New Morrisons Pension

jamesd

Linton wrote: »

If early leavers were to get their complete pot for investment elsewhere then surely joining the scheme would be a no brainer as the extra Morrison contribution would greatly outweigh a loss of return. Conversely if they only got a return of their own contributions then it would be a no brainer to make one's own provision. Again somewhere between the two extremes is a breakeven point.

Unfortunately I dont know, and I believe that neither of the other two contributors know, what would happen if someone left after say 5 years.

It's somewhat difficult to know because they are too busy to answer the phone.

There is a page that says after two years in the scheme you can transfer the pot to another scheme. The key pieces of information needed to know whether that is really viable include:

1. whether it's a DC or DB scheme. If it's DC it's viable. If it's DB the costs would probably exceed the value of the employer contribution.
2. whether the transfer value really includes the full employer top up to 16% that's been discussed here.

If the full 16% is included, and if it's DC or DB with DC level costs to transfer out, then I'll recant on most of my criticism and edit my posts to say much more favourable things about it. That's because employees could opt out, transfer the pot to something with better long term investments and opt back in again immediately afterwards.

However, the retirement calculator there says in part that "Any early retirement factors applied to your retirement pot will be a 4% reduction for each year before age 65. Morrisons sets the early retirement factors and will vary them from time to time" so it seems quite unlikely that the full amount can be transferred out. That also means that it's a DB scheme and that transferring out will be very expensive. Though I'm somewhat puzzled about why Morrisons is setting factors while also saying that the pot will be used to buy an annuity.

There are some basic funds available within the AVC section of the plan that would be decent enough if they could be used for the main pot. Things like the Blackrock 60:40 UK:Global tracker at 0.6% AMC.

Linton

jamesd wrote: »

The expected value of £100 paid into this scheme ten years before retirement is £81.71. If it had a balanced managed fund available instead then the expected value would be more like £162.89. That's not "very beneficial", it's atrocious investment return, compensated for only because the employer is wasting a lot fo employer contribution to reduce the effect of the losses.

Que???

The choice the employee has is either £100 paid into the scheme or £31.25 paid into a PP. Or do you believe different?

From my reading it is not the case that the employer is physically paying 11% into the scheme which then gets a poor return. The pensioners pot is increasing by CPI. The employer is paying sufficient into the scheme to make the difference between the schemes investment return and 11% contribution + CPI return on the pot. This could be, and on your figures would be, considerably less.

So I would agree it is not actually a generous scheme, but that's not the issue. The issue is whether it is better or worse than no scheme at all.

Linton

jamesd wrote: »

It's somewhat difficult to know because they are too busy to answer the phone.

There is a page that says after two years in the scheme you can transfer the pot to another scheme. The key pieces of information needed to know whether that is really viable include:

1. whether it's a DC or DB scheme. If it's DC it's viable. If it's DB the costs would probably exceed the value of the employer contribution.
2. whether the transfer value really includes the full employer top up to 16% that's been discussed here.

If the full 16% is included, and if it's DC or DB with DC level costs to transfer out, then I'll recant on most of my criticism and edit my posts to say much more favourable things about it. That's because employees could opt out, transfer the pot to something with better long term investments and opt back in again immediately afterwards.

However, the retirement calculator there says in part that "Any early retirement factors applied to your retirement pot will be a 4% reduction for each year before age 65" so it seems quite unlikely that the full amount can be transferred out. That also means that it's a DB scheme and that transferring out will be very expensive.

There are some basic funds available within the AVC section of the plan that would be decent enough if they could be used for the main pot. Things like the Blackrock 60:40 UK:Global tracker at 0.6% AMC.

We agree! A 100% refund of the pot would be unbelievably generous, but anything worse than return of all employee contributions would be unacceptable to the workforce especially as they know they wont be spending their lives at Morrisons.

