Final salary pension - a question.
Discussion
Hi.
This is my first post in this sub forum so please be gentle, and my knowledge of the ins and outs of pensions is limited, hence my question as follows:
I am lucky enough to be in a private sector final salary pension scheme with 20 years contributions behind me and another 19 ahead if all goes well for retirement at 63. The maximum service contribution is 40 years.
However, the final salary scheme was closed to all new employees 12 years ago, thus there is a fixed number of employees in the final salary scheme of which the number reduces every year by people retiring. We have been made aware that there will come a "tipping point" in the near future where the number of employees left in the scheme will not justify the company paying for them, and the company may take action accordingly.
If this happened within the next couple of years, would my exsisting contributions be "frozen" (so in effect I'd have a fixed number of years into a final salary scheme which would be frozen until my retirement) or would my company be within their rights and able to transfer it into the current scheme offered to employees?.
Is it worth me taking out a supplementary pension now?. I have been given that option by the company I work for and it is basically a stakeholder pension which has been performing terribly, to be honest.
This is my first post in this sub forum so please be gentle, and my knowledge of the ins and outs of pensions is limited, hence my question as follows:
I am lucky enough to be in a private sector final salary pension scheme with 20 years contributions behind me and another 19 ahead if all goes well for retirement at 63. The maximum service contribution is 40 years.
However, the final salary scheme was closed to all new employees 12 years ago, thus there is a fixed number of employees in the final salary scheme of which the number reduces every year by people retiring. We have been made aware that there will come a "tipping point" in the near future where the number of employees left in the scheme will not justify the company paying for them, and the company may take action accordingly.
If this happened within the next couple of years, would my exsisting contributions be "frozen" (so in effect I'd have a fixed number of years into a final salary scheme which would be frozen until my retirement) or would my company be within their rights and able to transfer it into the current scheme offered to employees?.
Is it worth me taking out a supplementary pension now?. I have been given that option by the company I work for and it is basically a stakeholder pension which has been performing terribly, to be honest.
The pension you've earned is contractual and stays earned, so yes it would be frozen. Your future pension arrangements can change but your past ones stay as they are. They'd be frozen and rise with inflation per the rules of the scheme - I suggest you get the scheme rules booklet and find out your specifics.
1. In that type of scheme your "contributions" are irrelevant. All that matters is the number of years you have completed towards earning the full pension benefits. Essentially you have been given a "pension promise" by your employer, and the employer has to put in enough money to deliver those benefits. Your own contributions are just a nominal fixed amount.
2. If the scheme is ended after, say, 20 of your 40 years you would when you retire at normal retirement date still be entitled to half of the full pension. And on the face of things that would be an appropriate proportion of the salary you were earning just before retirement.
3. What employers usually do is renegotiate your whole employment contract, including the pension promise. There is no way of knowing in advance exactly what they might offer you to essentially "buy out" the existing pension promise.
To get answers to your questions you need to,
2. If the scheme is ended after, say, 20 of your 40 years you would when you retire at normal retirement date still be entitled to half of the full pension. And on the face of things that would be an appropriate proportion of the salary you were earning just before retirement.
3. What employers usually do is renegotiate your whole employment contract, including the pension promise. There is no way of knowing in advance exactly what they might offer you to essentially "buy out" the existing pension promise.
To get answers to your questions you need to,
- Gain a full understanding of your existing "pension promise" as set out in the pension scheme rules, and
- Wait and see what your employer offers instead.
texaxile said:
Hi.
This is my first post in this sub forum so please be gentle, and my knowledge of the ins and outs of pensions is limited, hence my question as follows:
I am lucky enough to be in a private sector final salary pension scheme with 20 years contributions behind me and another 19 ahead if all goes well for retirement at 63. The maximum service contribution is 40 years.
However, the final salary scheme was closed to all new employees 12 years ago, thus there is a fixed number of employees in the final salary scheme of which the number reduces every year by people retiring. We have been made aware that there will come a "tipping point" in the near future where the number of employees left in the scheme will not justify the company paying for them, and the company may take action accordingly.
