boots company pension frozen...help

lallypan

I have paid into boots the chemist pension for 12 years, I work part time in the opticians department. our department has been franchised and bought by a private individual. As a result through no fault off my own my pension is to be frozen as I will no longer work for boots. I am not happy about this. The pension is set to pay out approx£1,900 per year when I retire in about 20yrs time. so what do I do ........move it or just leave it . I must add I do not like to risk any of my investments. also the £80.00 per month I pay into the scheme will now be in my salary...... so what do I do with this? I already pay into an ISA every month up to the limit so I can't add to this.I am looking at National Saving and Investment certificates , as I don't really trust private pensions schemes as there has been a lot in the news about companys going bust and investors ending up with nothing ........HELP PLEASE!!!

dunstonh

I already pay into an ISA every month up to the limit so I can't add to this.

If you dont take any risk then what are you doing with the S&S ISA allowance amount?

What about inflation risk on the cash ISA part?

as I don't really trust private pensions schemes as there has been a lot in the news about companys going bust and investors ending up with nothing

Please can you provide evidence of a unit linked money purchase scheme doing that? (clue: you won't be able to). I suggest you read the articles rather than the headlines.

lallypan

oops sounds like I have wound you up!!! sorry!!! I pay into a cash ISA as far as I understand there is no risk with this. pensions etc just go over my head if I understood I wouldn't be on this site

MikeJones_2

Hi lallypan,

lallypan wrote: »

I have paid into boots the chemist pension for 12 years, I work part time in the opticians department. our department has been franchised and bought by a private individual.

You need advice and probably from more than one source. I'm not sure whether this applies to your circumstances but it's worth a read:
Basic guide to TUPE

lallypan wrote: »

As a result through no fault off my own my pension is to be frozen as I will no longer work for boots.

If your pension was a defined benefit type scheme (e.g. a final salary scheme is one type of defined benefit scheme) then your pension benefits won't be 'frozen'. Instead they will be 'preserved' and there is legislation that protects you. In essence your pension will continue to revalue until your Normal Retirement Date ('revaluation' is a term used for increases to preserved pensions in the period from when you ceased to be an active member right up to your NRD).

Your preserved pension may be made up of several 'slices'; different slices might receive different rates of revaluation, but I'd expect the largest part of your preserved pension to revalue by 5% p.a. (or RPI if lower) until your NRD (I've deduced this from your service period).

lallypan wrote: »

...so what do I do ........move it or just leave it.

Find an IFA and ask for a pension analysis or pension transfer analysis. The IFA will take account of your situation (health, finances, risk profile, dependents etc) and your retirement planning to date and in the future and make recommendations to fit your circumstances. ASK your employer if he will pay for the advice (tax deductible for your employer up to £150 per employee, if I remember correctly).

lallypan wrote: »

...as I don't really trust private pensions schemes as there has been a lot in the news about companys going bust and investors ending up with nothing.

If by private pensions you mean personal pensions then these are covered by investor protection legislation (although it has limits).

Alternatively, defined benefit schemes that have wound up in the past have received poor media headlines as many tens of thousands of scheme members lost some or all of their pension benefits. However, the introduction of the Pension Protection Fund has made inroads to remedy that situation for defined benefit schemes that 'go bust' nowadays (subject to meeting the requirements set out), although the PPF does have its critics and is not the panacea that many make it our to be.

lallypan wrote: »

...I pay into a cash ISA as far as I understand there is no risk with this.

Risk of high inflation, to name one type of risk associated with an investment held in cash.

Good luck with sorting these issues out.

Mike Jones

I work in the field of Pension Education and Pension Guidance in the UK. I am a current member of the Specialist Pensions Forum as well as being a Voluntary Adviser for The Pensions Advisory Service. I work with scheme members, employers, trustees, scheme administrators and advisers on most things to do with employer sponsored pension schemes. The views expressed by me in this thread are my personal opinions. You should seek professional advice from an appropriately experienced and qualified adviser. I am not an IFA.

lallypan

many thanks for your reply ..........yes it was definatley a final salary pension scheme, I am totally confused by the situation I find myself in.

dunstonh

oops sounds like I have wound you up!!!

not at all. I wanted to type a bit more but was getting called away so it was a bit shorter than i wanted it to be. Thats maybe why you got that impression. Although I was a little bit harsh on the media comment.

Following on from that, only a very small number of schemes have ever failed and are likely to fail. These are a specific type of pension. Defined benefit schemes. Indeed, your Boots pension is one of that type. Most people have money purchase schemes which involve investments are dont suffer the same issues that defined benefit schemes have.

The media coverage on pensions is quite frankly disgraceful at times. There is little or no attempt made to actually explain the issues or the type of pension invovled. They just go for the pension scaremongering and give people totally the wrong idea. For example, if you really wanted to you can put a savings account inside of a pension.

I pay into a cash ISA as far as I understand there is no risk with this.

You run two risks with that. 1) inflation risk and 2) shortfall risk.

savings rates historically come close to just about maintaining real value but not actually having capital growth. So, you have to pay more into it over the long run to make up for that otherwise you run the risk of shortfall.

You said you were up to the limit with an ISA so I assumed you were maximising the ISA limit. It appears you are just using the cash ISA limit so you do have another £3600 a year available to you for the investment ISA side.

lallypan

thank you ! don't mean to sound harsh on the media, just difficult understanding these things, sorry

jamesd

Please read the documents linked from this Pension Protection Fund page to find out more about its protection. In very broad terms it'll protect about 90% of your possible income from this pension. This protection was not available for many of the schemes that had big trouble.

