Employee contributions?

itsbeef

Hi guys, just a quick one for you........

Is an employer permitted to stop making their contributions into a company pension scheme?

My employers stopped paying in a few years ago giving the excuse that "the scheme was proving succesful with the current fund pool."

In my eyes they have breached the contract that was agreed when I signed up under the agreed terms that "the employee contributed 6% of earnings and the employer contributed the equivalent of 12%."

Any thoughts?

Many thanks

BEEF :beer:

dunstonh

Is an employer permitted to stop making their contributions into a company pension scheme?

Yes. If its final salary.

It its a group PPP or a money purchase then a change like that would have to be agreed as that is based on contributions made by you and them. The final salary pension isnt.

EdInvestor

This is called a "contribution holiday". Many companies went on vacation in the 1990s when the stock market was booming, as it was paying in the money for them.

Then it crashed and guess what? There's a financial hole in the pension scheme.

Holiday's over.

itsbeef

Thanks, just seems odd that if its a mutually agreed contract then simply stopping payments would mean that the fund wouldnt be working "as well" as it potentially could.

Also how would it work if I stopped my contributions on the grounds that "the funds were working well enough?"

dunstonh

Also how would it work if I stopped my contributions on the grounds that "the funds were working well enough?"

Some schemes did reduce employee contributions during the good days. It is not your choice to make though.

You have to remember that a final salary pension scheme is effectively an open cheque book expense to an employer. It is not a personal fund for you.

Many final salary schemes stopped funding in the late 90s because of good stockmarket growth. Indeed, Gordon Brown based his £5 billion pound a year windfall tax on pensions because of that. Of course, he forgot that stockmarkets can go down as well as up. Although he didnt forget that taxing pensions would mean that consumers blame the pension operators when they get less and not the Government.

EdInvestor

Thanks, just seems odd that if its a mutually agreed contract then simply stopping payments would mean that the fund wouldnt be working "as well" as it potentially could.

This would be correct if the pension was a "money purchase" one, where the pot at the end was based on the returns from the stockmarket.And thus an employer who gives this type of pension never takes a contribution holiday.

Also how would it work if I stopped my contributions on the grounds that "the funds were working well enough

If you have a final salary scheme the employer has offered you a promise to pay a certain percentage of your final salary at retirement as a pension.

So the employer just has to make sure he's got enough money in the kitty in 20 or 30 years time to meet the promise. How he gets the money isn't really the business of the members of the scheme - though there are so many deficits around that it's unsurprising that members are starting to wonder what's going on.....

If you leave the scheme while still employed you may not be allowed to rejoin it later if you change your mind.