Final Salary Pension Scheme - The end of....

Moneypenny1

Hi All,

I'm currently in a Final Salary Pension which has approx another 4 years to go before it is up for review with the Company and Trade Unions. This was something which was agreed some years ago when the company advised they were wanting to close the pension svheme to employees but it was consulted on and remained for a further period of time with some conditions.

A new scheme has been set up working alongside the final scheme for new employees. The benefits are similar but obviously it is not a final salary scheme.

The question I have is when (I don't believe it's an "if") the final salary scheme closes what happens to the money in that pot?? Is my pension in that scheme frozen and paid out when I retire? On what basis is it paid to me? Is it transferred to the new scheme? Do employees get a say in that or is it automatic? Stupid question but does a person "buy" a pension from the pot of money they have put into over the years? Do employers write you a cheque and pack you off to buy a pemsion product via FA etc?

I have some years to retire so although it's not something I have to deal with immediately I'm trying to get a better understanding on my personal money matters.

Look fwd to some advise.

Debt_Free_Chick

Moneypenny1 wrote: »

The question I have is when (I don't believe it's an "if") the final salary scheme closes what happens to the money in that pot?? Is my pension in that scheme frozen and paid out when I retire?

Almost. The pension you've earned up to date is calculated as if you were leaving the company. That pension is then increased, usually in line with RPI (inflation), capped at 5% pa

On what basis is it paid to me?

Usually on the same basis as it would have been, had you continued in the scheme i.e. normally paid at normal retirement age, but usually an option to take a reduced pension at an earlier date.

Is it transferred to the new scheme? Do employees get a say in that or is it automatic?

No, it's not automatically transferred - you would have to consent to a transfer and it may not be in your interests to do so.

Stupid question but does a person "buy" a pension from the pot of money they have put into over the years?

in a final salary scheme, no. You have a promise of a pension of £x to be paid to you at retirement. You have no entitlement to a pot of money (other than if you opt to transfer to another scheme/plan)

HTH

Andy_L

Debt_Free_Chick wrote: »

Almost. The pension you've earned up to date is calculated as if you were leaving the company. That pension is then increased, usually in line with RPI (inflation), capped at 5% pa

Sometimes it may retain the final salary link you just dont build up any more service (depending on the results of consultation). Although if your pay doesn't keep up with inflation that could be worse than an RPI link.

Debt_Free_Chick

Andy_L wrote: »

Sometimes it may retain the final salary link you just dont build up any more service (depending on the results of consultation). Although if your pay doesn't keep up with inflation that could be worse than an RPI link.

That's a very good point, thank you - although, any agreement to maintain a link with final salary is discretionary i.e. the company does not have to provide it.

As you say, it could be a "chocolate fire guard" in any event and not provide a greater benefit. But you have to get the "best of both worlds" i.e. either the link with final salary or, if greater, the leaving service benefit with RPI increases (as pensionable service has ended, then you must get the leaver benefit, as a minimum).

I manage a number of schemes with this final salary linking and it's worth the square root of naff all to the members

But, at least they get the leaver benefit, as minimum.

MikeJones_2

Hi D_F_C,

Debt_Free_Chick wrote: »

I manage a number of schemes with this final salary linking and it's worth the square root of naff all to the members

I've often pondered the merits of such salary linking for future service.

Mike

Debt_Free_Chick

MikeJones wrote: »

Hi D_F_C,



I've often pondered the merits of such salary linking for future service.

Mike

Hi Mike

In my company, we grew by acquisition. We acquired two established companies in the late 1990s. The FS schemes had already been closed to new entrants in 1996/7.

Those in the schemes now have been continuously employed for some 12 or more years. They are, therefore, more "mature" either in years or terms of their position. Their potential for future career progression is somewhat limited.

Add to that that our remuneration package includes bonus, share options and other performance-related elements. So basic salary - the only element that is pensionable - is only part of the package.

As we know, basic salary increases tend to lag inflation .... hence, the salary linking promise is worth nothing to all but one employee (who negotiated a huge increase in basic salary so we could retain his specific skills/knowledge).

You're right to be sceptical, but it depends on the company, the business in which they operate and the part that pensionable salary plays in the overall remuneration package.

Happy New Year, by the way

Andy_L

Debt_Free_Chick wrote: »

As we know, basic salary increases tend to lag inflation .... hence, the salary linking promise is worth nothing to all but one employee (who negotiated a huge increase in basic salary so we could retain his specific skills/knowledge).

It has of late but, historically, pay rises have exceeded RPI. Hence, eg, the devaluation of the state pension

Moneypenny1

Thanks all for the reply, debate, clarification. It's good to know that the money not to mention years of service I have put into the FS Scheme is of value. I'm just spectical of what will be when I do finally retire and the finanicial market for anyone wanting to purchase a pension is shocking, that's assuming I have a put money into a pension fund separate from FS.

Cheers all