Not in a final salary scheme? Expect a smaller pension or a higher tax bill
If you're in a defined contributions pension scheme, new rules mean you could end up with an annual pension half the size of someone in a final salary scheme.
In this week's magazine, we have a look at how changes to pensions allowances will affect those with good-sized pensions (subscribe to MoneyWeek magazine on Thursday, but the answer is mostly badly). But along the way, I was struck once again by the huge advantages in having a defined benefits pension of any kind.
From this April, the lifetime allowance for pension savings will be moved to £1.25m. The tax authorities measure the size of a defined benefit pension pot by multiplying the annual payment the recipient is entitled to by 20 times. So, only those with an annual entitlement of more than £62,500 at the moment will end up having any trouble with the new rules.
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A member of a final salary scheme gets not far off double the annual pension as someone in a defined contribution scheme before they find themselves over running the government's new limits and paying a 55% flat tax on the excess. Enough to make a person want a job in the public sector, isn't it?
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