Question
I am lucky enough to have a final salary pension but it does not pay out until I am 65 which is in about 12 months time. For the past 3 years I have worked on a part time basis for my emloyer and it was agreed that all part time days would count as service toward the pension a long with any additional days that I agreed to work when the company had need of me. This was in writing and I paid pension contributions on the part time and additional days .
I have now left work and my pension details have been crystallised. The company now advises that not all the additional days will count toward pension service - only mutiples of 8 which they equate to a months service. They claim that "all days count" toward the pension but only multiples of 8 will result in a service credit! Whilst the sums involved are minimal this really seems sharp practice. I do not believe the service of full time staff is based on mutiples of 8 ! There are 7 days where I paid contributions but no service credit is to be given - at the very least I believe a refund of the contributions would be reasonable but the company is silent on this question. Who is being unreasonable?
The trustees oversee a pension fund which pays out to both Directors and Staff. Directors are allowed to retire at 60 years staff must wait until they reach 65 years. Whilst Directors pay in more by reason of higher salaries is it fair that they can take pensions 5 years earlier from the same fund that I have paid into - it seems that I am potentially subsidising their pension! Am I muddled?
Thank you in anticipation of your reply
Answer
The usual practice for calculating a final salary pension for someone moving from full-time to part-time work is to pro-rata the salary up to the full-time rate and pro-rata the period of service into full years of service.
For example, suppose you belong to a 60ths pension scheme and worked 5 days a week at £30,000 a year, then reducing to 2 days a week for 3 years with a pro rata salary reduction. Your part-time pension entitlement would be 1/60th x 2/5 x 3 x £30,000 = £600 annual pension. The 2/5 part of the calculation takes account of working 2 days a week (out of 5) which, over 3 years, gives the equivalent of 1.2 full years of service at full annual pay of £30,000. Multiply this by 1/60th to get the actual pension.
It sounds as though your employer is doing things a bit differently, although the net result is likely to be pretty much the same. Using 8 days to equate to a month's service suggests your employer is assuming a 2 day working week (with 4 weeks in a month) then applying this to your actual salary rather than pro-rating to an annual salary (as per the above example).
Only counting multiples of 8 working days is a bit stingy, I suppose they do this to make the administration simpler. But it does seem unfair that this approach can ignore up to 7 days of service which, as you mention, contradicts your employer's claim that 'all days count'. I would ask to the company's pension administrator for an explanation and how they reconcile this to their claim - and check whether the part-time pension calculation is detailed in the pension paperwork you were given when moving from full to part-time. If you feel you don't get a satisfactory answer then by all means complain.
It's not uncommon for directors to enjoy more favourable pension benefits than other members of staff. And yes, they probably will get relatively greater benefits from a final salary scheme by virtue of having a higher salary and potentially a more favourable accrual rate (i.e. they can build up their years of service more quickly).
That's just the way it is, but it's the company and not you that's subsidising them. I suppose the burden of lots of fat-cat director pensions doesn't do much to help final salary pension scheme deficits, but unless the scheme is in danger of going bust then it's not really your problem.
I am lucky enough to have a final salary pension but it does not pay out until I am 65 which is in about 12 months time. For the past 3 years I have worked on a part time basis for my emloyer and it was agreed that all part time days would count as service toward the pension a long with any additional days that I agreed to work when the company had need of me. This was in writing and I paid pension contributions on the part time and additional days .
I have now left work and my pension details have been crystallised. The company now advises that not all the additional days will count toward pension service - only mutiples of 8 which they equate to a months service. They claim that "all days count" toward the pension but only multiples of 8 will result in a service credit! Whilst the sums involved are minimal this really seems sharp practice. I do not believe the service of full time staff is based on mutiples of 8 ! There are 7 days where I paid contributions but no service credit is to be given - at the very least I believe a refund of the contributions would be reasonable but the company is silent on this question. Who is being unreasonable?
The trustees oversee a pension fund which pays out to both Directors and Staff. Directors are allowed to retire at 60 years staff must wait until they reach 65 years. Whilst Directors pay in more by reason of higher salaries is it fair that they can take pensions 5 years earlier from the same fund that I have paid into - it seems that I am potentially subsidising their pension! Am I muddled?
Thank you in anticipation of your reply
Answer
The usual practice for calculating a final salary pension for someone moving from full-time to part-time work is to pro-rata the salary up to the full-time rate and pro-rata the period of service into full years of service.
For example, suppose you belong to a 60ths pension scheme and worked 5 days a week at £30,000 a year, then reducing to 2 days a week for 3 years with a pro rata salary reduction. Your part-time pension entitlement would be 1/60th x 2/5 x 3 x £30,000 = £600 annual pension. The 2/5 part of the calculation takes account of working 2 days a week (out of 5) which, over 3 years, gives the equivalent of 1.2 full years of service at full annual pay of £30,000. Multiply this by 1/60th to get the actual pension.
It sounds as though your employer is doing things a bit differently, although the net result is likely to be pretty much the same. Using 8 days to equate to a month's service suggests your employer is assuming a 2 day working week (with 4 weeks in a month) then applying this to your actual salary rather than pro-rating to an annual salary (as per the above example).
Only counting multiples of 8 working days is a bit stingy, I suppose they do this to make the administration simpler. But it does seem unfair that this approach can ignore up to 7 days of service which, as you mention, contradicts your employer's claim that 'all days count'. I would ask to the company's pension administrator for an explanation and how they reconcile this to their claim - and check whether the part-time pension calculation is detailed in the pension paperwork you were given when moving from full to part-time. If you feel you don't get a satisfactory answer then by all means complain.
It's not uncommon for directors to enjoy more favourable pension benefits than other members of staff. And yes, they probably will get relatively greater benefits from a final salary scheme by virtue of having a higher salary and potentially a more favourable accrual rate (i.e. they can build up their years of service more quickly).
That's just the way it is, but it's the company and not you that's subsidising them. I suppose the burden of lots of fat-cat director pensions doesn't do much to help final salary pension scheme deficits, but unless the scheme is in danger of going bust then it's not really your problem.
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