National Grid Share Discussion Threads

[jonnycash1] 15/6/2019 16:02

I'll leave you to it. There are thousands of final salary schemes but no such thing as a 40/80 or 1/2 scheme. You are confused. You're the sort of people who feel unwell, google their symptoms and then argue with their doctor at the surgery.
Incidentally, final salary public sector pensions are guaranteed by the taxpayer, the others are covered by the PPP, or pension protection fund, albeit to a lesser extent.

[utyinv] 15/6/2019 13:20

1carus,


In your post 7101, you identify the risks associated with closed Final Salary schemes especially to cover future liabilities as the last remaining Beneficiaries draw pensions. In a way you are right, and that’s why the ESI scheme has carried out Longevity studies, anticipating the liabilities to honour pensions of those who will be last to draw pensions from the scheme.

These studies have prompted the Trustees to take out Insurance policies underwriting such liabilities if markets fall short of expectation, ie, all angles anticipated and mitigated for👍

[bountyhunter] 15/6/2019 13:04

>>However, it is idiotic for people on a bulletin
>>board to make assumptions about whether
>>or not you have made the right decision.

I presume that underhand comment was aimed at me. What is idiotic johnycash is some of the nonsense (e.g. there is no 40/80 or 40/60 final salary scheme?!) in your arrogant posts. I am certainly entitled to give my opinion of 1carus's choice already done and dusted. 27x was an excellent multiple imo as others have also said.

[utyinv] 15/6/2019 12:19

Jonnycash1,

Your post 7099: there is no 40/80 or 40/60 final salary scheme.?????

———;——̵2;——R12;


So please explain why NG ESI final salary pension scheme (together with many electricity utilities), are all 40/80ths? Have I been imagining the years working in the Company and how thousands of us are drawing such a pension today?

There are too many people who assume they are right but sadly wrong. I say that with the utmost respect👍

The way the scheme works as I have previously stated on the 40/80ths Scheme ( which is closed to new entrants btw), is for every year you work and contribute into the scheme you are credited with 1/80th. So after 40 years of work you get 40/80ths of your final PENSIONABLE salary ( which does not include bonuses, allowances overtime etc,),
Except, for some who joined the scheme early and continue working to 63 years of age, where after 40 years of contributions you stop paying employee contributions. Eg, if you are 59 and have contributed into the scheme for 40 years, you stop paying and the company stops paying, however, on your 60th birthday the Company resumes it’s contribution on your behalf ( but you don’t contribute) until you get to 63 giving a potential max of 43/80ths but such circumstances are rare. In simple terms it’s a 40/80ths based scheme.

If you are made redundant, normally you draw what you have earned ( in simple terms) ie if you have contributed 25 years you get 25/80ths of your final PENSIONABLE salary ( you do not get abated for drawing your occupational pension early). If you leave voluntarily, you can start drawing your occupational pension from 55 years of age. However, you will be abated to the tune of 4% for every year between your agreed Normal Retirement Age (NRA) and when you started drawing your occupational pension.

There are many differences between 40/80 ths and 40/60ths ( the latter NG gas protected employees - again scheme closed to new entrants)

In the 40/80ths scheme on drawing your pension you get a Lump sum of 3x pension.

On the Gas Scheme, if you are below state pension age and about to draw your occupational pension, the scheme applies a normalising factor ie rather than draw a 2/3rds pension based on your final PENSIONABLE salary, they look at how old you are and when you are due to draw your state pension and alter the figures so that you get a ‘normalising or smoothing’ factor applied, but when you get to state pension age you don’t get any increase in income.

Whilst in the ESI( Electricity Supply Industry ) scheme, when you get to state pension age you draw a state pension in addition to your occupational pension, which increases your annual income ( albeit the state pension is reduced for being ‘contracted out’).

There is no doubt about the whole subject in general, final salaries are regarded as being the most secure and reliable. What started this debate, was Newbank identifying that not all senior citizens who draw a pension are economically well off and they would find the cost of a tv license stretching. I agree as I know some ‘old timers’ who are nearly above the means tested level and would lose their free license.

As for security of final salary schemes, once you are drawing your pension you are guaranteed, underpinned by Gov legislation, to the tune of 90% of your pension. So in the event of another financial crash or the Sponsoring Company going bankrupt those drawing their occupational pensions are guaranteed to continue to receive 90% of their pension.

The underlining factor in all schemes which may differ slightly to others is the detail that is contained within the ‘Scheme Rules’ which will be upheld in any deliberation involving Pension Ombudsman or Court proceedings,

Hope this helps?

