What is the Guaranteed Pension Plan?
You have a Guaranteed Pension Plan with Delta Lloyd. This is a defined benefit scheme.
How much will your pension be?
A defined benefit scheme means you can have confidence in how much pension you will receive. You build up part of your final pension every year. How much pension you will receive when you retire depends on:
- your salary;
- your pension scheme;
- how many years you have been building up pension with your employer;
- the accrual rate;
- any bonus, if applicable.
Your Uniform Pension Statement (UPS), which you receive every year around September, tells you how much pension you will receive. You can see how much pension you have built up so far, and the pension that you can expect to receive when you reach retirement age. The amounts shown on your UPS are nominal. In other words, prices will have risen by the time you retire because of inflation, so you might not be able to buy as much with your pension as you now think.
Different defined benefit schemes
There are several types of defined benefit schemes. Your pension introductory letter will tell you which type applies to you.
1. Average earnings scheme
How much pension you will receive when you retire in an average earnings scheme depends on your average salary while you worked for your employer. Following a pay rise, you will build up more pension from that year on, based on your new salary.
2. Collective Defined Contribution scheme
A Collective Defined Contribution (CDC) scheme is a kind of average earnings scheme. This means that how much pension you will receive when you retire depends on the average salary over your entire career. This also explains the term ‘average earnings’. There is an important difference between an ordinary average earnings scheme and a CDC scheme. The employer agrees a pension budget in advance. If for any reason the budget turns out to have been set too low to achieve the intended pension accrual, you will build up less pension in that year. In other words, you could build up less pension in a given year than you had expected. However, the pension you have built up so far is secure. It cannot be lowered.
3. Final salary scheme
How much pension you will receive when you retire in a final salary scheme depends on your salary when you retire. Following a pay rise, the pension you built up in the past will be recalculated in line with your new salary. This means you will build up more pension. This kind of defined benefit scheme is now rare.
Costs of your pension
Your employer pays a monthly contribution towards your pension. Your employer determines whether he pays the entire contribution or if you should also pay a part. Your pay slip tells you whether you pay any pension contribution and how much you pay.