I would also add that your assumption that the employee would be stuck in a scheme that provides a very poor return is open to question. Even if it is regarded as a DB scheme requiring IFA approval for a transfer out, surely on your figures an IFA would have no problem justifying one.

jamesd

Some questions that it'd be good to get answers for:

1. If an employee pays in £650 a year for three years, what is the transfer value at the end of those three years? Ignoring investment returns is it 3x650, 3x650 + 3x650/5*16 or something else?
2. Is it a defined benefit scheme, if so, is IFA advice required to transfer out into a personal pension? Does Morrisons provide any service that might let it be done without having to pay thousands of Pounds in IFA fees?
3. Can an employee pay into the AVC funds without paying into the main scheme at all?
4. Can an employee have Morrisons top up paid into the AVC payments instead of the main scheme?
5. Are employee and/or employer contributions to this scheme going into any pot shared with past final salary or similar defined benefit pensions?
6. Linton: what are the restrictions on an employee joining the scheme part way through his/her employment or is it a decision that is fixed at the start?

Any suggestions for more questions?

The point of question 5 is that the very low benefits of this scheme for middle aged and younger employees could effectively end up subsidising Morrisons liabilities for past schemes with far more generous payout levels.

jamesd

Linton wrote: »

We agree! A 100% refund of the pot would be unbelievably generous

We do agree a fair bit but there are some DC schemes out there that do add 12% from the employer, particularly those that used to have DB schemes, so it's not unbelievably generous, just more generous than a normal DC scheme would be.

Linton wrote: »

I would also add that your assumption that the employee would be stuck in a scheme that provides a very poor return is open to question. Even if it is regarded as a DB scheme requiring IFA approval for a transfer out, surely on your figures an IFA would have no problem justifying one.

You should investigate how much an IFA would charge for such a transfer if this is a DB scheme, as it appears to be. The likely cost is at least several thousand Pounds regardless of the pension pot size and however trivially easy it is to justify.

It's important to note the £650 or so total employee contribution level that will apply to many full time employees and that topping that up from 5% to 16% brings it to only £2080. Being in for three years then paying an IFA to transfer out would probably use half or more of the pot size.

I'd be greatly pleased if I found out that I had reason to recant about much of my criticism of this scheme and I won't hesitate to do that if I do find those reasons.

Linton

jamesd wrote: »

Some questions that it'd be good to get answers for:

1. If an employee pays in £650 a year for three years, what is the transfer value at the end of those three years? Ignoring investment returns is it 3x650, 3x650 + 3x650/5*16 or something else?
2. Is it a defined benefit scheme, if so, is IFA advice required to transfer out into a personal pension? Does Morrisons provide any service that might let it be done without having to pay thousands of Pounds in IFA fees?
3. Can an employee pay into the AVC funds without paying into the main scheme at all?
4. Can an employee have Morrisons top up paid into the AVC payments instead of the main scheme?

Any suggestions for more questions?

Great -we are getting somewhere!

Another question - what are the restrictions on an employee joining the scheme part way through his/her employment or is it a decision that is fixed at the start?

jamesd

An employee has to be able to rejoin the scheme. Auto-enrollment legislation requires it. But I've added that question.

Linton

Transfer-in allowed? If the pot is real why not?

Linton

jamesd wrote: »

....
However, the retirement calculator there says in part that "Any early retirement factors applied to your retirement pot will be a 4% reduction for each year before age 65. Morrisons sets the early retirement factors and will vary them from time to time" so it seems quite unlikely that the full amount can be transferred out. That also means that it's a DB scheme and that transferring out will be very expensive. Though I'm somewhat puzzled about why Morrisons is setting factors while also saying that the pot will be used to buy an annuity.

...

Agreed, this seems bizarre. Either the pot is real in which case there should be no deductions for early retirement or it isnt. In the latter case the concept of a personal pot seems little more than spin as you are putting in a fixed % of your wages and getting back the corresponding market annuity rate. This would effectively make it an average salary DB scheme with a low accrual rate.

baileythepuppy

Thanks for everyone's reply, even more confused wether to join the scheme or not now? Had a booklet posted to me which tells details that are not on website. After paying in for 2 years it can be transferred to another scheme if I am lucky enough to escape supermarket work (if the economy recovers).