Pension - caught out by final salary
Discussion
My wife was a civil servant for 22 years. For 17 years she was a full time employee - before meeting me and having 2 lovely boys. When our second son was born, we found out that he had an Autism Spectrum Disorder. In order to look after him and give him his best chance, she decided to resign. The only problem was that she was working 2 days a week at this point.
Her pension was the civil service classic scheme i.e. a final salary scheme. Although she had a fairly lowly grade, the difference leaving on 2d a week rather than the 5d a week she was working for the vast majority of her career makes a huge difference to her pension and our eventual retirement plans. She is someone who would have been a lot better under the career revalued benefits approach that they have now, rather than a final salary scheme.
Our story does have a happy ending - our son is now 13 and is on the very enabled end of Asbergers, very normal but totally into cars - we are off to Le Mans next week! But I do feel a lingering sense of unfairness that she has been significantly disadvantaged through a decision that she had to make to care for our son. Am I right to feel this (or is it just one of life's snakes in the big game of snakes and ladders), and if so, is there a way to appeal this decision?
Her pension was the civil service classic scheme i.e. a final salary scheme. Although she had a fairly lowly grade, the difference leaving on 2d a week rather than the 5d a week she was working for the vast majority of her career makes a huge difference to her pension and our eventual retirement plans. She is someone who would have been a lot better under the career revalued benefits approach that they have now, rather than a final salary scheme.
Our story does have a happy ending - our son is now 13 and is on the very enabled end of Asbergers, very normal but totally into cars - we are off to Le Mans next week! But I do feel a lingering sense of unfairness that she has been significantly disadvantaged through a decision that she had to make to care for our son. Am I right to feel this (or is it just one of life's snakes in the big game of snakes and ladders), and if so, is there a way to appeal this decision?
According to the PCS, your wife shouldn't be disadvantaged - the 'salary' used for the final salary calculations is the Full Time Equivalent, it's just that her total number of qualifying years will be reduced, based on her part-time working. She will still be considered to have the full years of qualifying service for her full-time period, so 17 + (5 * 2/5) = 19 years.
Your wife should receive a pension based on 19/80 of her final Full Time Equivalent salary, with a tax-free lump sum of 57/80 of that salary.
Your wife should receive a pension based on 19/80 of her final Full Time Equivalent salary, with a tax-free lump sum of 57/80 of that salary.
PCS Union said:
Classic pension scheme
This is a basic final salary scheme. Members start accruing (building up) reckonable service when they start work. Full time staff build up day for day service and their pension will be based upon full time pensionable earnings in the best 12 months of the last 3 years, and how long they have worked.
Part-time staff build up pension on fulltime earnings but service is reduced based on hours worked. So working half time for a year would accrue 6 months pension at full pay. This also applies to Premium and classic plus. This means contributions have to be paid at full time rate of pay as the benefits are built up and paid on full time earnings.
http://www.pcs.org.uk/en/campaigns/campaign-resour...This is a basic final salary scheme. Members start accruing (building up) reckonable service when they start work. Full time staff build up day for day service and their pension will be based upon full time pensionable earnings in the best 12 months of the last 3 years, and how long they have worked.
Part-time staff build up pension on fulltime earnings but service is reduced based on hours worked. So working half time for a year would accrue 6 months pension at full pay. This also applies to Premium and classic plus. This means contributions have to be paid at full time rate of pay as the benefits are built up and paid on full time earnings.
I think it is just a sense of injustice, as my reading of it was that the pension calculation was based heavily on the last 3 years of service - and she had little say in being part time at that point due to child care, and in her decision to leave to support our son. But the rules are the rules. Will have a look into the details of your very helpful posts. Thank you.
tombar said:
I think it is just a sense of injustice, as my reading of it was that the pension calculation was based heavily on the last 3 years of service - and she had little say in being part time at that point due to child care, and in her decision to leave to support our son. But the rules are the rules. Will have a look into the details of your very helpful posts. Thank you.
I think you misunderstand.Her pension is only affected to the extent that she (effectively) worked for 19 years, rather than for 22 years, in total. The salary used to calculate it should be unaffected, unless she changed to a lower paying job for the part-time period (and I mean that the equivalent full time pay was lower, not just that she only got paid for working 2 days per week).
Assuming she didn't change jobs, she should receive 19/22 of what she would have received if she had worked full time throughout the last 5 years. I can't see that this is anything other than fair, whatever the reason for her working part time.
Edit: I'll add some numbers.
Let's say she was earning £20,000 per year full time, and her salary band was frozen at that level for the last 5 years of her employment.
If she had worked full time for the whole 22 years, she would receive a pension of 22/80 * £20,000 = £5,400 per year, plus a £16,200 tax free lump sum.
Given her real working pattern, she will actually receive a pension of 19/80 * £20,000 = 4,800 per year, plus a £15,600 tax free lump sum.
Edited by schmunk on Thursday 4th June 16:57
tombar said:
I think it is just a sense of injustice, as my reading of it was that the pension calculation was based heavily on the last 3 years of service - and she had little say in being part time at that point due to child care, and in her decision to leave to support our son. But the rules are the rules. Will have a look into the details of your very helpful posts. Thank you.
Hi. AIUI it's based on the highest salary (fte) she was on during the last 3 years' employment MULTIPLIED by the years of service and then DIVIDED by either 60 or 80 (sorry I can't remember which)She will definitely not have been penalised for going part time as long as she was on the same salary (pro rata). She will only have been penalised if she took a pay cut when she went part time.
Simpo Two said:
So if I work 5 days a week for (say) £30K pa and then switch to 1 day a week for £6K (ie pro rata), I'll get the same pension as if I'd been earning £30K...? I haven't paid as much in...
No. Because you won't have accrued as many "years" of service. Assuming an 80ths pension.Somebody who works for 40 years @£20k per annum will get a pension of £10k pa (20 years x 40/80)
The same person going half time after 20 years will only have 30 years pensionable service (20 years x 1 year PLUS 20 years x 0.5 years). So their pension will be £20k x 30/80.
The explanations above are correct as the lgps would have looked at the full time salary and and merely Percentiled the working hours. So somebody on 50% contract accrued 6 months full benefit per year to reflect the hours worked.
I used to do avc advice when at the Pru, the level of knowledge of the benefits was very poor amongst staff. Most assumed they'd get half salary and the lump sum regardless of service, usually based on canteen advice of some git in his 60s who'd been there since leaving school telling everyone what he was getting!
I used to do avc advice when at the Pru, the level of knowledge of the benefits was very poor amongst staff. Most assumed they'd get half salary and the lump sum regardless of service, usually based on canteen advice of some git in his 60s who'd been there since leaving school telling everyone what he was getting!
Wouldn't the pension also be reduced if it was paid early?
My wife took redundancy from the Civil Service and chose to retire early. She used her redundancy pay and gave up the lump sum to increase the monthly pension, but it's still buttons.
Also, annoyingly, the amount she was going to be paid reduced 3 times during the process with no fathomable way of working it out, and no right to withdraw from the process.
She did lose out a little as she moved to the Classic Plus pension scheme - the accrual rate was slightly lower. She'd have been better staying on Classic.
My wife took redundancy from the Civil Service and chose to retire early. She used her redundancy pay and gave up the lump sum to increase the monthly pension, but it's still buttons.
Also, annoyingly, the amount she was going to be paid reduced 3 times during the process with no fathomable way of working it out, and no right to withdraw from the process.
She did lose out a little as she moved to the Classic Plus pension scheme - the accrual rate was slightly lower. She'd have been better staying on Classic.
Gassing Station | Finance | Top of Page | What's New | My Stuff