A typical DB salaried staff plan is contracted out of the state plan (S2P). All employees, sometimes with a service requirement of three to 12 months.
Normal Retirement Age
65 males/65 females
Benefit Formula
Two-thirds of final pensionable earnings after 40 years’ service (that is accrual rate of 1/60th of final pensionable earnings per service year).
Death and Disability
Included in retirement plan: Death – Yes. Disability – Yes, in the majority of cases; practice varies as to whether the plan is used or salary continuation is provided by the employer.
Vesting
Vesting benefit: From April 2006, three months.
Employee Contribution
Typically 5% to 8% of base salary, to a 1/60th scheme (many plans are trending up; note that two years ago, contributions were 3% to 5%). Most (not all) plans require a contribution.
Employer Contribution
Around 15% to 25% of base salary (1/60th final salary benefit). Current rates are higher due to past service-funding deficits.
Financing
Method depends on the size of plan assets. Most sizable plans have investment managers directing the assets.
Form of Payment
Most plans allow around 25% of pension benefit to be taken as a tax-free lump sum. Remaining benefit as annuity. Annuity in respect of current accruals must be linked to inflation once in payment but limited to 2.5% per annum.
Hybrid Alternatives
Career-average schemes adopted by a significant minority of schemes. Typically accrued benefits are linked to prices.
Other
Valuations: Formal valuations every three years. Annual “health check” reviews a statutory requirement. Local accounting standard: FRS 17, IAS 19.