If this happened within the next couple of years, would my exsisting contributions be "frozen" (so in effect I'd have a fixed number of years into a final salary scheme which would be frozen until my retirement) or would my company be within their rights and able to transfer it into the current scheme offered to employees?.
Is it worth me taking out a supplementary pension now?. I have been given that option by the company I work for and it is basically a stakeholder pension which has been performing terribly, to be honest.
Some key pointers for you.This is my first post in this sub forum so please be gentle, and my knowledge of the ins and outs of pensions is limited, hence my question as follows:
I am lucky enough to be in a private sector final salary pension scheme with 20 years contributions behind me and another 19 ahead if all goes well for retirement at 63. The maximum service contribution is 40 years.
However, the final salary scheme was closed to all new employees 12 years ago, thus there is a fixed number of employees in the final salary scheme of which the number reduces every year by people retiring. We have been made aware that there will come a "tipping point" in the near future where the number of employees left in the scheme will not justify the company paying for them, and the company may take action accordingly.
If this happened within the next couple of years, would my exsisting contributions be "frozen" (so in effect I'd have a fixed number of years into a final salary scheme which would be frozen until my retirement) or would my company be within their rights and able to transfer it into the current scheme offered to employees?.
Is it worth me taking out a supplementary pension now?. I have been given that option by the company I work for and it is basically a stakeholder pension which has been performing terribly, to be honest.
1. As you have alluded to, a final salary pension is like gold dust and you are very lucky to have one. Closure to new members is normally the first step and then closure to future accrual is the next. I therefore think you are unlikely to being able to accrue the further 19 years benefit.
2. Importantly for you, the pension accrued to date is protected - unless the company sponsor goes bust that can't be taken away from you (and even in that scenario you should still get 90% of the benefit promise.
3. Once the scheme is closed then it's likely that your future contributions will shift to a defined contribution basis - this means two things - the amount of money being invested on your behalf will likely be much lower (the main point of a company moving from DB to DC is to save money) and the benefit that you receive at retirement will be entirely dependent on the investment performance of the assets you choose - you take all of the upside and downside risk!
4. Few people will have too much money on retirement, so making additional contributions now makes sense, taking advantage of tax relief while it is still available.. Personally I'd recommend finding the cheapest possible pension and invest in equity tracker funds.
Sidicks
I think your accrued years remain held and I would have thought bump up by the agreed amount for inflation.
My is worked out on 60th's not sure if that applies to all, so if you have 20 years contributions you would get 20/60 of your salary as pension, or 1/3rd.
What you do for pension after that would be additional to the old scheme.
I've no particular knowledge on pensions but that's how I've understood it to work.
My is worked out on 60th's not sure if that applies to all, so if you have 20 years contributions you would get 20/60 of your salary as pension, or 1/3rd.
What you do for pension after that would be additional to the old scheme.
I've no particular knowledge on pensions but that's how I've understood it to work.
Ozzie Osmond said:
1. In that type of scheme your "contributions" are irrelevant. All that matters is the number of years you have completed towards earning the full pension benefits. Essentially you have been given a "pension promise" by your employer, and the employer has to put in enough money to deliver those benefits. Your own contributions are just a nominal fixed amount.
2. If the scheme is ended after, say, 20 of your 40 years you would when you retire at normal retirement date still be entitled to half of the full pension. And on the face of things that would be an appropriate proportion of the salary you were earning just before retirement.
No, I think the benefit would be based on salary when the scheme ceased, uprated for inflation lin line with the statuary minimum or higher amount as er the scheme rules. 2. If the scheme is ended after, say, 20 of your 40 years you would when you retire at normal retirement date still be entitled to half of the full pension. And on the face of things that would be an appropriate proportion of the salary you were earning just before retirement.
sidicks said:
Ozzie Osmond said:
1. In that type of scheme your "contributions" are irrelevant. All that matters is the number of years you have completed towards earning the full pension benefits. Essentially you have been given a "pension promise" by your employer, and the employer has to put in enough money to deliver those benefits. Your own contributions are just a nominal fixed amount.
