Final salary pension

[paddymc12]

Quick question on FSPs ,for example if you join as a trainee train driver on this scheme aged 45 can you choose to retire at 58 or 60 for example or must you work to the new state pension age of 67?
I`m aware that your pension is based on the best of your last 3 years but is there a maximum/minimum amount of time that you have to serve with a TOC ?
hope I`ve explained myself properly ,thanks in anticipation.

 

[Simon11]

What TOC would this be with?

From memory, I would have thought you would require 40 years of service to get the full pension, but I may be wrong.

 

[TDK]

Quick question on FSPs ,for example if you join as a trainee train driver on this scheme aged 45 can you choose to retire at 58 or 60 for example or must you work to the new state pension age of 67?
I`m aware that your pension is based on the best of your last 3 years but is there a maximum/minimum amount of time that you have to serve with a TOC ?
hope I`ve explained myself properly ,thanks in anticipation.

When I finish I would have done 23 years service at 60 and I can retire, my payment will be 23/40ths of the full pension however I am maxing out my voluntary contributions in fact £100 per week saving 40% tax with it so my real term pension will be virtually the same as if I had done 40 years.

 

[Bishopstone]

Quick question on FSPs ,for example if you join as a trainee train driver on this scheme aged 45 can you choose to retire at 58 or 60 for example or must you work to the new state pension age of 67?

Pension scheme retirement age is entirely separate to state pension age.

Some final salary pension schemes operate a 'state pension deduction', so your occupational pension is reduced by the amount of the basic state pension when you are able to draw the latter. Others will know whether this applies to railway schemes.

 

[snail]

I don't know about railway schemes but if you take an early pension in the company schemes I do know there is a deduction to take into account the longer period the pension is likely to be in payment*, something around 4-5% for each year before the scheme standard retirement age. Many older schemes still use 65 but a number are now linking to the state pension age.

* If the pension is based on a central estimate of say 20 years from age 65, retiring at 60 would mean paying out for 25 years so a deduction of 20% (4% x 5 years but applied to every year of pension) means you get close to the same total payout by the time you're 85.

 

[redbutton]

The railway pension is divided into different sections that apply to the various companies that participate. So the rules will be different for each.

In my company's section, the benefit amount is figured like so:

• your final average pay less one and a half times the final average basic State Pension; or
• one half of your final average pay if it is more.

This figure is then divided by 60 and multiplied by the number of years’ and days’ membership you have in your section of the scheme.

We have the option to retire early at age 55 (for 75% of the above amount) scaling up to full entitlement (as above) at age 60.

We then have the option to receive a larger amount in the first years before reaching state pension age followed by a smaller amount once the state pension is there to top up the earnings, so that net income remains the same throughout. Or one can elect to just receive a flat rate from the beginning which results in a net increase once state pension kicks in.

There is also an additional voluntary contribution scheme that you can use to boost your pension, which could be useful if you expect a shortfall in years of service or you expect to retire early or you just want a larger income in retirement.

 

[paddymc12]

many thanks for your advice,knowledge and time taken to post ,it has answered my question.
in relation to which TOC ,Northern rail.

 

[class 9]

When I finish I would have done 23 years service at 60 and I can retire, my payment will be 23/40ths of the full pension however I am maxing out my voluntary contributions in fact £100 per week saving 40% tax with it so my real term pension will be virtually the same as if I had done 40 years.

I was always under the impression that it was divided into 60ths,so if you did 40 years, the pension would be 2 thirds of the final salary(which is the max)
Also bear in mind that if you changes jobs and therefore pension sections, would could loose out. When I moved from a TOC to a FOC, my first 12 years only had a transfer value of about 6 years, in hindsight I should have taken advice!

 

[Latecomer]

You can also 'buy' years in the railway pension by transferring in an pensions you already have from previous employment. Unless they were very good you probably won't purchase as much as if you had been in the railway pension from age 30 but it is worth serious consideration.

You can get a valuation without any commitment. I think I got about 15 years worth when I transferred mine in. I will be very slightly short of 30 years when I hit 60 but, like TDK, I am paying in a fair bit extra via the voluntary contribution scheme. The tax break effectively gives you an immediate return even before it has had a chance to grow. You can normally allocate your funds depending on your approach to risk - the advice being to switch the loading of fund choices back in to safer (though potentially lower return) funds the closer you get to retirement.

