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    Final Salary Pensions – Food for Thought

    Click here for help with your Pension

    They pestered her until she just, finally, agreed to meet with them. She wanted them to stop bothering her and needed them to stop interrupting her day.**

    “It’s only for a coffee. Nothing more. I have a great job here and it will take an awful lot to get me to move on.”

    What the headhunters didn’t think about was that Michelle’s package was virtually gold-plated. When she said that it would “take an awful lot to get her to move on”, she wasn’t kidding.

    Her salary was naturally very good as a Director at an investment bank. Six figures to be precise. She, also, had the usual additions of a great bonus (25% – 50% of base), car allowance, gym membership, death-in-service and income protection for long-term sickness.

    However, in Michelle’s mind, she knew the deal-breaker for her was going to be her final salary pension.

    She was in her early 40s, had been at the bank for 15 years and had grafted her way to the top. In her mind, her pension was symbolic of her efforts. And this was not going anywhere, anytime soon; not without someone proving that her final salary pension could be bettered.

    Michelle’s situation looked like this:

    • For every year she had worked for the investment bank, she was lined-up to receive one sixtieth of the salary she finished on when she retired
    • Being 43 years old, she only had 12 years left before she could take her juicy retirement income. She would never have to work again and would be just 55 years young at that point in time!
    • Having done 15 years at the company already with just another 12 to go, Michelle had been correctly advised by her Financial Planner that she will be on almost half her salary when she retires. That’s half of a *very* big salary, every year, until she dies – GUARANTEED.
      (Well, almost guaranteed. There are a few “gotchas” that her Financial Planner has to keep her aware of but, essentially, it’s certain.)
    • Michelle had been advised by her Financial Planner that she could boost her retirement income even further with some tax strategies and a few adjustments to her income. “No skin off her nose”, so to speak.
    • Oh, we forgot something … Michelle doesn’t pay a penny into her pension herself i.e. it is one of those old “non-contributory pension schemes”.

    The headhunter prattled on about global responsibility, bigger salary, greater industry presence. What he didn’t take into account was his “client’s need”. Michelle was focused on her future income; her current income was just fine.

    The new role offered a great CONTRIBUTORY pension that was NON-guaranteed (i.e. defined contribution) and gave her no knowledge *today* of what the income could be in retirement. How could she plan her cruise holidays in the future without some knowledge of her income in retirement?

    Half of £150,000 is £75,000. Not that difficult to figure out at all. (i.e. 30 / 60 years service to the employer multiplied by the “big salary” of £150K per annum, Michelle’s personal target salary at retirement = ½ of £150K = £75,000)

    Half of an unknown figure is double the uncertainty. Now, *that* is difficult to figure out.

    There are times when a final salary pension is almost certainly not the best choice. Nevertheless, Michelle’s situation is food for thought if a change of career or a new job is on the cards. Whether you retire fully or not, an income will always be needed in the future. Final salary pensions is one important way of securing that future income.

    Michelle enjoyed her coffee and went back to work to get on with the next 12 years of working life.

    (Compare this to a money purchase pension and see what choice you would make in this situation.)


    Click here for help with your Pension

    ** Based on a true life account

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