Final Salary - Summary Funding Statement - Gulp - Looks perilous!!

Troubleatmill_2

Previous employer posted this to me.
I'm nervous.

At the 2003 Audit.

Ongoing Funding basis
=================
Scheme's liabilities £15.06 Million
Scheme's assets £8.23 Million
Shortfall £6.83 Million - Ouch!!


If scheme was wound up today. at 2003 valuation..

Liabililities £25.96 Million.
Assets £8.23 Million
Shortfall £17.73 Million.

At Dec 2005 statement. I could transfer out £40K, ( my funding was £60K ).
Scheme was 40x60ths final salary circa £8K pension pa.

Next year - I will receive a valuation from 1st April 2006

Thoughts - Should I seek specialised financial advice here.
Am I worrying about nothing.
These figures look worrying.


Addendum
I can get on request
Statement of investment principles
The schedule of contributions
The annual report and accounts of the scheme
Formal Acturial valuation report as of 1st April 2003



Best
Troubleatmill

ReportInvestor

10 million of these are going to be sent out over the next week or so. So people shouldn't take alarm in a knee-jerk way, just consider the facts and discuss it with their HR people who may need to contact trustees.

Your's looks worse than most but there is the 2004 & 2005 stock market gains to take into account. Using a 2003 valuation is not helful.

1/5 will be told that their schemes are 70%+ funded.
1/5 will be told that their schemes are 60%- funded.

According to Mercers & reported by Reuters

Can you tell us which is the company above where there could be "trouble at mill"?

Troubleatmill_2

Hi Reportinvestor

Company is OKI UK/ OKI Europe Ltd - Japanese Electronics company - renowned for printers & faxes.

Pension Trustees - William Mercer.

OKI had a Manufacturing plant in Scotland - used to be 1500 employees is now closed.

My guess is that only a couple of hundred (max ) employees remain in the UK operation.

Seems an uphill struggle to meet the long term commitments of 2000 employees who average over 10 years service on a 40/60th's final salary scheme. N'est pas?

Best
Troubleatmill

ReportInvestor

On the face of it that sounds pretty dire. Not many workers working "uphill" to fund loads of deferred pensions .

But I have no real knowledge of the company & from Mercers' comments in the Reuters article, you are not alone.

My first step would be to check to see if you are covered under the government's Pension Protection Scheme which is supposed to cover 90% of entitlements up to just over £25K pa.

And then check through the details of the deferred pension contract [especially things like inflation linking] with a fine tooth comb, along with some fellow workers.

Troubleatmill_2

Only a small reference here...

The Govt has set up the Pension Protection Fund (PPF) to pay benefits to members if the Scheme were wound up and the Scheme & Company do not have enough money to cover the cost of buynig all members' benefits with an insurer.

The pension you would receive from the PPF may however be less than the full benefit you have earned in the Scheme, depending on your age and when your benefits are earned.

Further information and guidance is available on the PPF website......


If I'm honest - the whole letter is very much downbeat in relation to previous letters.

In red text - third paragraph.
"The financial security of the Scheme affects the benefits you will receive, so we recommend you take time to read through this statement"

Paragraph title
"Is the Scheme's financial security good".

MFR - 98% of it's minimum.
Ongoing - As posted above.


Previous letters have had a positive spin "Employer paying in more" etc etc
This is the first letter that has a negative/ ( or dose of reality tone ).

I'm prepared to jump ship and manage my £40K knowing that it won't pay the £8K pension ( in 20ish years ) but at least I'm in control of how it's invested.

The other big issue (for me ) is a small statement that has never been mentioned before... sounds scary....
"They (investments) are held in a communal fund, not in seperate funds for each individual"......


Gut feeling - get advice - right?

Thanks
Troubleatmill

ReportInvestor

It's a big decision - so I would agree.

10 million letters going out in the next week? You might need to be quick to get an appointment :eek:.

As you say, the tone has changed. This whole exercise could alter people's perceptions, make them more financially aware and even have political imlications.

I wouldn't worry about the communal fund bit. There aren't too many Maxwell's around.

I'm afraid too many trustees and companies may have hidded behind the MFR, which looks increasingly to have been a naked emperor.

Thank goodness for the PPF going forward (except the rising costs of the PPF may be a further factor in company's decisions to close final salary pension schemes ).

Good luck, and keep us posted with any advice you may receive. I wonder if it's worth waiting to get the April 2006 valuation to see how well OKI is addressing the issue?

Troubleatmill_2

When I was employed there...

Employee contribution 3%
Employer contributions 7%

Now, employee 7%, employer 15%. Don't know when the increase took place though.

Still seems a tough ride...

I'm guessing I'm spending some time over the next few days gathering info.

Thanks again
Troubleatmill

EdInvestor

Sunday Telegraph has a good article covering the issues

Debt_Free_Chick

Troubleatmill wrote:

When I was employed there...

Employee contribution 3%
Employer contributions 7%

Now, employee 7%, employer 15%. Don't know when the increase took place though.

Still seems a tough ride...

I'm guessing I'm spending some time over the next few days gathering info.

Thanks again
Troubleatmill

Yes, they are scary statements. But they only show a snapshot of the funding position. The statement only applied at the date of the valuation on which it's based. In your case, 1 April 2003.

The current valuation should be underway now (as at 1 April 2006), but you won't get another statement until next year. However, the Trustees might report the results of the current valuation, once they are known.

As part of the current valuation, the Trustees will need to discuss and agree a funding plan with the Company. This plan sets out how much money will be put into the plan to improve the funding position. There must be a definitive plan to remove the funding deficit over x years. The Pensions Regulator will be monitoring the funding of schemes concentrating on those that are most at risk of failing to fund the scheme to a satisfactory level. To be honest, there is now more chance that your pension scheme will be better funded.

Provided the company continues to trade, then the funding position should improve over time. Your only concern is if the company becomes insolvent. In this case, the PPF will probably apply, but the situation will be assessed first, as the Regulator will try and find a way to get someone to put money into the scheme. The Regulator may try to get the Japanese parent company to pay up, but it's not clear whether the UK Regulator can chase a foreign company in this way.

If the PPF does apply, then at least 90% of your pension should be paid to you. More details here.

If you really want to transfer out, you would better off waiting for the funding to improve so that your transfer value is closer to 100% of the amount due. Your decision, though.

HTH

ReportInvestor

Debt_Free_Chick wrote:

Your only concern is if the company becomes insolvent. In this case, the PPF will probably apply, but the situation will be assessed first, as the Regulator will try and find a way to get someone to put money into the scheme. The Regulator may try to get the Japanese parent company to pay up, but it's not clear whether the UK Regulator can chase a foreign company in this way.

If the PPF does apply, then at least 90% of your pension should be paid to you. More details here.

That's a key issue for the OP. Excellent post, BTW DFC.

Interesting quote from the Telegraph article posted by EdInvestor.

"......Tom McPhail of Hargreaves Lansdown is less open to the idea of selling your final salary pension for cash and a transfer value. "The majority of the deals on the table do not make it worthwhile to take a transfer. We would end up telling 98 per cent of those we advised that it was a raw deal and not to touch it......"

EdInvestor

We should note that IFAs have been warned they could get into regulatory trouble if they recommend transfers out of final salary schemes.Thus the possibility is the advice will not be objective.

So anyone who feels it's really necessary to go (eg has an expected pension above the PPF level or a large amount before 1997 which would not be adjusted for inflation later) should look for a firm of consulting actuaries to analyse the position, who will not be under the same constraints.