 

[David]

Just a word of warning about transferring pensions. Depending on your current pension scheme, they may charge an exit fee. Depending on the size of your current pension fund, this could be a considerable sum being deducted.

The best way to max out your future pension income IMO ** will be to contribute to the FSP scheme, and max out your additional AVC, but keep your current pension where it is, unless it's performing badly.

** Disclaimer. I am not a financial advisor, although in broad terms I do know what I'm talking about as I administer my own pension and ISA through an execution only stockbroker. If in doubt, arrange a meeting with a financial advisor will will be able to go through everything with you in a lot greater detail than I can. If your a member of a union, then they usually have a partnership with a firm of IFA's which will give a discount on their hourly consulting rate.

 

[The Planner]

You can also 'buy' years in the railway pension by transferring in an pensions you already have from previous employment. Unless they were very good you probably won't purchase as much as if you had been in the railway pension from age 30 but it is worth serious consideration.
.

You cannot transfer in from an external pension AFAIK to Network Rail RPS60 or RPS65?

 

[Bald Rick]

Not sure of your status, ie whether you already are a member of a railway company pension scheme or not, and how close to pension age you are. However it is very important that you get professional advice before you decide to retire. This has become even more important in the past 2 years as the tax rules for pensions have changed considerably.

Most employers will be able to provide some advice gratis, but you can, if you wish, seek external independent advice. They will charge, but the charge is peanuts compared to the value of your pension.

 

[Andrew1395]

Best thing is ring the railway pension helpline. They will give you definitive advice.

 

[falcon]

Quick question on FSPs ,for example if you join as a trainee train driver on this scheme aged 45 can you choose to retire at 58 or 60 for example or must you work to the new state pension age of 67?
I`m aware that your pension is based on the best of your last 3 years but is there a maximum/minimum amount of time that you have to serve with a TOC ?
hope I`ve explained myself properly ,thanks in anticipation.

You can chose to retire at 58 or 60 if you want.You do not have to work to the state pension age.So that means you will have your railway pension until you reach retirement age then you will get the state pension also.
I don't know where you have got the idea that your pension is based on the best of your last three years! to my knowledge it is simply paid to you in relation to the contributions you make regardless of the best of the last three years! Best of what?
There is no minimum time you have to be with a TOC.Your pension is available from 55 yeras old.

 

[David]

There is no minimum time you have to be with a TOC.Your pension is available from 55 yeras old.

Shortly raising to 57 years old.

 

[paddymc12]

You can chose to retire at 58 or 60 if you want.You do not have to work to the state pension age.So that means you will have your railway pension until you reach retirement age then you will get the state pension also.
I don't know where you have got the idea that your pension is based on the best of your last three years! to my knowledge it is simply paid to you in relation to the contributions you make regardless of the best of the last three years! Best of what?
There is no minimum time you have to be with a TOC.Your pension is available from 55 yeras old.

sorry falcon that was one of the bits I didn't explain well ,my friend who`s a police officer can do 30 years in a final salary pension and his lump sum and pension payments are based on the best of his last 3 years e.g when he earned the most money/salary etc. hope that clears that up for you ,thanks.

 

[bystander]

I don't know where you have got the idea that your pension is based on the best of your last three years! to my knowledge it is simply paid to you in relation to the contributions you make regardless of the best of the last three years! Best of what?

The nuts and bolts depend on the section of the scheme you're in, but the clue is in the name. "Final Salary". The pension you receive (essentially) depends on your FINAL SALARY x years in the scheme / 60, irrespective of what you've put in to the scheme through higher or lower wages previously. If you've been a driver for 39 years and work on the gateline for your last year (assuming you haven't got a medically protected wage), then your pension will be based on your lower gateline salary not your driver salary. Equally vice versa - if you're a driver for 39 years and become the MD of your TOC for the last year your pension will be based on your higher MD salary (again, based on how long you've been doing that for as a qualifying period)

It may be one year + one day in the final position (think that's what it is in my section); it may be more or less; but it's certainly something along those lines.

 

[David]

It may be one year + one day in the final position (think that's what it is in my section); it may be more or less; but it's certainly something along those lines.

A lot of FSP are changing to stop this sort of thing. IE someone works on an average wage/salary for the majority of their career, and getting a high payed position for their final year or few months. Most schemes now average out an employees earning of their last few years with the company.

