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Pension query
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I am lucky enough to have a final salary pension. I have been made redundant at 62 and am looking at taking my pension early. I asked for an estimate of my yearly pension. I thought it was simply calculated on my final salary x 1/80 for each completed years service. What I don't understand is why they say that my final 'pensionable salary' is my final salary less the 'Lower Earnings Limit'. I have asked and they don't seem to want to give me a straight answer as to what this 'Lower earnings limit' is and why they will be deducting it from my actual yearly salary, before calculating my pension. Can anyone simply explain it to me please.
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The lower earnings limit is currently �90 per week. It is the level of earnings below which NI is not required to be paid.
I suspect (but I am not sure) that you are not contracted out of the basic State scheme, and will be entitled as well to the Basic State pension at age 65. And that these two things are linked together.
I suspect (but I am not sure) that you are not contracted out of the basic State scheme, and will be entitled as well to the Basic State pension at age 65. And that these two things are linked together.
This Lower Earnings Deduction is a common factor in most Final Salary schemes although most people don't realise it until they get down to the nitty gritty of reading the rules. Ask if you can have a copy of your company pension scheme rule book (all employees should be given one) where you will probably find a detailed explanation.
Also, if your normal retirement age is 65, most early retirees from pension schemes have a further deduction made (between 3%-5%) for each year they retire below normal pensionable age.
The other thing to remember is that if you're receiving redundancy pay any payment over �30,000 is subject to tax, although you can often avoid paying this extra tax by asking that the surplus over �30,000 is paid into into your pension scheme as an additional payment. However, it needs to be done after you have left the company, otherwise it is effectively additional extra pay and becomes taxable.
Also, if your normal retirement age is 65, most early retirees from pension schemes have a further deduction made (between 3%-5%) for each year they retire below normal pensionable age.
The other thing to remember is that if you're receiving redundancy pay any payment over �30,000 is subject to tax, although you can often avoid paying this extra tax by asking that the surplus over �30,000 is paid into into your pension scheme as an additional payment. However, it needs to be done after you have left the company, otherwise it is effectively additional extra pay and becomes taxable.
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