Employer stopped final salary scheme can I get contributions refunded?

UA1

Hi, my employer has recently decided to stop its final salary pension scheme. I have been contributing to this scheme for several years, my employer has offered me the option to stop my pension or join their standard money purchase scheme which is greatly inferior to the final salary scheme.
My question is wether it is possible to get a refund of my contributions to date, as I feel I have been mis - sold a product. I certainly would never have joined in the first place if I thought that the pension scheme would not have come to fruition. My employer states they will not refund any contributions as I have been in the scheme for over two years and this is a government law.
The whole thing just feels wrong. Any advice would be gratefully appreciated.
Thanks

Peter999_2

Hi UA1,

I think you may have mis-understood what they meant by ending the final salary scheme.

In my company, when it was stopped it just meant that we could no longer contribute to it but what had accrued so far we would still get. I.e. I got a statement before it finished saying I would get £14000 per year from it when I retired.

I could then join the money purchase scheme, but this would be on top of the £14000 I would get.

I hope that is what is happening with you.

Pete

atush

I agree. Your old contributions should still be there, and should still provide a good benefit (far better than the contributions could buy on the open market) when you retire.

Keep it there, and contribute to the new scheme. I assume your employer will pay in as well.

UA1

Hi, thanks for the quick response Pete, your right the contributions so far into the final salary are frozen but the problem is the contributions thus far dont add up to anything like a final salary.

xylophone

Sad to say, an increasing number of Final Salary schemes are either being closed to new members or, as in your case,"frozen" - however, the scheme still exists and must be used to pay the pension benefits when they fall due.

In a frozen final salary scheme your pension benefits are normally preserved for you within the scheme until such time as you reach the scheme's normal pension age (usually 60 or 65) and claim your pension. The pension will have been calculated based on your length of service and level of earnings at the point the scheme was closed and increased in part at least to allow for inflation movements subsequently.

Presumably your employer has provided the value at closure.

If you are staying with the company then it is in your interests to join the new scheme? There will be an employer's contribution?

There would be the option to transfer out but this is rarely considered advisable when a Final Salary scheme is involved - as I understand it, you'd have to consult an IFA and he'd be very unlikely to sign off on it?

k3lvc

UA1 wrote: »

Hi, thanks for the quick response Pete, your right the contributions so far into the final salary are frozen but the problem is the contributions thus far dont add up to anything like a final salary.

They won't add up as you haven't finished the process - they will however add up for the amount of time you've contributed and therefore from a financial perspective you've been mis-sold nothing. From an ethical/employment perspective you've maybe been misled but what they're offering is likely to be a better option than the alternative of the Pension Fund going belly up.

If you feel strongly then vote with your feet and find another employer that'll accept a new starter on a final salary scheme

chris_m

k3lvc wrote: »

and find another employer that'll accept a new starter on a final salary scheme

... which won't also be closed at some point in the future? Who can say?

Neverland

You're lucky you were ever in a final salary scheme at all to be honest

You should look at whether your employer will match higher contributions you make into the new pension scheme £ for £, several do this up to limits

The fact is you now have to look after your own retirement - good luck

You might also want to think about opening up your own self invested low cost scheme if your employer won't match any extra contributions you make

Peter999_2

Hi UA1,

I know what you mean, it is annoying when they close it. My company promised it wouldn't happen, and then offered voluntary redundancy a couple of months later. I took the redundancy and had to work an extra 6 months, mainly because I was convinced that they'd close the scheme. Within those 6 months they announced the final salary was ending even after all they'd said - a lot of my colleagues wished they'd have gone as well as they were only staying because of the pension.


However, I did calculate how much my pension "pot" would have to be to provide the £14,000 and it was £395,630 which is nowhere near how much I'd paid in (about £2,000).

Neverland

Peter999 wrote: »

Hi UA1,

However, I did calculate how much my pension "pot" would have to be to provide the £14,000 and it was £395,630 which is nowhere near how much I'd paid in (about £2,000).

This would be why companies are closing final salary schemes wouldn't it?

mbailey

UA1 wrote: »

Hi, thanks for the quick response Pete, your right the contributions so far into the final salary are frozen but the problem is the contributions thus far dont add up to anything like a final salary.

The reality today is that when you retire you will get paid by multiple pensions companies/providers which when you add them up will provide you the total sum you require.

Yes you might think it makes sense to have it all in one pot, but I suspect this won't be the case. If you take the money out of the final salary scheme and move it into a money purchase scheme it is likely to be worth alot less than the value you could get from keeping it in the final salary scheme.

Yes it is annoying the final salary scheme is closing, but unfortunately that is the messed up financial world we live in today.

The same thing happened to my company pension 2 years ago, so today I have my frozen company final salary scheme and now a money purchase scheme.