect my new paycheck ? currently I am on a matched contribution at my work which I know exactly how much will come out of my pay. does it not come out at all and they just pay into it 1/40th or whatever it is per year?

[craig1912]

If it’s non-contributory it doesn’t affect your salary. If it’s contributory it works like your current scheme in that you get a percentage taken off your salary before tax.

[PlywoodPascal]

It just depends on the scheme. the employers contribution is irrelevant to you (because your pension size is guaranteed), so you don't need to worry about that. Different schemes will have different employee contribution rates.

mine is 6.1 % (which I pay as a salary deduction) and the employer pays 14.5 %.

get ready for the posts in which bitter PHers say nobody deserves a final salary pension and it's unrealistic to expect one because they're unaffordable. they are only unaffordable for organisations who dont value employees well enough to provide one. Crap pensions have been enabled by people accepting crap pensions packages from employers.

[djc206]

Adwillsy said:

Hi everyone,

I have recently accepted a job with a final salary pension which I'm aware its very rare and good to have. My only question is how would this effect my new paycheck ? currently I am on a matched contribution at my work which I know exactly how much will come out of my pay. does it not come out at all and they just pay into it 1/40th or whatever it is per year?

Simple answer is ask HR. I make a 6% contribution, if got promoted that would drop to 5% and then if I got promoted again 0%. So the answer is it varies within schemes never mind between them.

[Countdown]

Adwillsy said:

Hi everyone,

I have recently accepted a job with a final salary pension which I'm aware its very rare and good to have. My only question is how would this effect my new paycheck ? currently I am on a matched contribution at my work which I know exactly how much will come out of my pay. does it not come out at all and they just pay into it 1/40th or whatever it is per year?

There should be a booklet on your Intranet which sets out the T&Cs of the pension scheme. or alternatively HR will send you one before you start (in case you want to opt out), or your manager will go through it during your induction.

Either all employees pay a fixed percentage of their salary or it can be banded (people on lower salaries paying a lower percentage).

As you have identified it's a no-brainer to join. I have a couple of froze ones from previous roles and theyve been uplifted by inflation each year, they also pay a healthy spouse pension.

[Adwillsy]

Thanks all for the replies, ill wait until I get my induction and all that stuff before ill end up finding out. I didn't realise it was done in a few different ways. Exciting times ahead

[omniflow]

Also, what THEY pay into it is irrelevant (well, as long as the scheme is properly funded).

The 1/40th (unlikely), 1/60th and 1/80th are the proportions of your "Final Salary" that you receive as pension once you retire, for each year you are in the scheme. So if you're in a 1/60ths scheme and you leave or retire after 30 years in the scheme, you get 30/60ths, i.e. 50% of your "Final Salary" as a pension.

Final Salary can be defined in many ways. When I was in a scheme like this it was an average of your 3 best paid years out of the last 13.

There are many other nuances, mainly around how your pension grows once you have left the scheme, both before you retire and after.

[omniflow]

PlywoodPascal said:

It just depends on the scheme. the employers contribution is irrelevant to you (because your pension size is guaranteed), so you don't need to worry about that. Different schemes will have different employee contribution rates.

mine is 6.1 % (which I pay as a salary deduction) and the employer pays 14.5 %.

get ready for the posts in which bitter PHers say nobody deserves a final salary pension and it's unrealistic to expect one because they're unaffordable. they are only unaffordable for organisations who dont value employees well enough to provide one. Crap pensions have been enabled by people accepting crap pensions packages from employers.

I don't see how this can be correct. If it's a final salary scheme then there needs to be enough money in it to meet the defined and future commitments. The employer needs to put in enough money to ensure that this happens.

[djc206]

omniflow said:

PlywoodPascal said:

It just depends on the scheme. the employers contribution is irrelevant to you (because your pension size is guaranteed), so you don't need to worry about that. Different schemes will have different employee contribution rates.

mine is 6.1 % (which I pay as a salary deduction) and the employer pays 14.5 %.

get ready for the posts in which bitter PHers say nobody deserves a final salary pension and it's unrealistic to expect one because they're unaffordable. they are only unaffordable for organisations who dont value employees well enough to provide one. Crap pensions have been enabled by people accepting crap pensions packages from employers.

I don't see how this can be correct. If it's a final salary scheme then there needs to be enough money in it to meet the defined and future commitments. The employer needs to put in enough money to ensure that this happens.

Exactly. They might be paying that now but at the triennial actuarial valuation that number would like fluctuate. My employer is currently paying about 2/3rds having taken a pension holiday during covid. Previously they’ve paid below 30%. 14.5% seems extremely low but I guess that would be dependent on the level of benefit and funding at the last valuation.

[Countdown]

omniflow said:

PlywoodPascal said:

It just depends on the scheme. the employers contribution is irrelevant to you (because your pension size is guaranteed), so you don't need to worry about that. Different schemes will have different employee contribution rates.

mine is 6.1 % (which I pay as a salary deduction) and the employer pays 14.5 %.

get ready for the posts in which bitter PHers say nobody deserves a final salary pension and it's unrealistic to expect one because they're unaffordable. they are only unaffordable for organisations who dont value employees well enough to provide one. Crap pensions have been enabled by people accepting crap pensions packages from employers.

