Help! Pensions Demutualisation - what on earth is this?!

Lina

Hi there,

This is the first time I've ever posted on here, though I've been receiving Martin's emails for a while, and always come on here to search for advice about money-related matters! You guys always seem so helpful and supportive!

Anyway, the time has come for me to make a posting, as I need some help with my work pension and I'd really appreciate some advice as I'm a bit clueless about this type of thing...

So - here we go! Does anyone know what 'demutualisation' is? And if you do, do you know how it would affect me through my work pension? I've got one of those ones where you give some and the company gives some, and though I'm only 26 (so not looking to use it any time soon) I'd still like to be clued up on what this means.

Thanks ever so much in advance to anyone who can help, and hopefuly in the future I can return the favour :cheesy:

Lina x

ReportInvestor

Hi Lina and welcome to the site .

Demutualisation is usually conversion of a mutual (member owned company) to a Plc (public limited company owned by shareholders) - but see also the example of Scottish Life below which is an unusual exception to this rule.

This can take the form of a stock market flotation (e.g. Standard Life in 2006 where members receive shares in the newly listed company) or when a Plc buys a mutual e.g. Halifax buying Birmingham Midshires Building Society and issuing BM members with Preference Shares or even when a mutual buys another mutual & its not a merger e.g. Royal London's purchase of Scottish Life when it paid out a cash windfall and promised further dosh before reneging on its promise.

It is usual for members to receive a windfall on the occasion of conversion, as compensation for their membership and voting rights / control of the company which subsequently passes to shareholders (in the examples of Standard Life & Halifax) or to mutual members of another company (in the case of Scottish Life). It would be hard not to pay a windfall since the members have a vote on the outcome of any change of ownership .

A complicating factor recently is the emergence of smaller "mini-windfalls" paid out when building societies merge. These are not demutualisation windfalls, as members retain membership of the predator mutual and the voting rights that go with it.

Regarding your own pension, it could only be affected by demutualisation if you work for a mutual company that is taken over - and the pension rules are subsequently changed. Or if your pension money is invested into the with profits fund of a current mutual insurer e.g. Royal London.

Feel free to ask any further questions relating to your own situation.

clairehi

Hi Lina

A general rule of thumb is that if the company pays a contribution for you into the scheme, you should take up the offer.

Another one is that the earlier you start contributing to a pension the better.

You will only get general information from this forum, so you need to have a read of any booklets you have been given about the scheme. Contact your Personnel department if you dont have the documents. Martins articles on thi site also provide a good source of basic info on pensions.

EdInvestor

Does anyone know what 'demutualisation' is? And if you do, do you know how it would affect me through my work pension?

I'm guessing your scheme may have been managed by Standard Life and may have had some of its money in the SL With-profits fund.If so,because SL recently demutualised, some "windfall" money will have come to the trustee of your company scheme. He will have distributed the money into the pension funds of all the individual members. Does the letter perhaps explain that you have been the beneficiary of some of this money?

Lina

Hello Clairehi, Reportinvestor and Edinvestor,

Thanks so much for taking the time to reply - its much appreciated and very helpful.

I think my pension is a Standard Life one yes, so hopefully my pension fund might be looking a little more healthy! Always a good thing I have been contributing for a few years now, through the work scheme, but its kind of been one of those things that I haven't really thought about before, as the money comes out of my wages before I get them.

A few years ago I didn't know *anything* about money at all (apart from being an expert at spending it!!) but I'm gradually learning more, mostly from all the excellent info on this site so I'm feeling a lot more 'in control' of everything. At the moment I'm busy lodging my claim for unfair bank charges against HSBC, so may pop back for some help with that (but obviously on the right board!)

Work are organising a meeting where the pensions company are coming in to have a chat about this, but I wanted to know whether 'demutualisation' was a good thing or a bad thing, before they put the 'positive spin' on it ;-)

I'll have a look at Martin's articles on here first, and then head off to the meeting (with my new info - thank you all!) and then have a chat to my personnel department if there's anything I don't understand.

Thanks very much again, and have lovely weekends everyone!

Lina
x

ReportInvestor

Lina wrote:

I wanted to know whether 'demutualisation' was a good thing or a bad thing, before they put the 'positive spin' on it ;-)

How wise. And demutualisation is often an area that receives more spin than a Shane Warne ball into the rough.

For instance the All Party Parliamentary Committee on mutuals commissioned a report to show that demutualisation was harmful in a misguided attempt to stop a Standard Life "yes" vote by members. The report conveniently ignored the fact that the companies that had demutualised, by definition, usually had to do so from a position of weakness.

Meanwhile the financial press - usually pro-mutual - accepted that demutualisation was inevitable and in the best interests of the company, its employees and with profits members.

In Standard Life's case it was inevitable because they had got themselves into a hole and the company desperately needed new capital. It also means that the with profits investors no longer carry the any investment risk in Standard Life (e.g. if Standard Life Bank were to have to fold - [just an example, I don't think it will]).

One thing you can say at the meeting, if anyone questions the merits of the decision, is that the Standard Life demutualisation is the first Life Company demutualisation where shareholders don't get to help themselves to 10% of the profits made by the WP with profits fund.

I guess the pensions company will say this at the meeting. But at least you'll know it's true .