Shell’s 80-Point Pension

Full Transcript

I want to make sure you’re making an educated and informed decision regarding your upcoming pension selection. Today, we’ll talk about the 80-point pension at Shell.

For those of you that hired on at Shell prior to 2013, you can select between the defined benefit 80-point pension plan and the newer APF pension plan. Today, we’re going to focus on the 80-point pension plan. Now, the 80-point pension plan looks at your age and years of service to calculate points. The 80-point pension plan acts as a traditional pension in which you get an annuity after your retirement. Let’s look at Jane to run through a case study of how one’s benefit is calculated.

So, today, Jane is 45 years old, and Jane has been with Shell for 20 years. Now, Jane has had all 20 years on the 80-point pension plan. This is really important as this equation only looks at your years of service when you are under this plan. Now, Jane is currently making a base salary of $200,000 per year, and she expects she gets about a $40,000 per year annual bonus. Now, Jane wants to retire at age 55, so at that point, Jane will have 30 years of service with Shell, and we’re going to assume that they’re all under the 80-point pension plan. In addition, at that point, after raises, we’re going to assume that Jane’s total compensation of base and bonus has been averaging about $333,000 per year. Now, when it comes to pension calculations, you do not get to include any severance pay in that average final compensation.

So, as Jane is under the age of 60 when she retires, she chooses to defer her pension until age 60. She does this because any payments before that will be discounted based on her age. Now, one benefit of reaching the 80-point Cliff, as Jane has 85 points, is that at age 60 she can collect her full pension benefit. An additional benefit of reaching 80 points is that if you collect your pension before you hit your normal retirement age for Social Security, in Jane’s case 67, Shell will supplement the offset. So, let’s look at the numbers to help you understand.

So Jane has 30 years of service under the 80-point pension plan, and we’re going to multiply that by 1.6% per year. So, at this point, we also then multiply that by her average final compensation, which we’re going to assume is $330,000 per year. Now we’re going to forego the Social Security offset because under the normal retirement age for Social Security, and she’s received 80 points, so Shell supplements that and offsets it. So therefore, Jane’s annual pension benefit is $160K per year, or just over $13,000 per month.

Now, once Jane hits age 67, then Shell will subtract or pull out her Social Security offset. So, in this case, we’ll use that same $160,000 per year, we’re going to assume their Social Security offset is $1,000 per month or $12,000 per year, and at that point, her new benefit is $148,000 per year. Now, Jane was fortunate enough and had the foresight enough to stay on the 80-point pension plan the entire time. Many of you watching this are on the APF plan. Stay tuned for my next video, where I show you how to calculate your APF benefit.