Early retirement

Rtwo

I have been in a DB pension scheme for 27 years, aged55. Would like comments on wether to take the pension now and carry on in the same employment as I am reading that DB schemes are now at serious risk and I would stand to loose serious money if my employer decided to change everybody to a DC scheme.

dunstonh

First thing is that you shouldnt make life changing decisions (and commencing a defined benefit scheme is a one time only decision) without understanding what you are doing and why.

Second thing is that you shouldnt rely on the media as a source of decent information when it comes to pension. They love to scare monger galore when it comes to pension. It doesnt matter what type of pension you have, they will try and scare you.

The risk to schemes is one that has always been there but corporate pressure and people living longer means that companies are no longer willing to operate schemes which are in effect open ended, unknown liabilities. They want to get rid of that unknown and money purchase schemes do that for them. Money purchase schemes though are often not as good as defined benefit schemes. Although you do come across some where the employer is paying in an amount that is not too far off providing the sorts of benefits a defined benefit scheme would (without the liability). Its where the employer closes the defined benefit scheme and replaces it with a money purchase scheme with a paltry contribution where people will be worse off. That doesnt mean they are losing their original pension though.

Tibbledom

If you were to leave your scheme now you would lose the benefit of your future employer’s contributions (which are often substantial) while the scheme remains open for future accrual. It could impact on your past benefits also and could lower your death benefits.

If the scheme is wound up with a deficit, then the employer if solvent has to make up the shortfall. In the worst case scenario that the company went insolvent with a major deficit then the Pension Protection Fund would kick in. This would protect 90% of your benefits (although it is actually a bit more complicated than that). If you were to retire early still only 90% of the early retirement pension would be protected because you would be below the Normal Retirement Age of the scheme. So even in the worst case scenario your protection is not hugely different.

The scheme may close to future service in the coming years and a defined contribution scheme might indeed be put in its place, but why not remain in the final salary scheme until this happens and make a decision then. Even then it MIGHT be sensible to join the new defined contribution scheme to pick up the lower employer contributions (some contribution is better than nothing). As dunstonh says this won’t affect the benefits up to the closure (at least not in comparison with the benefits on leaving at the closure date).

I don’t know the full circumstances but the likelihood is that it would be a very big mistake to retire early while remaining employed as opposed to remaining a contributing member, just because of possible and unknown fears over the scheme funding or future form.

It is dangerous to make decisions based on posting on forums such as this. Why not give The Pensions Advisory Service a call see http://www.pensionsadvisoryservice.org.uk/ for some free advice.

Andy_L

dunstonh wrote: »

They love to scare monger galore when it comes to pension.

Your last 5 words would appear to be superfluous.

dunstonh

lol yes. Although with pensions with love to really go to town. Never letting the facts get in the way of a story...... hmmm, thats all superfluous too.

lilac_lady

Find a good IFA and get some advice.

StevieJ

Rtwo wrote: »

I have been in a DB pension scheme for 27 years, aged55. Would like comments on wether to take the pension now and carry on in the same employment as I am reading that DB schemes are now at serious risk and I would stand to loose serious money if my employer decided to change everybody to a DC scheme.

Wouldn't be to hasty, they will probably give you adequate warning, check if you can jump ship at a moments notice.

Rtwo

Thanks for all of the advice.