Defined Contribution

sabelu

Shortly my company is to close its final salary scheme and offer an incentive for funds to be moved. They are replacing this with a 'Defined Contribution' scheme administered through L&G 5% contribution each. At the same time there are also shortly to be redundancies. Should we join the new scheme and then are subsequently made redundant would we be able under government legislation to withdraw in cash less any tax relief the total fund including the employer contribution as this would be less than two years old?

Andy_L

No. the 2 year refund applies to defined benefit schemes not DC schemes.

dunstonh

Should we join the new scheme

Yes. 5% contribution by employer would be lost if you didnt.

and then are subsequently made redundant would we be able under government legislation to withdraw in cash less any tax relief the total fund including the employer contribution as this would be less than two years old?

There is no legislation to that effect on money purchase schemes. Indeed, there isnt any legislation to that effect to specify that on defined benefit either although they rules allow it for a period.

MikeJones_2

Hi sabelu,

sabelu wrote: »

Shortly my company is to close its final salary scheme...

Here's a quick tip, but which might prove quite important (or not).

Check when your scheme’s ‘pensionable service year’ starts: it can be any date it chooses; the date you start employment; the anniversary of your employment start date; a specific calendar day e.g. 1st January, 6th April, 1st September etc. (it will in the Scheme Rules).

If you are almost all of the way through a pensionable service year/month you may be able to negotiate as part of the 'closure' package, an extension to your 'pensionable service' relating to the final salary scheme in order that you can gain a full year’s/month's pensionable service.

Failing to investigate this means you could lose all of the contributions you paid in for that last 'period' that you failed to complete.

I can point you to a worked example if you want.

sabelu wrote: »

and offer an incentive for funds to be moved...

A number of employers are offering incentives to transfer, so you might be interested in this - Cash incentives to transfer – Active Members

Hope this helps.

Mike

I work in the field of Pension Education and Pension Guidance in the UK. I am a 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.

sabelu

Thanks for everyones comments most informative and interesting.

However, it is likely that my Final Sal and CARE pots will be wound up and yes I may be offered an enhancement to move and all things being equal could elect to move my seven years service to my SIPP fund with hopefully an enhancement.

The question is that I might then ony have around six months left before redundancy so should I elect to join the Defined Contribution scheme knowing that my 5% monthly contribution will be matched by the company + Death In Service given, as I will almost certainly then move that fund at the end of the six months to my SIPP, I can see that there will be an overall benefit but will I lose too much as an early entrant by transferring out so soon in exit fees and costs of transfer to my SIPP fund with HL?

Debt_Free_Chick

sabelu wrote: »

The question is that I might then ony have around six months left before redundancy so should I elect to join the Defined Contribution scheme knowing that my 5% monthly contribution will be matched by the company + Death In Service given, as I will almost certainly then move that fund at the end of the six months to my SIPP, I can see that there will be an overall benefit but will I lose too much as an early entrant by transferring out so soon in exit fees and costs of transfer to my SIPP fund with HL?

Will there be any exit fees? Usually, there aren't with an occupational DC scheme.

But .... is the new scheme an occupational DC scheme or is it a personal pension or stakeholder pension?

sabelu

occupational DC

Debt_Free_Chick

You need to check the exit/transfer terms if you leave after 6 months. There are usually none - but check.

It might be better for you to simply take a refund of contributions and then pay that into your SIPP as that would avoid all the usual transfer palava.

sabelu

Thought earlier advice was that I couldnt do this

Debt_Free_Chick

If the new scheme were a stakeholder, no refunds are allowed.

As it's occupational, then you can get a refund of your own contributions, less a deduction for the tax relief you had on those contributions. You will not get anything for the employer's contribution.

Have you been given an explanatory booklet for the new scheme? What does it say? If not, then put the question - hypothetically, of course - to your pensions manager or HR manager or whoever is communicating the changes.

See the fourth paragraph and second Q&A here and the HMRC rules here

sabelu

Well today we have been given the glossary for our new pension scheme.

It makes good reading but the mandate/application form states:

' If I am a member of the SMART scheme, I understand that my employer will reduce my contractual salary in return for employer pension contributions of the same amount, as I have indicated above.

Why would this be the case?

Does it mean that any redundancy figure/calculation could be affected ?