 

[MichaelAMW]

The nuts and bolts depend on the section of the scheme you're in, but the clue is in the name. "Final Salary". The pension you receive (essentially) depends on your FINAL SALARY x years in the scheme / 60, irrespective of what you've put in to the scheme through higher or lower wages previously. If you've been a driver for 39 years and work on the gateline for your last year (assuming you haven't got a medically protected wage), then your pension will be based on your lower gateline salary not your driver salary. Equally vice versa - if you're a driver for 39 years and become the MD of your TOC for the last year your pension will be based on your higher MD salary (again, based on how long you've been doing that for as a qualifying period)

It may be one year + one day in the final position (think that's what it is in my section); it may be more or less; but it's certainly something along those lines.

But generally you can protect your benefits by leaving a pension scheme. So, your 39-year driver can leave and defer his/her benefits at the level of the driver's salary, rejoining if s(he) wishes for that final year in the lower-paid job. In effect you resign from one post and then start a new post, joining the pension scheme as a new starter, albeit for only a year in your example.

 

[greatkingrat]

The nuts and bolts depend on the section of the scheme you're in, but the clue is in the name. "Final Salary". The pension you receive (essentially) depends on your FINAL SALARY x years in the scheme / 60, irrespective of what you've put in to the scheme through higher or lower wages previously. If you've been a driver for 39 years and work on the gateline for your last year (assuming you haven't got a medically protected wage), then your pension will be based on your lower gateline salary not your driver salary. Equally vice versa - if you're a driver for 39 years and become the MD of your TOC for the last year your pension will be based on your higher MD salary (again, based on how long you've been doing that for as a qualifying period)

It may be one year + one day in the final position (think that's what it is in my section); it may be more or less; but it's certainly something along those lines.

Not true, your pensionable pay cannot go down, so if you move to a lower paying job, your pensionable pay would be frozen at your old rate until the new job catches up.

 

[bystander]

Not true, your pensionable pay cannot go down, so if you move to a lower paying job, your pensionable pay would be frozen at your old rate until the new job catches up.

Wrong, completely, at least for the sections I've been in although other sections may have other rules. You could have a medically protected salary if you can no longer drive but your pension is not protected if you reduce salary for another reason. It hits managers who go back to drive within the same firm quite hard. That's why as MichaelAMW correctly points out, people can and do leave then rejoin to protect their "final" salary. (In my company you cannot then rejoin the scheme though if you choose that route.)

 

[russmcp]

sorry falcon that was one of the bits I didn't explain well ,my friend who`s a police officer can do 30 years in a final salary pension and his lump sum and pension payments are based on the best of his last 3 years e.g when he earned the most money/salary etc. hope that clears that up for you ,thanks.

Your friend may be one of the protected ones. The police pension has changed and is now career average. Only officers within 10 years of retirement will keep final salary status. One of the reasons I left and joined the railway

 

[Latecomer]

Just a word of warning about transferring pensions. Depending on your current pension scheme, they may charge an exit fee. Depending on the size of your current pension fund, this could be a considerable sum being deducted.

The best way to max out your future pension income IMO ** will be to contribute to the FSP scheme, and max out your additional AVC, but keep your current pension where it is, unless it's performing badly.

** Disclaimer. I am not a financial advisor, although in broad terms I do know what I'm talking about as I administer my own pension and ISA through an execution only stockbroker. If in doubt, arrange a meeting with a financial advisor will will be able to go through everything with you in a lot greater detail than I can. If your a member of a union, then they usually have a partnership with a firm of IFA's which will give a discount on their hourly consulting rate.

You are correct for some pensions that apply exit penalties or guaranteed annuities however, I disagree that it generally applies that it is best to leave your existing pension where it is. Where I do agree is that advice should be sought or at the very least investigations made (hence why I obtained quotations, etc). If you were in a relatively well paid job with pension bonuses then it may not be the best option, however with pension reform many pension schemes charge no exit fees and are fully portable without penalty. If this applies to anyone joining the railway pension scheme then it really does warrant some research. In my case I was transferring in to a job on not far short of double my salary and with the final salary nature of the scheme I gained far more by transferring in than not. None of the 4 schemes I transferred in charged exit fees. I have been tracking my pension progress and it far outweighs the performance I was achieving under my former pension arrangements, they would have been falling behind by the year. But yes, advice if required is important.