I don't see how this can be correct. If it's a final salary scheme then there needs to be enough money in it to meet the defined and future commitments. The employer needs to put in enough money to ensure that this happens.

It’s the Trustees and the Scheme Actuary’s job to ensure that the Scheme is working towards being fully funded (if it isn’t already)

In an absolute worst case scenario the PPF would step in.

[ContactName]

And of course public sector pensions are funded through taxation there isn’t an actual fund that needs to cover future liabilities.

[FMOB]

ContactName said:

And of course public sector pensions are funded through taxation there isn’t an actual fund that needs to cover future liabilities.

I think this is the dumbest thing I have heard, why isn't the Government creating funds to support the future financial liabilities of public sector pensioners.

It really is what comes in this week goes out next week whilst ignoring the public sector pension elephant in the room.

[PlywoodPascal]

omniflow said:

I don't see how this can be correct. If it's a final salary scheme then there needs to be enough money in it to meet the defined and future commitments. The employer needs to put in enough money to ensure that this happens.

Yes, obviously, but the trustees and ultimately the pensions regulator are the people who make sure employers are funding the scheme sufficiently. The employees don’t have to hold the employer to account (necessarily - witness the tug of war over the USS scheme, the UKs biggest final salary pension scheme - in which the pension scheme seems to have to a degree collaborated with employers to end it as a DB scheme. Fortunately the employees in this scheme are not so easy to fool and it remains DB (and has rather a large surplus).

[Countdown]

ContactName said:

And of course public sector pensions are funded through taxation there isn’t an actual fund that needs to cover future liabilities.

LGPS and various other Public Sector schemes are funded.

And (AIUI) most are currently in surplus.

[ContactName]

And of course public sector pensions are funded through taxation there isn’t an actual fund that needs to cover future liabilities.

[PlywoodPascal]

ContactName said:

And of course public sector pensions are funded through taxation there isn’t an actual fund that needs to cover future liabilities.

It would make sense though, it’d be cheaper, and of course the future liability would be paid for by a population size/demographic that can support the size of the public sector it has, not the size of the one it’s parents used to have.

[Zigster]

PlywoodPascal said:

omniflow said:

I don't see how this can be correct. If it's a final salary scheme then there needs to be enough money in it to meet the defined and future commitments. The employer needs to put in enough money to ensure that this happens.

Yes, obviously, but the trustees and ultimately the pensions regulator are the people who make sure employers are funding the scheme sufficiently. The employees don’t have to hold the employer to account (necessarily - witness the tug of war over the USS scheme, the UKs biggest final salary pension scheme - in which the pension scheme seems to have to a degree collaborated with employers to end it as a DB scheme. Fortunately the employees in this scheme are not so easy to fool and it remains DB (and has rather a large surplus).

I don’t know about that. From all the stuff I’ve seen, the USS membership seems to consist of a bunch of very clever people who are specialists in their fields and don’t realise that they don’t actually understand pensions. But that doesn’t stop them thinking that they’re really clever so they must be right on this too - all these arts professors suddenly becoming experts on pension scheme funding …

[Countdown]

PlywoodPascal said:

Yes, obviously, but the trustees and ultimately the pensions regulator are the people who make sure employers are funding the scheme sufficiently. The employees don’t have to hold the employer to account (necessarily - witness the tug of war over the USS scheme, the UKs biggest final salary pension scheme - in which the pension scheme seems to have to a degree collaborated with employers to end it as a DB scheme. Fortunately the employees in this scheme are not so easy to fool and it remains DB (and has rather a large surplus).

You may already know this so apologies if I’m stating the obvious;

1. Pension schemes HAVE to work very closely with Employers and if they think the covenant is weak there’s a legal obligation on them to plan for scheme closure.

2. The USS may be in surplus on a technical provisions basis but that doesn’t mean it’s viable in the long term. It depends on lots of things e.g the financial viability of the Employers within the Scheme and AIUI several Universities are at risk of going bankrupt, which will mean the remaining Universities have to pick up their deficits and, very soon there could be a death spiral.

[ContactName]

PlywoodPascal said:

ContactName said:

And of course public sector pensions are funded through taxation there isn’t an actual fund that needs to cover future liabilities.

It would make sense though, it’d be cheaper, and of course the future liability would be paid for by a population size/demographic that can support the size of the public sector it has, not the size of the one it’s parents used to have.

But since notionally it is meant to be covered by the pension contributions of future public sector works strictly speaking rather than general tax receipts, it relies on these rising which basically implies that the size of the public sector has to keep rising in a sort of government sponsored Ponzi scheme.

It also effectively precludes the public sector ever switching to a defined benefit model.

[ContactName]

PlywoodPascal said:

ContactName said:

And of course public sector pensions are funded through taxation there isn’t an actual fund that needs to cover future liabilities.

It would make sense though, it’d be cheaper, and of course the future liability would be paid for by a population size/demographic that can support the size of the public sector it has, not the size of the one it’s parents used to have.

But since notionally it is meant to be covered by the pension contributions of future public sector works strictly speaking rather than general tax receipts, it relies on these rising which basically implies that the size of the public sector has to keep rising in a sort of government sponsored Ponzi scheme.

It also effectively precludes the public sector ever switching to a defined benefit model.