[1carus] 15/6/2019 08:48

One other point... many of the final salary schemes have no or very few people paying in to them and have many people still not taking their pensions, the funds have to be managed well to keep thr funds at 100% of their forward liabilities. It is still effectively a managed fund and might still be affected by market movements, so they are not without risk and indeed carry more risk as a part8cular scheme nears its end of life as it runs out of time to correct investment errors. There are many factors to consider.

[1carus] 15/6/2019 08:30

Jc1, you are correct. Many personal factors involved. It's not for everyone. Its not my only pension and i have other income streams. Part of my objective was to establish a tax free income of 50 to 60 k per year once i can and choose to retire. In terms of market risk, you need to provision an amoumt of cash to weather a 2 to 3 year issue I would think. Cost for moving the fund was about 7k per 250k and took nearly 6 months to organise... the requirements for doing this thankfully seem quite rigorous as it couod have negative outcomes for many people.

[jonnycash1] 15/6/2019 06:59

Whilst 3/80 schemes capped at 25 years service did exist, there is no 40/80 or 40/60 final salary scheme. Earning £40000 a year for 13 years does not equate to 40/60 X 13. Do the maths. It would seem you have given up £8666 a year,likely with a guaranteed increase of at least 2.5%pa, for £233982 in a drawdown scheme. After charges you will be lucky to clear 3.5% a year as income, meaning you start with a pension of £8189, lower than you had before. No guarantees. Not inflation proofed. If the global markets collapse in five years, a few years after retirement, your pension pot will lose maybe 1/3 of its value, leaving you drawing £5404 a year or further eating into your depleted capital to maintain your income level. Taking into account at 2.5%pa you would have a 12.5% increase in your final salary pension over the period to £9803, you are now £4399 worse off each year with a depleted capital value you cannot replace and your retirement has just begun. That is also excluding charges to transfer and set up your FAD scheme, which would have been a great deal of money. Obviously if you die the full amount will go to spouse or can be left in a drawdown pension, tax-free under age 75 and I trust it is not your only source of income in retirement and that for you, the benefits outweighed the potential negatives. However, it is idiotic for people on a bulletin board to make assumptions about whether or not you have made the right decision.

[utyinv] 14/6/2019 20:35

27 is very good

Bear in mind pensions or actuaries assume you will live to 85 for a man. If you are in a scheme or bought an annuity for your retirement income the age of 85 is very important! If you die before 85 unexpectedly the pension provider is quids in if you live longer than 85 you are quids in.

That is why it’s important if buying an annuity to disclose any ailment which may promote death sooner than 85 , that way you can get a higher rate from an annuity.

It’s all swings and roundabouts. Many people take their money out of managed schemes and manage it themselves through SIPPs. The benefit of SIPPs is that when you die your remaining capital in the scheme is transferred to your wife. Whilst in many final salary scheme your pension is reduced to between 50% and 66% ie your wife gets between 1/2 and 2/3 of your pension for life. After she dies your pension dies with her. Whilst in SIPPs if they perform well any remaining capital can be passed to your offspring through your estate.

All swings and roundabouts, but many use final salary schemes and on top manage investments and the income from those investments themselves to top up their pension income.

[bountyhunter] 14/6/2019 19:50

27 * forecast sounds very good, i.e. they expected you to live until 65(?) + 27 + a few more years covered by investment interest on the pot equivalent so say to around 90ish. Not a bad decision with a younger spouse I would say although usually there is a 50% ongoing pension for the spouse going forwards so if much younger it would still be a tricky decision. But can't argue with taking back control with the 27x factor.

[1carus] 14/6/2019 16:40

I cashed in a 40/60 scheme last year.. had about 13 years in it in total. I left that company in 1996. You dont seem to have a pot of money but thr trustees offer a figure tp come oit of tjr scheme. Mine was close to 27 times the annual fotcasted for my retirement age. This multiplyer was historicsllu high... not sure what it would be now. Now sits in a drawdown fund. Better death benefits for yhe wife and gives me better lump sum and flexibolitu when i retire. Not for everyone.. very cir umstance dependant.

[utyinv] 14/6/2019 15:20

Buywell,

Depends if Corbyn raises his head again. Gone all quiet on the Marxist front. Have they all gone to regroup before another onslaught of rhetoric about Nationalisation?

Once the Conservative Party have made their decision as who replaces TM that’s when Thornbury, MacDonnell and Corbyn will raise the anti IMO.

As for now it appears to be climbing nicely.

