Help Needed Frozen Final Salary Pension

atush

That is what the PPF covers.

Basically there is no POT here to transfer, but the actuaries to calculate one. It is generally not likely that there will be enough of a transfer value to get anywhere near the benefits you would get in your FS scheme, unless you can get a transfer value that would give you more than any govt cap.

But, is your company in trouble? Likely to be? Have you asked for a copy of their annual accounts? Read all media and financial analysis of the company (places like Motley fool etc.

If you are just being cautious and your company is not in trouble, you could be throwing away a lot of pension income. Tread carefully.

Neverland

atush wrote: »

That is what the PPF covers.

Basically there is no POT here to transfer, but the actuaries to calculate one. It is generally not likely that there will be enough of a transfer value to get anywhere near the benefits you would get in your FS scheme, unless you can get a transfer value that would give you more than any govt cap.

But, is your company in trouble? Likely to be? Have you asked for a copy of their annual accounts? Read all media and financial analysis of the company (places like Motley fool etc.

If you are just being cautious and your company is not in trouble, you could be throwing away a lot of pension income. Tread carefully.

If you read the OP the company is heavily indebted, therefore the risk the OP runs is much more than normal

He obviously DOES expect it to get into trouble

The benefits over PPF limits will be "too good to be true" if the sponsoring company goes into insolvency

A finanical promise for the future is only as good as the credit of the company making this promise

Zelanzy's idea of using a partial transfer for the amount of benefits over the PPF limits to another sponsor seems to be the best idea on this thread so far

C_Mababejive

If actuaries calculate a transfer out value (pension pot) then they must surely have to justify it?

I have this picture of pension scheme trustees hanging on to everyones pension pot,paying out the pension every month out of investment income and then when you snuff it...keeping your pot...heads they win,tails you loose.

Neverland

C_Mababejive wrote: »

If actuaries calculate a transfer out value (pension pot) then they must surely have to justify it?

I have this picture of pension scheme trustees hanging on to everyones pension pot,paying out the pension every month out of investment income and then when you snuff it...keeping your pot...heads they win,tails you loose.

I suspect the transfer value takes into account:

- whether the fund that pays the pension is in deficit (they usually are)

- the sponsoring company's financial health

Because these factors are pretty weak if you want to transfer, the transfer value doesn't look too pretty in terms of the safe-ish benefits you can get from an insurer

However if you were entitled to a six figure pension from a weak company (for example) it would be a no brainer to look at a transfer in my opinion

Zelazny

C_Mababejive wrote: »

If actuaries calculate a transfer out value (pension pot) then they must surely have to justify it?

They don't have to justify it to the members. As I understand it, the scheme has an obligation to provide a certain benefit from a certain age. If you want to take it in a different format (eg Transfer out) or at a different time (retire early for example) then you are entirely in their hands. They will offer you a certain transfer value, or a certain early retirement benefit, and you have the choice: you can take it or wait until the time when they have to give you the defined benefit.

Bear in mind that it's a lot cheaper managing lots of pensions than it is one or two, as the people who die earlier than expected will be largely offset by those who die later, so you don't need expensive insurance to cover yourself.

Also consider that a lot of pension schemes are currently underfunded (PPF report at the end of Feb said: "The aggregate deficit of the 6,432 schemes in the PPF 7800 index is estimated to have decreased slightly over the month to £222.2 billion at the end of February 2012, from a deficit of £265.6 billion at the end of January." - that means that the average scheme that might go into the PPF has a deficit of more than £34.5m). Any transfer value will be based on a share of the available fund, and will take into account things like underfunding, so even if the calculation was 100% fair, you'd have a good change to get less than you might otherwise expect.

C_Mababejive wrote: »

I have this picture of pension scheme trustees hanging on to everyones pension pot,paying out the pension every month out of investment income and then when you snuff it...keeping your pot...heads they win,tails you loose.

As this is a DB scheme, there is no pension pot for individual members. The fact that the schemes are generally underfunded would suggest that investment income would not be sufficient on it's own to pay the pension of all members.

jamesd

bernie_m wrote: »

I ask have been approached by a company who have sent me details of a scheme to transfer the whole value of this pension without tax penalty into a SIPP.

