Part-time work and final salary pensions

[Dilbertian]

What happens with final salary pensions if you wind down to retirement by going from full-time to part-time for several years?

You'll build up your pension at the part-time rate for the years you're part-time. So if you halve your hours, you'll add half a year every year instead of a full year, if that makes sense. Your full-time service will still count as full-time.

Some schemes offer flexible retirement where you take your pension and continue to work part time

Look at how your final pensionable salary is calculated too. Sometimes it's the highest in the last 3 years or similar, or the average of. This will impact on how your whole service is calculated at retirement.

Every scheme is different, but usually all salaries are based on FTE and then it's the service accrued that's reduced. I'm sure there's plenty of exceptions though

So say I worked for a company for 20y, starting on £20K and ending on £40K, with a 1/45 FS pension, I would expect pension = 20/45 x £40K. But if my last 2y were part time at 50% of hours, I would expect pension = 19/45 x £40K.

Have I understood correctly?

If those 2 years part-time has been at the beginning of my employment with that company, would the pension calculation be the same (ie 19/45 x £40K)?

Yes that's what I would expect to happen, exactly as you've laid out. But final salary schemes are funny things and can have random rules, so worth double checking with the administrators.

(Also, there aren't many truly final salary schemes still around these days, never mind with an accrual rate as high as 1/45. I assume those figures were just for illustration, but just flagging in case you've missed a rule change along the way!)

Totally just for illustration

Though I did start part time in my current role, and am considering ending it part time as well, as I do not think I could sustain full time into my 60s.

If only, eh?

You need to check with your scheme as the rules vary. Average of last three years is common which catches out people going part time at the end and can significantly reduce payments.

Some (many?) defined benefit schemes have changed from Final Salary to Career Average, which means your pension calculation is based on your salary for each year you paid into the scheme and not the salary you finish on.

If your scheme has changed like this during your employment, your pension calculation at the point it changed will have been frozen under the old rules (ie your 'final salary' for that portion will be your salary at the time). Future contributions will then be calculated in line with the changes introduced.

Is your scheme definitely still 'final salary'? There's probably a way that your scheme protects staff who go part time or have reduced salary in the last years but you really need to check with the pension administrators.

Where are you working with FS pension at 45th per year accrued?

Wishful thinking, I assure you.

Your part time years count as a fraction of a year's service. E.g. if you work one day per week, you'd work 5 years before you gain one year's service for pension purposes.

The salary used to calculate the DB pension would be the FTE salary.

I'm pretty sure this isn't true of the Teachers' Pension Scheme (and some other public sector schemes?) The 'final salary' for pension calculations is the actual final salary (or more precisely the average of the best three consecutive years in the last ten before retirement, to allow for winding-down and to discourage sudden last-minute promotion!) This is true even though we've all been moved to a Career Average scheme now.

Happy to be corrected and this probably isn't the OP's situation. But each scheme is different.

Yes, that's right, I worked FT for 20 years & then p/t for 6 years, my final salary would have been worth 23 years but I took ill health retirement which enhanced my pension to 30 years.