You cannot transfer in from an external pension AFAIK to Network Rail RPS60 or RPS65?

You may be right, I don't know about the Network Rail Schemes.

 

[falcon]

The nuts and bolts depend on the section of the scheme you're in, but the clue is in the name. "Final Salary". The pension you receive (essentially) depends on your FINAL SALARY x years in the scheme / 60, irrespective of what you've put in to the scheme through higher or lower wages previously. If you've been a driver for 39 years and work on the gateline for your last year (assuming you haven't got a medically protected wage), then your pension will be based on your lower gateline salary not your driver salary. Equally vice versa - if you're a driver for 39 years and become the MD of your TOC for the last year your pension will be based on your higher MD salary (again, based on how long you've been doing that for as a qualifying period)

It may be one year + one day in the final position (think that's what it is in my section); it may be more or less; but it's certainly something along those lines.

I do not know the source of your information but it is completely wrong the term " Final Salary" is mis leading.
The Railway pension scheme is based on the contributions made, it is in fact a career average earning scheme. If you work 10yrs as on gateline you pay gateline contributions for 10yrs,then a guard for 10yrs you pay 10yrs guard contributions,then a driver for 20yrs you pay 20yrs drivers contributions.That means when you retier you pension is calculated at 10yrs gateline,10yrs guard and 20yrs driver. NOT 40yrs at drivers rate.There would be no pension scheme left if it were based on the final salary that the person worked, were would the money come from! Also would you seriousley expect someone to pay 39 years contributions as driver (£100 per week) then work on a gateline for the final year and recieve a pension of 25% of that of a driver! I realise that many people in the railway industry believe that it is "final salary" but it is not. Some of the ideas expressed about pensions on the railway are years out of date. Just pick up the phone and ring RPMI and you will see. My source of info is that I was on the railway pensions committee for 3 yrs.
--- old post above --- --- new post below ---

Shortly raising to 57 years old.

Wher have you got this information about the minimum retirement age rising to 57 please?The minimum age for retirement is set by the Government!

 

[Jonfun]

I have no doubt you know what you're talking about with regards to pensions but I don't think that tallies with the information given out by RPMI. Certainly not for my section, anyway.

 

[greatkingrat]

I do not know the source of your information but it is completely wrong the term " Final Salary" is mis leading.
The Railway pension scheme is based on the contributions made, it is in fact a career average earning scheme.

Do you work for Network Rail by any chance? Their section of the Railway Pension Scheme has changed to career average rather than final salary for non-protected members, however I believe most TOCs are still on a final salary scheme.

 

[David]

Wher have you got this information about the minimum retirement age rising to 57 please?The minimum age for retirement is set by the Government!

Apologies, I've got hold of the wrong end of the stick. The State Pension age will be rise to 67 by the year 2028. The minimum retirement age will be rising by 2 years at the same time so it will remain 10 years below the SPA.

The minimum pension age will increase from 55 to 57 by 2028 as the state pension age rises to 67, the government has announced.

The age at which people are allowed to withdraw private pension savings will rise from age 55 to 57 in 2028, according to the government response to its Freedom and Choice in Pensions consultation.

Following that the minimum pension age will continue to be always 10 years below state pension age (SPA). SPA is due to increase in line with life expectancy rises. Currently SPA for men and women is due to hit 67 by 2028.

http://citywire.co.uk/new-model-adviser/news/pension-age-to-increase-from-55-to-57-by-2028/a762875

 

[bystander]

I do not know the source of your information but it is completely wrong the term " Final Salary" is mis leading.
The Railway pension scheme is based on the contributions made, it is in fact a career average earning scheme. If you work 10yrs as on gateline you pay gateline contributions for 10yrs,then a guard for 10yrs you pay 10yrs guard contributions,then a driver for 20yrs you pay 20yrs drivers contributions.That means when you retier you pension is calculated at 10yrs gateline,10yrs guard and 20yrs driver. NOT 40yrs at drivers rate.There would be no pension scheme left if it were based on the final salary that the person worked, were would the money come from! Also would you seriousley expect someone to pay 39 years contributions as driver (£100 per week) then work on a gateline for the final year and recieve a pension of 25% of that of a driver! I realise that many people in the railway industry believe that it is "final salary" but it is not. Some of the ideas expressed about pensions on the railway are years out of date. Just pick up the phone and ring RPMI and you will see. My source of info is that I was on the railway pensions committee for 3 yrs.