Have nothing to do with this company. If you wish to further consider this select an IFA from unbiased.co.uk. IFAs have an obligation to pay redress is they wrongly advise you and that is a significant protection.

There is never a tax penalty for legal pension transfers, ignore that waffling and the claim that you'd lose a lot of money if the company went bust, it's scaremongering to try to get you to buy something from them. Companies that mention without tax penalty can often be scammers who are pitching transfers to foreign countries to try to release the capital value of the pension before it's legal to do that. Such release schemes generally lose the pensioner a lot of money even before HMRC closes the schemes and imposes penalties on those who used them.

It is unlikely that you would receive the full value of the benefits of the pension in any transfer, even a completely legitimate one. The is in part due to systematic errors in transfer value calculations that tend to under-value them so that 115% of the transfer value is what is really required to preserve the value. This includes tings like under-estimated life expectancies that the employer and pension fund have to pay for anyway.

The pension scheme funds are independent of the company so they are not lost if the company becomes bankrupt. The pension fund also has high priority amongst creditors if there is any under-funding that needs to be resolved by obtaining company assets in that situation.

Pension obligations are generally transferred as part of a deal but sometimes the buyer or seller will negotiate a settlement that provides sufficient funding instead.

Because your pension is far above the Pension Protection Fund limit you will lose money if the fund ends up under-funded after a bankruptcy of the company. So you can usefully monitor the funding state of the pension scheme because that would indicate how much you might get as a percentage of your entitlement.

The pensions regulator also monitors under-funding situations and causes pension trustees and companies to make arrangements to rectify funding deficits, often on ten year plans.

This does not mean that you will lose most of the pension if the company fails. You'd only lose an amount roughly in proportion to the level of under-funding compared to the total pension fund obligations. It's likely that you would end up with most of the income unless the pension fund is already hugely in deficit with no plan to reduce the under-funding possible, which is very unlikely.

It is unlikely that you could buy an annuity on the open market that would pay out anything like the amount that the defined benefit pension will pay you.

The money purchase scheme is handled differently and is not covered by the PPF. This doesn't matter because there is no obligation to pay more than the market value of the investments that you have in the pot. You can freely transfer this money purchase/defined contribution pot between pension companies if you like, without loss other than some modest costs. Like the defined benefit part this pot of money is held completely separate from the company. You could transfer this without significant loss if you like. Sometimes there can be reasons to do it, like better investment choice or lower costs.

bernie_m

Thanks to all, especially Jamesd. Obviously I am reticent to move this money from the final salary scheme, so I suppose its a case of keeping a close eye on the company and the pension scheme fund.

The company has downsized considerably in the last 7 years under the current venture capital regime. Last year they completed a £20m refinancing deal and agreed to extend their facilities with their current lender from August 2012 to August 2014. The facilities have been split into three loans – two worth almost £13.3m are due for repayment in August 2014, while the third is repayable in five instalments between May 2012 and May 2014.

However their total indebtedness prior to this was £55m made up of bank loans, shareholder loans and accrued interest.

They reported a turnover of £72.9m for the period to June 2011, up from £70.7m for the prior year but pre-tax losses widened from £3.2m to £4.5m for the same periods.

My opinion would be that the banks would hold a fire sale to recoup some of their monies should the situation get dire. The company is still probably the UK market leader in its field with a solid distribution system into major multiple retailors and has strong brands. Therefore I would hope in any such sale the pension regulator would step in to ensure the pension fund ws safeguarded as they did so in 2005 when the company was sold to this VC. At that time both parties has to contribute to a deficit reduction.

As far as the scheme fund goes my the last statement I have is from end July 2009. Assets were £13.5m, provisions for benefits £18.4m and a shortfall of £4.88m so a funding level of 73.5%

They had a 9 year plan in place to pay deficit reducing contributions of £302k, £508k, £606k, £606k then £396k for the remaining years.

In fund terms I don't know if this is good or bad.