Company changing existing Final Salary Scheme

green1970

My husband has just received a rather alarming letter from his company.

He is 35 and has been with the company for 12 years now. When he started with the company he joined the company's final salary (1/60th) scheme immediately. In 2006, they announced that if employees wanted to continue with Final Salary, they had to increase their contributions by 2% which he accepted.

This new letter states that he now has two options:

1) Keep the existing Final Salary scheme as is but have his salary capped at no more than a 1% increase per year until retirement :eek:

or

2) For past service have calculated at Final Salary as being now and then revalued at 2% per year. (So a for instance would be to say his income is currently 30k and he has 12 yrs service so 12/60 would be £6000 revalued at 2% per year until retirement at 65 so in 30 years it would be around £10868 p.a (yet if his final salary was around 70k, it would be around £14k p.a.

Plus he would then earn a percentage of salary as pension each year of work from now so again, say his income is 30k, he would earn 1/60 x 30k so £500 pension for this year, £515 next year etc. In addition, all payments in retirement will now have rises based on CPI rather than RPI, even on the benefits accrued so far.

I suppose it could have been worse in that they could have changed the future contributions to defined contribution instead, just annoyed at the change to accrued benefits and the thread of no payrises in future.

They've said it's a consultation but it's presented as a fait accompli. Has anyone else come up against this and is it worth raising any objections or is it just pointless and we should just accept it and be grateful?

Thank you.

ermine

This looks like it is being switched to a CARE scheme. You don't have any options but to roll with it, and they've made option 1 so unattractive that option 2 is the one to go for

It's ugly, but it's better than DC, and indeed if he's been there 12 years and has got most career progression then a CARE scheme is not too bad compared to FS. The people that take the shaft on such a change are high achievers who go for a late burn going up several levels after 30. Most people do that before 35 if they are in an organisation which has a career structure, though I was one of the late burn types, fortunately before my company switched to CARE.

So it's not in your favour, but it could be worse, say your OH was 28 and with only a few years behind him...

Zelazny

I have to agree with ermine. Option 1 will fall well behind inflation with increases capped at 1%, whereas option 2 will likely give a comparable benefit to the final salary option unless there's a massive pay rise towards the end of the career.

fizio

agreed - its the way of the world nowadays and a lot of companies are doing much worse than this one.. Alas 'it could have been worse' is the only glimmer in many a DB situation..