Please stop misleading people. It is you that is wrong certainly in relation to the pension rights of TOC employees.

This is a direct quote from my current "Guide for Members" (and it is the same as the Guide for Members that applied to the previous section of the scheme of which I was a member):

"When you retire from the railway industry, you will receive a pension every four weeks [...] This pension is based on the number of years and days you have been in your section of the scheme, and your final average pay".

Furthermore, "Final Average Pay" is specifically defined as "Your pensionable pay averaged over the 12 months before you:

• retire
• leave your section of the scheme, or
• die."

It is entirely, totally the case that if you work on the gateline for the last year of your career, you lose all the extra money from the years that you have contributed as a driver if that is the case. That's why people resign then rejoin without joining the pension scheme if they want to jobshare - otherwise they are giving up half their pension rights.

For that reason I did not transfer over the many years that I had in my previous section of the scheme; I have left it as a pension based on my driver's salary when I left that section and have started again in my new section. Therefore if I do end up walking the concourse for whatever reason, my service in the old section remains based on driver's money, increased by CPI over the years since I moved to my current TOC. I've looked into this and had financial advice on it.

 

[greatkingrat]

That may be the case at your TOC, but at mine your pay is frozen at the old rate, it can never go down. Contributions would still be based on the old salary rate.

Our scheme rules state:
(a) if a Member's Pensionable Pay in relation to any specified Section Year is less than the Member's Pensionable Pay was in relation to the preceding Section Year (and for this purpose only taking account of any actual change whether prospective or retrospective in such Member's Pay during the 12 month period from 1st April prior to the commencement of such preceding Section Year) then such Member's Pensionable Pay in relation to the later Section Year shall be deemed to be increased by such amount as is required to make up the deficit, and shall remain such higher amount until such time as that amount is exceeded by the amount of such Member's Pensionable Pay in relation to a subsequent Section Year; and

 

[theironroad]

I do not know the source of your information but it is completely wrong the term " Final Salary" is mis leading.
The Railway pension scheme is based on the contributions made, it is in fact a career average earning scheme. If you work 10yrs as on gateline you pay gateline contributions for 10yrs,then a guard for 10yrs you pay 10yrs guard contributions,then a driver for 20yrs you pay 20yrs drivers contributions.That means when you retier you pension is calculated at 10yrs gateline,10yrs guard and 20yrs driver. NOT 40yrs at drivers rate.There would be no pension scheme left if it were based on the final salary that the person worked, were would the money come from! Also would you seriousley expect someone to pay 39 years contributions as driver (£100 per week) then work on a gateline for the final year and recieve a pension of 25% of that of a driver! I realise that many people in the railway industry believe that it is "final salary" but it is not. Some of the ideas expressed about pensions on the railway are years out of date. Just pick up the phone and ring RPMI and you will see. My source of info is that I was on the railway pensions committee for 3 yrs.

Falcon. I think there is a real danger in your post that you are going to start causing a lot of anxiety and concern for many people who are part of a 'railway pension scheme'. If you did a 3 year term on a pension committee, you should know better than many that the railway pension scheme is a very broad church and there are many 'sections' to it, with different rules.

Certainly, Network Rail has dramatically changed its scheme, especially for new entrants, whereas many TOCs are relatively unchanged.

My scheme guide still defines the pension being based on
'Final average pay' which is defined as:

The greater of your pay or your pensionable pay averaged
over the 12 months before you:
• retire;
• leave your section of the scheme; or
• die.

While everything you say may be true for your personal scheme and the scheme committee you were elected to, it is not necessarily the same for others reading these posts.

It would be useful if you either tell us the scheme you are so definitive about or, if you don't want to, tell us that you could be wrong.

Some people may read your post and start to worry about their pension, especially if closer to retirement. I realise you're trying to be helpful, but I think you need to be very careful with such forthright statements.

Finally, the best people to speak to are the administrators of the scheme (phone number in your annual pension estimate or online or sign up to the 'myrps' online pension calculator. Additionally, people may want to seek independent financial advice from an IFA.