From DB to DC

C

Chrispy

Guest
I have been offered a new job which has a salary 25% higher than my current job. Bad news is that I will have to forgo the DB pension where I currently work, for a DC (5% employee, 10% employer contribs).
I am 48, have 7 years pensionable service with my current employer.
I know DB is the Rolls Royce but can you make a case for the new job?
 
In order to make a meaningful comparison, you'd have to show details of the terms of the DB scheme - is it 1/80 of pensionable salary for each year of service plus 3/80 as a lump sum? How is pensionable salary defined? What (if anything) is the employee contribution to the scheme?
 
Thanks for reply.

1/40th for each years service and 3/80ths lump sum. Employee contributes 5%, pensionalble salary is basic annual salary less 1.5 times state pension.
 
Chrispy - are you sure thats right? 1/40th plus lump sum?? If its 1/40th its very generous as it is, and more than likely, then lump sum is an option.

WOuld expect to see either 1/60ths, lump sum as option, or 1/80ths plus 3/80th lump sum.

What pension increases and spouse's options are there?
 
Sorry should be 1/60, lump sum is an option, with lower pension.
Escalation is 3% per annum compound and 50% spouses pension also with 3% escalation. This spouses pension also applies on death in service. Also 4 * salary death in service benefit.
 
I've just done some quick calculations. To provide the DB pension assuming NRA 65 on a salary of €50k, the contribution required for a 48 year old would be about 20% - 25% of salary. So depending on what you are currently paying into your DB scheme, the rest of the cost is falling to the employer. So if you are not paying any conts - the overall total of your benefits would be approx €62.5k.

I'm excluding the death benefit - as you prob will get something similiar with new employer.

With your new employer you will be getting 25% more, and they will be paying 10% into the scheme, so overall benefits would be approx €68.75k so on broad figures terms you would be better off moving to new scheme.

However - I don't think pension should be a major decider in moving jobs at all. I would make a list of pros and cons, excluding the pension altogether.

DB and DC schemes work on totally different principles - and I'm not sure I buy into the "rolls royce" theory that DB is better than DC. It is all about risk, with DB the employer takes on the risk ( and rewards if they pay out) - and with DC the employee takes on the risk ( and rewards)

There is also no guarantee that your DB scheme will exist next year - or in 10 years time. Employers unfortunately are pulling the plug on DB schemes regularly. Also if the scheme is badly funded, there is no guarantee that you would get your promised benefit of n/60ths at retirement. DB schemes are not a guarantee - only a promise.
DC schemes rely on the contributions paid in and the performance of the investments - so if they do well you will benefit, not the employer. And unfortunately vice versa.
 
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