[buywell3] 14/6/2019 13:51

Right

Going to do something hard now

I reckon this stock is now going to reverse back to 750p


dyor

[jonnycash1] 14/6/2019 13:45

Herein lies the lesson. Never take unregulated financial advice.

[ccraig69] 14/6/2019 12:53

it. 1/80 not 3/80 th

[utyinv] 14/6/2019 12:32

Ianood,

👍

[bountyhunter] 14/6/2019 12:31

Yes normally 1/80 or 1/60 if lucky enough to have a final salary scheme, never heard of 3/80 either which would mean that after just 27 years of contributions you would be eligible to receive more than your entire final salary as a pension.

[ianood] 14/6/2019 12:09

UtyINV - Thank you for the response, however, I was really questioning the post by johnnycash1 - post No 7078 where he quoted:

"Final salary is typically 3/80 X final salary X years service. So 3/80 X 18000 X 20 = £13,500 per annum. That's probably linked to RPI or capped at 2.5% increase per annum.
18000 X 7% is £1260 per annum contribution. 1260 X 20 = £25,200 Assuming the pot doubles in twenty years, you have £50,400 to retire on."

This appeared to me to be a tad green eyed monsterish :). I am not familiar with any pension accruing at 3/80ths pa.
The only time I have seen 3/80ths mentioned is on the old HMRC calcuation of the tax free lump sum which actually related to weeks not years i.e. 20 years service would have allowed the payment of 60 weeks salary with a correspondingly reduced pension.

[utyinv] 14/6/2019 09:11

Dr Biotech,

Your last post, I accept your point and I assume Newbank does too. Self employed people are being crushed by the current uncertainty in the market where the economy has stagnated for three years due to an undecided Brexit.

Not wanting to get political, but Corbyn has never really put the interests of jobs and workers before his ambition to stall the process and force a GE into trying to get into power, his dream is to take the keys NO 10 in order to fulfil his destruction of capitalism.

In Newbanks example he was ( or I read it as such) identifying the myth that everyone who has had a final salary pension is well off which they aren’t. In his example the person today will be barely above the means tested level, so that he doesn’t get any state benefits and loses his tv license.

I knew a widow whose husband used to work for the NCB many many years ago. Her late husband’s pension entitled her to £10 per week. She was just on a state pension. If she was on her state pension only she would get housing costs paid, council tax paid and benefits on top. But because she was entitled to her husband’s small pension of £10 per week she wasn’t eligible for anything! She even asked if she could refuse to take her husband’s small pension but the Social Security, as it was called then, said no, because you are entitled to it whether you accept it or refuse it, the amount will be used in the overall calculation. That widow was intending on giving up her husband’s £10 per week pension which if allowed, would in return, give her housing and benefits to the tune of £120 per week. That’s how flawed the system is.

Too many people including Gov departments just apply a black or white philosophy without trying to understand actual issues.

[utyinv] 14/6/2019 08:54

Also, once you have worked your 40 years in a 40/80ths or 60/80ths scheme ( without some underlining quirks) you stop paying into the scheme ie the scheme is closed to you. Your pension entitlement from the scheme is defined. If you decide to work to a ripe old age any additional pension contributions must be paid into a money purchase scheme ie a defined contribution scheme or SIPP. So if you get a big promotion at 66 years of age and your salary at the time you completed paying into the scheme was say £18,000 but at 66 you got a promotion pay rise to £50,000 then the scheme is based on the £18,000 and your new salary has no basis in determining how much you get from the final salary scheme. I threw that in as it’s now possible with longevity and laws for someone to work beyond their normal retirement age. However, one underlying major point is that collectively, your so called ‘FUND’ your benefits in the scheme ( usually calculated as 23 x pension on a 40/80ths scheme), plus any amounts in a self funded SIPP plus any pension find in a defined contribution fund cannot exceed the lifetime allowance of £1,000,000.

So if you were very fortunate to get a pension of £50k from a final salary scheme like a 40/80ths scheme and that is all you have contributed, the inland revenue will calculate the value of that fund as 23x pension so 23 x £50,000 is £1,150,000 in excess of the limit last year ( it’s risen a little since) which means punitive tax will be applied to the fund (not your pension) which correspondingly reduces the amount of your pension.

That’s why many GP’s who are partners of their business ( I create the distinction of partner because media like to publish the GP who earns £250k / year but the salaried GP earns £65k which brings the average of GP salaries to £90k) are retiring in their droves because of the punitive tax limits on life time funds.

