Changed Company Pension causing disadvantage to benefits

young_pensioner

In 1992 I joined a pension scheme, which was administered by another Company under mutual ownership. When the 'sister' company was sold in 1996 my employer promised (by letter) to replace the scheme with another with identical benefits.

In view of my imminent arrival at NRA, I began to consider how the comparison was in reality. The cold facts are that the former scheme was a Money Purchase Scheme with final salary benefits; the replacement is a Group Personal Pension Plan. I have contacted the Pensions Advisory Service to seek some guidance on the matter.

If it is established that I have been disadvantaged by the change, my question is,
:question: "Does anyone know the best means which can be used to resolve the shortfall?"

EdInvestor

the former scheme was a Money Purchase Scheme with final salary benefits

Was this a hybrid scheme of the type recently featuring in the news at the accounting firm KPMG?

young_pensioner

Don't know. Until a short while before I joined, I understand that it was a Final Salary Scheme in the normal sense.

Unfortunately I didn't see the program to which you refer. Can you explain briefly what the content was?

young_pensioner

Just been on the internet and found a BBC report on the KPMG issue. Althought I do not know anything for certain, I suspect the basis is likely to be similar.

However, I can't understand how a Money Purchase Scheme can have final salary benefits. Surely it's either one thing or the other?!

exil

Exactly. Until we know this we're not going to be able to help.

Pal

Could be a money purchase scheme that uses the GMP or Reference Scheme Test basis for contracting out, effectively providing a final salary underpin.

Alternatively if could just be a money purchase scheme that has a final salary minimum benefit underpin.

In any case, you need to identify whether a shortfall has actually occured: Just because the new plan is a GPP doesn't mean you have lost out. You might want to speak to an IFA - a comparison should be relatively simple to carry out.

Edit - to correct an error.

young_pensioner

Pal wrote:

Alternatively if could just be a money purchase scheme that has a final salary minimum benefit underpin..

The statement above sounds as if could be something like it.
This lot is a minefield. It all sounds so technical and complicated.

I have had a retirement proposal from the GPP and done a calculation (the best way I can) as to what my pension would have been according to the membership certificate issued from the original scheme. The ratio appears to be 3:1 in favour of the original!!

Its sure looking like I could be a poor 'young pensioner' :sad:

Pal

But are you comparing like with like? Are the projected percentage investment returns the same? If it is different, is it because you have changed your investments? Are you comparing a very old estimate with a current one? (the world has changed and expected investment returns are lower than they used to be).

Is the original plan benefit higher because the final salary underpin is kicking in? Has the benefit changed because annuity rates have fallen?

It is possible that the projections have fallen because of things outside of the control of your company or pension schemes (e.g. annuity rates, investment returns etc).

If in doubt, why not ask your company to explain it to you?

young_pensioner

As you can imagine, the facts are quite lengthy and complex.

There are two documents which are particularly relevant to my complaint. The Certificate of Membership to the former scheme and the letter from my employer, assuring the members who would be transferred to the new scheme, that the retirement benefits would be "identical".

According to my Certificate of Membership to the former scheme, I should receive:
Pension at Normal Retirement Date:
18.75% of your final pensionable salary

This suggests that taking my final salary on leaving that employment in November 2002, deducting the lower earnings level for the tax year 2002/3, that leaves my 'pensionable salary'. If this were multiplied by 18.75%, I assume that the result would equal to my annual pension payable. Also, 50% of my pension would be due to my spouse should I pre-decease him after retirement.

However, the GPP scheme quoted a Retirement Proposal in November last year a figure which represents 1/3rd of my (maybe simplistic} calculation above. The proposal was based on the asumption that it would be a pension solely for myself, no tax-free lump sum. So I certainly wasn't comparing like with like!

This is about the best explanation I can give. I just wish I had a better understanding of the whole area of pensions. Even if I had done some research on the Open Market option, I would be reluctant to draw this pension yet, in case it should be seen as acceptance of the status and jeapodise my 'case'. Perhaps someone might have a view on this?

Pal

Without seeing all the details it is impossible to comment, but I assume that you have taken this up with the company?

young_pensioner

I have requested assistance from the ex & current Finance Directors and a former Chief Exec over the past 18mths - 2 yrs. :wall:
The current FD says that he will look into it.... not sure when that might be. I could be pushing up daisies by the time he gets around to it!! This is the reason why I decided to approach The Pensions Advisory Service. Hopefully they will be able to advise what steps I should take to remedy the situation. However, assuming there is a situation to be remedied, I wonder what form it might take?

In the meantime, I'll graciously accept my State Pension, local bus pass and continue to do a little work in my self-employed capacity.