2. If the scheme is ended after, say, 20 of your 40 years you would when you retire at normal retirement date still be entitled to half of the full pension. And on the face of things that would be an appropriate proportion of the salary you were earning just before retirement.
No, I think the benefit would be based on salary when the scheme ceased, uprated for inflation lin line with the statuary minimum or higher amount as er the scheme rules. 2. If the scheme is ended after, say, 20 of your 40 years you would when you retire at normal retirement date still be entitled to half of the full pension. And on the face of things that would be an appropriate proportion of the salary you were earning just before retirement.
Gents, Thanks for the answers so far, I will go through my paperwork and consult with our pensions dept to see exactly what our "pension promise" is and to establish some facts regarding that.
I will also look into another option of equity tracker funds. However, this is totally new ground to me so any advice would be welcome. FWIW I have an endowment coming out in 2017 worth about £2.78 instead of the £60k (cheers Barclays) it promised, but it'll be a lump of cash I'll need to put to work at the time.
Bottom line is that I was concerned that my contributions could be moved by the Company into a different scheme as they have "control". Incidentally our contributions were recently increased by a fairly sizeable percentage due to recent changes apparently as it became necessary to do so to keep the scheme running (Govt legislation).
If the company does make an offer, just speculating, would it be a blanket offer across the board or done on an individual basis calculated upon years left or service accrued?, as this might benefit some more than others. Or, is it simply unrealistic to try and guess?.
I will also look into another option of equity tracker funds. However, this is totally new ground to me so any advice would be welcome. FWIW I have an endowment coming out in 2017 worth about £2.78 instead of the £60k (cheers Barclays) it promised, but it'll be a lump of cash I'll need to put to work at the time.
Bottom line is that I was concerned that my contributions could be moved by the Company into a different scheme as they have "control". Incidentally our contributions were recently increased by a fairly sizeable percentage due to recent changes apparently as it became necessary to do so to keep the scheme running (Govt legislation).
If the company does make an offer, just speculating, would it be a blanket offer across the board or done on an individual basis calculated upon years left or service accrued?, as this might benefit some more than others. Or, is it simply unrealistic to try and guess?.
as has been usggested if/ when they close the FS scheme that will be frozen ( take independent advice if they offer to transfer the service accrued into any replacement scheme) and you'll contribute to the 'new scheme ' from that point onwards
At retirement you'll get your frozen FS pension ( uprated in line with inflation etc) and any new pension(s) same as if you had left the company but left that pension entitlement in the scheme .
there may be a difference in the normal retirment ages for the two schemes ( as seen with the NHS FS scheme andthe NHS CARE schemes) so again advice needs to be sought when into the 'planning to actually retire' phase.
At retirement you'll get your frozen FS pension ( uprated in line with inflation etc) and any new pension(s) same as if you had left the company but left that pension entitlement in the scheme .
there may be a difference in the normal retirment ages for the two schemes ( as seen with the NHS FS scheme andthe NHS CARE schemes) so again advice needs to be sought when into the 'planning to actually retire' phase.
I do wish people would stop using the term 'frozen', it isn't.
You will be entitled to a deferred pension payable from normal retirement date. This will increase during deferment by the statutory minimum of Limited Price Indexation (the lower of CPI or 5% pa) or such greater amount as the scheme rules stipulate.
You will be entitled to a deferred pension payable from normal retirement date. This will increase during deferment by the statutory minimum of Limited Price Indexation (the lower of CPI or 5% pa) or such greater amount as the scheme rules stipulate.
PurpleMoonlight said:
I do wish people would stop using the term 'frozen', it isn't.
