Final Salary scheme closing

Stuart25

Recently my employer announced they would close their final salary scheme and offer a defined contribution scheme. The company is doing well, the fund was recently healthy (latest audit 127% funded). The company used to put in a large percentage to keep the scheme going but this is going to drop drastically, from 25% to 5%. Are those losing their final salary pension benefit entitled to anything more than to just accept what they now offer ?

many thanks
Stuart

chesky369

I'm afraid it's the way of the modern world that more and more of private company final salary schemes are closing - it probably will be only the public sector which can afford them in the future, and eventually not even them.

Remember, you won't be losing what you've already established - this will sit there, gaining interest year on year until your retirement date. Plus, whatever the new scheme gains over the years.

And, no, there probably isn't anything you can do about it. Except try to make sure you get the best possible deal for yourself with the new scheme.

MikeJones_2

Hi Stuart25,

I agree with chesky365's reply. I also gave a more detailed reply on a similar question which arose a while back. See:

- Closing a defined benefit scheme to active members

It looks at the 'consultation process' that employer's are required to go through and which you might be interested to understand.

Mike

Stuart25

Having had a good read of your comments it looks like we have to accept the alternative and move on. Although at 4% by employer, same by employee it's hardly the best offer I've seen.

If the deal is pretty much done why the consultation ?

MikeJones_2

Stuart25 wrote: »

If the deal is pretty much done why the consultation ?

Having gone through the consultation process, some companies (albeit a few) are reported to have softened the proposed changes to their defined benefit pension schemes.

A consultation period does at least give employees the right to express their feelings - even though the employer is legally entitled to continue with any changes previously outlined.

Mike

benz

I know it's a long shot .............. but has your company considered using 'Salary Sacrifice' as a way of saving money on pension payments? I was in the same position a couple of years ago, our union was involved and at the negotiations proposed 'Salary Sacrifice' as a way of saving the company money. The company has a European Head office and had never heard of it. The upshot was we retained our Final Salary Scheme almost the same as before.

It's worth a try.

chesky369

Don't knock the consultation process - not only might some of the decisions be softened, but if you're lucky you can string it out - that's what happened with the company I worked for, so we ended up with another two years' worth of f.s.p.

houseselling_help

Benz, you mentioned a salary sacrifice scheme as an alternative - how does such a scheme work, could you expand ?

Also I like the idea of stringing out the process to gain extra entitlement, any good ideas on that font ?

thank to you all so far.
Stu

MrChips

Salary sacrifice is an adjustment to the way you are paid such that employees agree to a reduction in their pay, with other non-cash benefits making up the difference.

It is quite common for this to occur with pension contribtuions so that, for example, if you currently make a 5% contribution to your pension scheme, under salary sacrifice you would be paid 95% of your current salary and the company would pay your 5% contribution for you. The net result is the same to you and the pension scheme, but you and the company no longer have to pay national insurance on your 5% contribution.

The company saves some money but I'd be very surprised if it is a significant enough amount to persuade it to change its mind and keep the scheme open in most cases.

benz

Stu, I'm not in the industry and there are those who post on the forum far more learned than I, who can explain Salary Sacrifice better.

This posting explains it a bit, or perhaps google it.

http://forums.moneysavingexpert.com/showthread.html?t=174519

How it worked for us was, we had a non pensionable pay rise of £4999, (I think this is the maximum amount the Inland Revenue will automatically allow), which we 'sacrificed', there is then a significant saving to the employer in National Insurance and tax.

Your union, if you have one, will have information on it. While we didn't spin the negotiations out for 2 years as 'Chesky' did, we did manage one year