However, that's not sufficient. Because a preserved pension is likely to increase at a rate no higher than inflation, you'll be falling behind wage increases that normally increase by a few percent above inflation. You may remember the fuss about the state pension being linked to inflation instead of wages and how the government has agreed to change that to link with wages, so pensioners don't become steadily less well off then the working population throughout their retirement.

So for that reason, if you have no TUPE rights to remain in a final salary pension, and given you having 20 years until retirement, it seems likely that you will be better off by transferring to a personal pension. Possibly also to any pension that the new employer offers. This is because a pension with decent management by an IFA is likely to grow with earnings or more, so you have a long time in which to become better off. An IFA with pension transfer training will be able to work out what the critical investment yield (the percentage gain needed from your own pension investments) is to make you better off than leaving the money in the Boots pension.

You do need to find out how TUPE applies to you before you can decide because that may require that you be provided with a comparable pension to the Boots one.

You do need to use investments that are stocks and shares based (usually unit trusts) to get a decent pension amount but that's not something you need to worry about because any decent IFA will be able to look after that for you and probably for no more cost than the 0.5% of the pension fund value that is normal commission for a pension. You can also write about what an IFA is suggesting here and get confirmation that it looks reasonably sensible.

A personal pension (one controlled by you as an individual, not a shared work scheme where all of the investments are managed by your employer) is not the type that the past fuss has been about. Personal pensions don't link the pension to salary in any way. Instead they pay based on how well the investments perform, just like the newer workplace pensions that have replaced almost all final salary pension schemes for new employees.

You can find an IFA via unbiased.co.uk .

If you do end up going with a personal pension managed by an IFA I suggest that you tell the IFA that you will accept either 30% or 40% drops in capital value in bad years until ten years before retirement, then dropping in even steps to 10% over each year in the last ten years. This is so that you can continue to benefit from mostly share-based investing until closer to retirement. Finally, the steadily reducing ups and downs in the last ten years gradually reduce the uncertainty in how much pension you'll get and make big last minute surprises very unlikely. You do have to decide what ups and downs you're comfortable with but what I've suggested is usually a reasonable choice, provided that you can sleep at night when you see a 30% drop, knowing that in the following years it'll recover as the normal ups and downs move to the next up part.

EdInvestor

I suggest you get a state pension forecast here: https://www.thepensionservice.gov.uk

There are 2 state pensions, so you may be in for more than you expect.Your Boots pension amount will be revalued up by 5% or the inflation average p.a. over the years till you retire so will keep its value.Leave it where it is.

If you are a basic rate taxpayer now and your total forecast pension income is going to come in at 10k a year when you retire, you would be better not to start another pension, but to max out the other half of your ISA - the stocks and shares bit.

This offers the same investment options as a personal pension.

If you did it this way your pension income (10k or less) would be tax free, and so would the income from your ISAs - cash and S&S. Whereas if the income from an additional pension took you over the 10k mark you would end up paying back all the tax relief.

If your new employer offers to contribute to a pension for you, obviously you should go for that as it's always good to take advanatge of the free money.But if there's no such offer, the S&S ISA (another 3,600 a year) would be a better route for now.

Use a discount broker which rebates charges such as https://www.h-l.co.uk

jamesd

You should not simply leave this pension where it is but instead should get the transfer value and then decide. With twenty years to go a transfer is likely to be the better choice but this will depend on the details so we can't know at this point. Either could be best.

For the choice of pension or stocks and shares (including unit trusts) ISAs see the extensive discussion at ISAs v Pensions: The Official Retirement Debate. You do not pay back all of the tax relief on pension contributions if your pension income goes over 10,000, you just pay tax on the portion above the personal allowance. You also get the 25% tax free lump sum without tax from the pension and don't have to use up all of your pension savings before getting means-tested benefits before you reach minimum retirement age, while you probably would for the ISA approach. For these reasons pensions are the safer choice for those with below average incomes. For the ISA you don't pay tax when you take the income in retirement because you contributed without tax relief, so you've already been taxed on all of it, not just the 75% less personal allowance left after taking the lump sum.

The first part of the penson vs ISA choice is quite clear: get a state pension forecast and use the pension until it's expected pension payment plus the state pensions takes you over 10,000 a year. Once you can get an income above that then there's some reason to consider the ISA approach as part of the mixture.

A stocks and shares ISA can't offer the same range of investment options as a pension. The missing options that you can use in a pension but not in an ISA are mostly higher risk, though low risk near cash funds are prohibited in stocks and shares ISAs but allowed in pensions. That can hurt sometimes when you want most of the money out of the stock markets but still want to do better than cash interest rates. For your situation these differences are probably not very significant at the moment.

I'm assuming that you're not interested in trying to get a pension income that's no better than means tested benefit levels.

Debt_Free_Chick

lallypan wrote: »

also the £80.00 per month I pay into the scheme will now be in my salary...... so what do I do with this?

Is the new employer not providing a pension at all? They almost certainly should be as TUPE now requires that the new company provides a pension and matches your contributions up to a maximum of 6% OR a salary related (final salary) scheme providing approximately 1/80th.

Your Boots pension will be deferred, just like any other leaver. It's not "frozen", but will increase in line with inflation until you retire.

As others have said, you can transfer it instead. But there's a risk - that your pension will be less than the amount you would have received, had you left the deferred pension in the Boots scheme.

Regards