A Comprehensive guide for your defined benefit pension plans

A defined benefit (DB) pension scheme is one where the amount you're paid is based on how many years you've worked for your employer, the salary you had earned, either at the end of your employment or the average over a period of years prior to your retirement (or leaving the company) and the proportion of that salary at which your employers scheme based your pension pay out on (usually 1/60th or 1/80th). Defined benefit plans are common for employer-sponsored retirement plans, especially older schemes. Like other eligible schemes, they offer tax incentives to employers and partner employees.

According to the Pension Act 2014, your employer may generally contribute to the scheme. And you don't usually tax those contributions (typically during retirement) until you start receiving distributions from the plan.

How to work out your pension income?

Your pension income is usually calculated as follows:

• Years in the plan
• Multiplied by the scheme accrual rate
• Multiplied by the pensionable income

For example:

• There is a 1/60th accrual rate in your plan
• You have been in the DB pension scheme for ten years
• You retire at 65 with a one-year salary of £24,000 and the pensionable amount is based on this final salary

This will give you a pension:

• 10 (years) multiplied by £24,000 (salary) multiplied by 1/60 (the accrual rate) = £4,000 each year. This figure will then grow each year in retirement by the applicable rate of inflation used by the scheme.

Checking your pension income

Your latest pension statement gives you an idea of??how much your pension income will be. If you have not received one, ask for a defined benefit pension report from your scheme administrator. Details usually show the basis of your pension:

• Your current salary
• How long are you have been in this plan, and
• What would your retirement be if you stayed in the program until the average retirement age (usually 65)?

If you have not requested this report, you will still receive a statement each year showing how much your pension is. In most cases, your pension will increase by a certain amount each year until retirement age.

Read more points here: A Comprehensive guide for your defined benefit pension plans

CJ Financial offers investment solutions and financial planning for UK expats. Including pension advice for SIPP Transfer, QROPS Transfer, final pension transfer, to investment solutions for education, retirement and lump sum.