Question on additional top up to DB pension

[chip*]

Hi,

I've been lucky enough to have a DB pension over the last 23 years of my employment. Sadly, the contribution (from my employer) will end by year-end as I've been made redundant . My DB pension is a 1/60th scheme. To simplify my understanding of the DB scheme, this is based on 1/60th of annual salary X by years of service.

Last week, I received confirmation of my redundancy payout. I asked HR to check with the pension administrator if I could make a top-up to my DB pension using my entire redundancy payout. They confirmed today my pension would accept additional contribution (amount I can pay in is far more than my redundancy payout!).

Common sense tells me to top-up my DB pension while I have the opportunity, but what I don't understand is how this extra top-up works and the impact to my future pension?

Any info will be appreciated as I need to respond back tomorrow so they can re-issue a new Compromise Agreement to factor in the pension top-up.

Many Thanks

[sidicks]

chip* said:

Hi,

I've been lucky enough to have a DB pension over the last 23 years of my employment. Sadly, the contribution (from my employer) will end by year-end as I've been made redundant . My DB pension is a 1/60th scheme. To simplify my understanding of the DB scheme, this is based on 1/60th of annual salary X by years of service.

Last week, I received confirmation of my redundancy payout. I asked HR to check with the pension administrator if I could make a top-up to my DB pension using my entire redundancy payout. They confirmed today my pension would accept additional contribution (amount I can pay in is far more than my redundancy payout!).

Common sense tells me to top-up my DB pension while I have the opportunity, but what I don't understand is how this extra top-up works and the impact to my future pension?

Any info will be appreciated as I need to respond back tomorrow so they can re-issue a new Compromise Agreement to factor in the pension top-up.

Many Thanks

Basically the scheme Actuary will calculate the cost of a 1/60ths extra accrual and you can determine how many 60ths you wish to purchase! Basically you are buying extra years service!

Depending on how well-funded the scheme is, you should be careful about committing yourself to anything before you know what the cost will be!!

Sidicks

Edited by sidicks on Monday 10th September 21:55

[Jespin]

Also bear in mind that the first £30,000 of your payout is tax-free so I would be reluctant to tie that up when you've got full access to it. You'll need to ask the scheme administrators how many extra years you can buy.

[Welshbeef]

Very interesting question.

However there will be no company contribution towards the additional payment as such you will be paying the whole cost for each additional year. Yes you get a tax break now but you pay tax when you draw it out.

I'd say bank te £30k then if you have nothing better to do with the cash why not.