You will be entitled to a deferred pension payable from normal retirement date. This will increase during deferment by the statutory minimum of Limited Price Indexation (the lower of CPI or 5% pa) or such greater amount as the scheme rules stipulate.
However it does not gain any additional accrual of benefits and is therefore 'frozen' at the accrual / service you had at that point.You will be entitled to a deferred pension payable from normal retirement date. This will increase during deferment by the statutory minimum of Limited Price Indexation (the lower of CPI or 5% pa) or such greater amount as the scheme rules stipulate.
texaxile said:
Hi.
This is my first post in this sub forum so please be gentle, and my knowledge of the ins and outs of pensions is limited, hence my question as follows:
I am lucky enough to be in a private sector final salary pension scheme with 20 years contributions behind me and another 19 ahead if all goes well for retirement at 63. The maximum service contribution is 40 years.
However, the final salary scheme was closed to all new employees 12 years ago, thus there is a fixed number of employees in the final salary scheme of which the number reduces every year by people retiring. We have been made aware that there will come a "tipping point" in the near future where the number of employees left in the scheme will not justify the company paying for them, and the company may take action accordingly.
If this happened within the next couple of years, would my exsisting contributions be "frozen" (so in effect I'd have a fixed number of years into a final salary scheme which would be frozen until my retirement) or would my company be within their rights and able to transfer it into the current scheme offered to employees?.
Is it worth me taking out a supplementary pension now?. I have been given that option by the company I work for and it is basically a stakeholder pension which has been performing terribly, to be honest.
A couple of points spring to mind. If you were going to be in a defined benefit scheme for 40 years, what were the chances of you breaching your lifetime allowance anyway? Some may look on the blend of DB and DC income as a pretty good fusion of income streams and lifestyle options. This is my first post in this sub forum so please be gentle, and my knowledge of the ins and outs of pensions is limited, hence my question as follows:
I am lucky enough to be in a private sector final salary pension scheme with 20 years contributions behind me and another 19 ahead if all goes well for retirement at 63. The maximum service contribution is 40 years.
However, the final salary scheme was closed to all new employees 12 years ago, thus there is a fixed number of employees in the final salary scheme of which the number reduces every year by people retiring. We have been made aware that there will come a "tipping point" in the near future where the number of employees left in the scheme will not justify the company paying for them, and the company may take action accordingly.
If this happened within the next couple of years, would my exsisting contributions be "frozen" (so in effect I'd have a fixed number of years into a final salary scheme which would be frozen until my retirement) or would my company be within their rights and able to transfer it into the current scheme offered to employees?.
Is it worth me taking out a supplementary pension now?. I have been given that option by the company I work for and it is basically a stakeholder pension which has been performing terribly, to be honest.
Is it worth it? That depends on lots of factors. Your company is offering a grotty DC scheme and they won't chip in to whatever you might be considering independently anyway. Depending on your existing DB contribution arrangements, take care not to breach your annual allowance either, if you do start an off piste DC scheme.
mph1977 said:
However it does not gain any additional accrual of benefits and is therefore 'frozen' at the accrual / service you had at that point.
It helps people understand if you use the correct terms.If the scheme is terminated the member will become entitled to a deferred pension based on their membership to date. That deferred pension will increase between termination date and NRD.
Calling it a frozen pension is incorrect and misleading, but it is a term that people inappropriately encouraging transfers like to use.
sidicks said:
3. Once the scheme is closed then it's likely that your future contributions will shift to a defined contribution basis - this means two things - the amount of money being invested on your behalf will likely be much lower (the main point of a company moving from DB to DC is to save money) and the benefit that you receive at retirement will be entirely dependent on the investment performance of the assets you choose - you take all of the upside and downside risk!
This is a good point as usual.Is there a scenario whereby a DC scheme can give a BETTER return than a DB scheme?
PurpleMoonlight said:
mph1977 said:
However it does not gain any additional accrual of benefits and is therefore 'frozen' at the accrual / service you had at that point.
