Final salary pension (deferred). Company in trouble.

downshifted

I worry about my deferred pension which is with a plc which is in a very poor state. The scheme is significantly in deficit. This scheme should provide the vast majority of my retirement income

I understand that there would be some protection from the Govt if the company went bust. But are there other scenarios that would give rise to even more risk - I am thinking about takeovers, the scheme being wound up, foreign buyers etc etc

If so - what could i do about it? Transfer values are significantly reduced to reflect the deficit. Perhaps it would be better to try to take a reduced pension early - would that be better protected?

All views gratefully received

Shimrod

downshifted wrote: »

I understand that there would be some protection from the Govt if the company went bust. But are there other scenarios that would give rise to even more risk - I am thinking about takeovers, the scheme being wound up, foreign buyers etc etc

A takeover may be a good thing. The company taking over can't ignore the pension fund, and this would provide the pension trustees with an opportunity to request an increase into the pension fund to reduce the deficit quicker. In the case of WH Smiths a few years ago, the size of the pension fund deficit actually caused the takeover to fail http://news.bbc.co.uk/1/hi/business/3830983.stm

Is it the PLC which is in a poor state, or the pension? Bear in mind that depending on when the last pension valuation was done, it may look worse that it is - the valuation may have been done when the market was near the bottom and a large chunk of the deficit may have been recovered through growth in the market.

JOHNGT

If the company goes bust then the pension scheme may end up as part of the Pension Protection Fund (PPF) if it cannot continue on its own.

In such a scenario, you are protected up to 90% of your accrued pension up to your normal retirement age, regardless of whether the pension is in payment or not, so taking it early won't make a difference.

There is a cap on PPF benefits - this varies depending on age - about £26800 at age 60 and £29,800 at 65. If your pension is below this then it will be fully protected.

The inflation protection (indexation) on the PPF pension isn't great - only inflation up to 2.5% and only on benefits you have built up after April 1997

downshifted

The plc is doing very badly - share price very low, already sold off bits wherever they can and reissued shares etc.

The Pension scheme deficit (was valued some while ago but still to make more adjustments for longevity actuarial increases so still not good) is probably bigger than value of company

JOHNGT

As you say in your first post, the transfer value will be significantly reduced to reflect the deficit, so you should avoid this option even although it gives you more control.

Once your pension is in the PPF you can't transfer it but at least you are protected and it remains a defined benefit. The level of protection in PPF prior to your NRA is 90% of your pension up to the cap I mentioned before.

All defined benefit schemes are required to pay levies to the PPF so your scheme should be protected if the company goes bust. Speak to or write to the trustees for reassurance that in the event of company failure that they would apply to the PPF to be admitted.

downshifted

Thank you JOHNGT. I will be asking for a statement and details of the actuarial position so I will also seek the reassurance you suggest from the trustees. I will be 4 years away from NRD this summer.

bendix

Shimrod wrote: »

A takeover may be a good thing. The company taking over can't ignore the pension fund, and this would provide the pension trustees with an opportunity to request an increase into the pension fund to reduce the deficit quicker. In the case of WH Smiths a few years ago, the size of the pension fund deficit actually caused the takeover to fail http://news.bbc.co.uk/1/hi/business/3830983.stm

Is it the PLC which is in a poor state, or the pension? Bear in mind that depending on when the last pension valuation was done, it may look worse that it is - the valuation may have been done when the market was near the bottom and a large chunk of the deficit may have been recovered through growth in the market.

Final salary pension liabilities are one of the key reasons M&A transactions are stalling at the moment - so many UK plcs have such huge liabilities that it makes it hard to justify a takeover. BA's pension liability almost scuppered their deal with Iberia, and I'm convinced the Royal Mail liability will make it next to impossible to privatise properly.