i-Pension Average Pay or Final Pay is a clear pension scheme. Your employees know exactly how much retirement income they are going to receive.
How does it work?
In the case of an average pay and final pay pension scheme, the amount of the retirement income is fixed. The premium and the amount of the retirement income depend on the amount of salary, the period that an employee is employed by you and the annual accrual percentage.Average pay is the name for a pension scheme for employees.
Accruing a pension in an average or final pay scheme
The words 'average pay' and 'final pay' almost speak for themselves. In the case of average pay, the employee receives a retirement income based on the average wage he or she earns over the years. In the case of final pay, this is a retirement income based on his last-earned salary.
Why would employers opt for i-Pension Middelloon?
| Advantage |
Disadvantage |
- Certainty and clarity for their employees. The pension is fixed. The employee will see on his or her benefit statement what his or her guaranteed retirement income will be.
- Cost control. Wage increases only count towards the pension still to be accrued by your employee. The means you do not have to pay extra pension accrual over past income.
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- A disadvantage of average pay is that the employer runs the risk of extra pension costs in the event of transfer of accrued benefits. In the case of transfer of accrued benefits, the employee takes the accrued pension with him or her to the pension provider of the next employer. We have a solution for the risk of additional pension costs in the event of future transfer of accrued benefits. Read more about this.
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Why do employers opt for i-Pension Final Pay?
| Advantage |
Disadvantage |
- Certainty and clarity for their employees. The pension is fixed. The employee will see on his or her benefit statement what his or her guaranteed retirement income will be.
- An excellent choice if the employer considers the care for his or her employees and their surviving dependants to be the most important factor in a pension.
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- A disadvantage of final pay is that the employer runs the risk of extra pension costs in the event of transfer of accrued benefits. In the case of transfer of accrued benefits, the employee takes the accrued pension with him or her to the pension provider of the next employer. We have a solution for the risk of additional pension costs in the event of future transfer of accrued benefits. Read more about this.
- Wage increases during the career count towards the accrual of the entire pension. Both in relation to the future and past term of service. This means that in the event of an increase, the employer pays an extra sum of pension over the past, the so-called 'backservice'.
- Are your employee’s pensionable earnings falling? In that case, the pension that the employee has already accrued may not reduce accordingly. We will then have to calculate his or her pension as if the employee left the company on the date when the pensionable earnings fell. The new accrual will again follow the principle of the final pay scheme. This means there will be an administrative ‘cut’ in the pension. As a result of this cut, several portions of pension are accrued per employee in administrative terms. The cut in pension due to the increase in the retirement age makes communication and administration even more complicated. As a result, administration costs are higher in a final pay scheme than in an average pay scheme.
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