It helps people understand if you use the correct terms.If the scheme is terminated the member will become entitled to a deferred pension based on their membership to date. That deferred pension will increase between termination date and NRD.
Calling it a frozen pension is incorrect and misleading, but it is a term that people inappropriately encouraging transfers like to use.
My wife has a Deferred Council Pension that will start taking in 4 years if she wants. Each Annual Statement shows a small increased amount.
Edited by Jockman on Friday 12th August 08:56
Jockman said:
sidicks said:
3. Once the scheme is closed then it's likely that your future contributions will shift to a defined contribution basis - this means two things - the amount of money being invested on your behalf will likely be much lower (the main point of a company moving from DB to DC is to save money) and the benefit that you receive at retirement will be entirely dependent on the investment performance of the assets you choose - you take all of the upside and downside risk!
This is a good point as usual.Is there a scenario whereby a DC scheme can give a BETTER return than a DB scheme?
In reality the odds are against it because there's less invested in the first place.
SunsetZed said:
Jockman said:
sidicks said:
3. Once the scheme is closed then it's likely that your future contributions will shift to a defined contribution basis - this means two things - the amount of money being invested on your behalf will likely be much lower (the main point of a company moving from DB to DC is to save money) and the benefit that you receive at retirement will be entirely dependent on the investment performance of the assets you choose - you take all of the upside and downside risk!
This is a good point as usual.Is there a scenario whereby a DC scheme can give a BETTER return than a DB scheme?
In reality the odds are against it because there's less invested in the first place.
Jockman said:
This is a good point as usual.
Is there a scenario whereby a DC scheme can give a BETTER return than a DB scheme?
Always the nuclear option. Is there a scenario whereby a DC scheme can give a BETTER return than a DB scheme?
Gilt yields, right now, offer incredible transfer values but appalling annuity rates. Various transfer indices back this up. The default setting should always be 'leave alone', but the critical yield required to match it is getting to the point I can see an adviser being held to account for not suggesting it. Such is the litigious nature of the world we live in.
Returns aside, which is what you asked, there are many other irresistible and compelling reasons to shift a DB pension. They apply to a small minority of people, but they are still logical courses of action. Like I said though, the nuclear option. And proper advice a prerequisite now, for pots over £30k.
Edited to add;
http://www.xafinity.com/c_m_s/posts/view/Xafinity-...
http://citywire.co.uk/new-model-adviser/news/advis...
Edited by Ginge R on Friday 12th August 09:50
Ginge R said:
Always the nuclear option.
Gilt yields, right now, offer incredible transfer values but appalling annuity rates. Various transfer indices back this up. The default setting should always be 'leave alone', but the critical yield required to match it is getting to the point I can see an adviser being held to account for not suggesting it. Such is the litigious nature of the world we live in.
Returns aside, which is what you asked, there are many other irresistible and compelling reasons to shift a DB pension. They apply to a small minority of people, but they are still logical courses of action. Like I said though, the nuclear option. And proper advice a prerequisite now, for pots over £30k.
Edited to add;
http://www.xafinity.com/c_m_s/posts/view/Xafinity-...
http://citywire.co.uk/new-model-adviser/news/advis...
Very interesting. Cheers Al.Gilt yields, right now, offer incredible transfer values but appalling annuity rates. Various transfer indices back this up. The default setting should always be 'leave alone', but the critical yield required to match it is getting to the point I can see an adviser being held to account for not suggesting it. Such is the litigious nature of the world we live in.
Returns aside, which is what you asked, there are many other irresistible and compelling reasons to shift a DB pension. They apply to a small minority of people, but they are still logical courses of action. Like I said though, the nuclear option. And proper advice a prerequisite now, for pots over £30k.
Edited to add;
http://www.xafinity.com/c_m_s/posts/view/Xafinity-...
http://citywire.co.uk/new-model-adviser/news/advis...
Edited by Ginge R on Friday 12th August 09:50
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