Final salary & maternity question

[Welshbeef]

Question here.

If the wife became pregnant and then post a year off decided to go back to work would it be more beneficial for her to quit the final salary scheme she was in and start a new one OR if it changes to a career average then dont change it as each year is locked down in isolation.


Im guessing its better to quit the FS as that pension is based upon last day of service.

Remember Im thinking here of the usual go back to work for 13 weeks and then you are not required to repay any maternity pay even if you go back part time.

[northandy]

Do you mean with the same employer?.

If yes I doubt they would let her accrue in 2 separate schemes.

I'm no pensions expert, but aren't there rules about maternity periods?, that basically assume the person had been earning at the normal level.

[lauda]

northandy said:

I'm no pensions expert, but aren't there rules about maternity periods?, that basically assume the person had been earning at the normal level.

Yep, normally you are required to pay contributions based on whatever maternity pay you are receiving but you continue to accrue benefits in the scheme as if you were still receiving your pre-maternity salary.

[nomisesor]

My understanding is that you accrue benefits depending on your contributions and that the final amount depends on what you've accrued rather than your actual final salary. For example, say you've a final salary based on 80ths, so that if you worked 40 years you'd accrue 40/80ths = 50% of your final salary. If you worked 20 years full-time and 20 years half-time you'd have accrued 20 full years and 20 half years = 30 years. If final salary was £40k then the full-timer would have £20k pension and the part-of-career part-timer £15k pension, irrespective of whether they were full or part-time at retirement (otherwise it would be grossly unfair to someone who had been full-time until, say 4 years prior to retirement). Many FS pensions are calculated on the best of the last 2 or 3 years, making promotion / incremental increases in that time valuable and so FS pensions favour people with dramatic improvements in salary over their career. There are many things to take into account and she'd be best to take expert advice, whether from her HR dept or from her union.

PS. I don't know what the situation would be if she was obliged to move from FS to career average - I expect that the FS element would be preserved, but the CA element would apply to her service from the time of the change onwards.

Edited by nomisesor on Sunday 1st May 18:34

Edited by nomisesor on Sunday 1st May 18:36

[pattyg]

She will have the option to pay any missing conts to her Final Salary (DB)pension when she returns to work (for unpaid or basic maternity pay leave). Without any doubt she should do this rather than have a break in service.

FS schemes are calculated on a member's full time salary as if she was still working as long as she contributes regardless of whether she goes part time or not. The only thing that reduces going part time is the service in the scheme.

Also FS schemes should be coninued at all costs imho...don't change to a CARE or DC scheme unless forced to. Much cheaper for the employer but not nearly as beneficial to the member.

Edited by pattyg on Sunday 1st May 22:34

[Welshbeef]

Thanks for the advice.

For me my employer is changing to a CATE option from a final salary option. Not great that's for sure but the choice was vote for that OR Defined contribution. As such no option. I bear no grudges and agree it's fairer however yes I'm losing out vs as is but really there is no choice so I'm flexable willing to accept or negotiate deals but with pensions I'd have accepted this years ago and they should have changed it ... So those extra years are banked and a nice little extra for me.

As wife is a teacher you have all the unions pushing choices and actions. I'm happy to say my wife in 8-9 years has never had any break in service ie no strikeing by her even if she fully agreeed with the issue. She always had and cannot see an employment issue where she would not work. Mainly due to the impact on the kids and their parents.

[OneDs]

The Career average earning scheme could be a much better scheme than the final salary scheme.

If you don't think you'll be highly promoted before you retire and your pay increases annually are generally lower than inflation your accrued average pension will increase faster than any potential final salary.

In addition the accrual rate for your Average pension could be much higher than a final salary scheme.

In the Civil Service for example Classic was a 1/80th plus a lump sum, Premium is a 1/60th and the Nuvos Average scheme works out at 1/43rd.

With regard to your wife, the salary won't be adjusted the length service will be. Stay in the FS scheme if she is definitely going to return.