Pension Supplement

[freespeech]

Section C pensionable pay was and still is lower because of the Lower Earnings Deduction, but the accrual rate was 1/60ths compared to 1/80ths with section B.

To be honest I'm not 100% sure why section C members get the supplement until state pension age. But looking at an old section C final salary plan guide I have from 2000, it was worked out as:

1/60th of the average LED in force over the period your pensionable pay is worked out, for each year of pensionable service. Up to a max of 40 years.

For example:
Pensionable service = 30 years 150 days
LED = £3,328

£3,328 / 60 x 30 years, 150 days = £1,687

Don't section C get the supplement because the scheme was contracted out of SERPS?

[RobertT]

Section C pensionable pay was and still is lower because of the Lower Earnings Deduction, but the accrual rate was 1/60ths compared to 1/80ths with section B.

To be honest I'm not 100% sure why section C members get the supplement until state pension age. But looking at an old section C final salary plan guide I have from 2000, it was worked out as:

1/60th of the average LED in force over the period your pensionable pay is worked out, for each year of pensionable service. Up to a max of 40 years.

For example:
Pensionable service = 30 years 150 days
LED = £3,328

£3,328 / 60 x 30 years, 150 days = £1,687

Don't section C get the supplement because the scheme was contracted out of SERPS?

Sections A & B were contracted out of SERPS too. That ended for everybody in 2016.

As the supplement is worked out as a percentage of the LED for each year worked, it's probably fair to say it's linked to the LED as a way of increasing section C pensions a bit.

It's similar with Bonusplan, which is worked out as 4.5% of the LED.

[RobertT]

Also, section B have the option to still pay AVCs which in effect allow them to build an even bigger pot without commutation.

AVC's are far less attractive to section B members, because although they get a lump sum as standard, if they choose to give up some or all of it for more pension, the commutation rates aren't very attractive.
With the other options being just to take a larger lump sum, which when also factoring in the DBCBS, will almost certainly be fairly heavily taxed, or else buying an annuity paying a pittance for life.

The DBCBS and AVC's for section C members are more likely to all be tax free.
But obviously a lot will depend on amounts involved, etc.

In a hypothetical situation of two people starting on the same day with identical pay and service, but one in section B and the other in C, then I would say the total pot value of their benefits will be fairly similar.
Section B might have a lump sum as standard and higher pensionable pay, but section C has a higher accrual rate and lower weekly contributions. Overall things even themselves out to some degree!

Add on the more favourable tax situation with AVC's and the DBCBS, and in my opinion section C becomes more attractive.

But ultimately we're all in the scheme we're in based on our start date, and there's not much we can do about it.

[heapsy]

My mate at another office is section B. He chose to pay AVCs to build up a bigger pension / lump sum. In addition this would provide a larger widows pension as quite a bit of his lump sum will come from the AVCs. His wife until she recently lost her job due to COVID was self employed, so anyone in their situation should consider doing likewise.

[RobertT]

My mate at another office is section B. He chose to pay AVCs to build up a bigger pension / lump sum. In addition this would provide a larger widows pension as quite a bit of his lump sum will come from the AVCs. His wife until she recently lost her job due to COVID was self employed, so anyone in their situation should consider doing likewise.

This thread has turned into a B vs C thing and I was looking at it from an AVC and tax point of view!

I appreciate the benefits of having a larger pension and death benefits, but converting lump sum to pension for a section B member is quite an expensive thing to do, as the commutation rates aren't that great.

If your mate has weighed up the pros and cons and is happy, then that's all that matters. But as ever, these things will always come down to personal choice and circumstance.