One point Newbank has correctly mentioned there are many who are influenced by the Green Eyed Monster a term used to describe someone who is obsessed with envy about someone else’s perceived wealth. That obsession can often over exaggerate the idea of what benefits are actually received by those in final salary schemes, ie it’s a scheme not your pension money.

[dr biotech] 14/6/2019 08:51

In the initial example I was using newbanks figures - comparing his calculated value with someone who had a money purchase scheme over the same period. And of course his fantasy annuity rate.

Paying 6% and getting 12% from the employer is also exceeding generous. I've never had anything close to that. Now I'm self employed the contribution is only from me (excl tax relief). Either way, back to the original point - those who have retired on final salaries are way better than those working today. I see no need to subsidise them further.

[utyinv] 14/6/2019 08:21

ianood,

Some Final salaries are 60/80ths some old ones and those attached to some industries are 40/80ths.

Eg NG Gas is 60/80ths but NG Elect is 40/80ths. There are some quirks around these figures (pros and cons etc) but there is a mixture.

I think Newbank mentioned a reduction to those benefits if you go early. That is absolutely right, so you can expect 4% reduction per year if you take your pension before your Normal Retirement Age.

Final salary means your pension is based on a figure of your last full time salary ( pro rata if you work part-time too).

Newbank’s figures are right in the example.

If you earn £18,000 a year you pay 6% contributions. The employer pays 12%.

However, don’t be fooled to assume that all the money is all for your own benefit, it’s not!

It goes into a collective fund to cover all the funds liabilities.

If someone pays into a 40/80ths scheme like NG ( closed a good few years ago now), using Newbanks example of a person having a final salary of £18,000, that person after 40 years of service will get 40/80ths of £18,000 = £9000.

But in Newbanks example the person works for 20 years not 40 so it’s £18,000 x 20/80ths = £4500. If that person retires or leaves the scheme before Normal retirement age then that pension is reduced at a rate of 4% per annum so if the normal retirement age is 63 (typical of industry and banks etc), then if you retire at 55 then you will get a 4% penalty for each of the eight years you took your pension early. All this is based on taking your pension early voluntarily.

In the 40/80ths formulae the 40 reflects the number of years you actually work ( as it is assumed that you will work for 40 years), but if you only work 20 then that is 20/80ths if you work or in the scheme for 10 years you get 10/80ths and so on.

I know of a banking advisor for Lloyds who retired at 56 and he got a reduction of his benefits to the tune of 4% for every year he took his pension early.

Dr Biotech sounds like Prewar. He is not using the figures Newbank has used as an example of how wrong the perception around final salary schemes can be.

When I first started in a final salary scheme my original thoughts were that no matter how long I work I will get 40/80ths ie 1/2 my salary. Then I was educated with a stark awareness 😂

What money you put into the scheme is not your money like in a defined contribution scheme. Let me elaborate,

The scheme has to cover all its liabilities. So if a young person who has a wife and two children works for the company for 20 years and dies, then the 20/80ths example kicks in. However, his wife will get 3 x pension as a lump sum and then 66% of his pension earned to date each year for the rest of her life, even if her husband has only contributed 20 years. Her Children will get an allowance on top until they are 18 or under 23 but in full time education.

She will also get death in service from the Company but that is another aspect.

The point being made is the liabilities of providing a young wife who is widowed with a pension of 66% of her husbands earned pension is a big liability that long serving employees help to cover through their contributions.

That’s why they used to say to long servers in final salary schemes the pension fund needs you more than you need the fund, ie there comes a time when the money you have put in to the scheme together with your employer’s contributions is more than the corresponding benefits the old timer will get in benefits.

But in money purchase schemes any contribution you make and your employer makes into your fund is there for you only.

Do not confuse defined contribution personal pensions with final salary schemes. The wording of the latter is misleading, it should be expanded to something like a final salary scheme where pensions are based on how many years you put in and how early you take your pension, where all these factors are then put into a formulae to derive your pension, but that is too long winded, so they prefer to just call it a final salary scheme😂

[jonnycash1] 14/6/2019 08:05

Death benefits are the main reason people transfer out of final salary schemes. Looks like most people here would benefit from some professional financial advice...

[bountyhunter] 14/6/2019 07:51

I have to say that in my experience final salary schemes beat money purchase schemes hands down especially with today's very poor annuity rates. Not to mention the peace of mind that a final salary scheme provides. Furthermore final salary schemes generally provide more favourably for dependants. The reason why they are being phased out is that they have become too expensive for employers due to poor returns on their long-term investments.