New Morrisons Pension

Linton

webbhost wrote: »

Could you elaborate on what you mean by the risks, and are you agreeing with the last bit that a stakeholder pension would outweigh and be better than the morrisons pension?

My other question is if I took a stakeholder pension, can I then stop contributing into that and just get the interest on my contributions, and take up the morrison's pension (sorta switch) after 20 years, at which point the morrisons pension should be more profitable as it is shorter term?

By risks I mean fluctuations. If you would shoot yourself if you noticed your pension had dropped in value by 5 or 10% overnight then you may find it difficult to get the high level of return you would need. If you just accept that it doesnt matter what happens to your pension value between now and when you draw it you can accept better long term performing investments.

I am not agreeing that a stake holder would be better, quite the reverse after looking again at the Morrison website which now seems to answer some of the questions we had. The key one being that it seems to say that if you leave early after 2 years or more employment you do get the full value of the pot including the 16% annual increment and limited inflation matching to transfer to another pension scheme.

The comparison depends very much on the scenario. For example if you start at 23 and carry on until you retire at Morrisons having had no pay increase except inflation you would need what is now seen as a high average investment return to match the Morrison offering with a private stakeholder. Of course if you had those sorts of skills you would hope to do better than working at Morrisons on a comparatively low wage for your whole life.

If you work for Morrisons for 2 years and then leave you are taking with you 1/3rd of your salary as a pension pot having only put in 1/10th of your salary, No way would you match that with a stake holder.

With different scenarios you will get different comparisons but in general I am convinced that in almost all scenarios you gain by being in the Morrison scheme rather than a private stakeholder. The only scenarios I can see where you could benefit by taking out a private pension is when you know for certain that you will be working at Morrisons for less than 2 years or you know you will be working there for the rest of your life. In the former case you gain by the investment returns over 2 years (which will be pretty small). In the latter case you may have a gain dependent on your investment skills by paying into a private pension for a few years and then joining the company scheme. But of course if your plans dont work out and you unexpectedly leave early then you lose out big time.

hugheskevi

after looking again at the Morrison website which now seems to answer some of the questions we had. The key one being that it seems to say that if you leave early after 2 years or more employment you do get the full value of the pot including the 16% annual increment and limited inflation matching to transfer to another pension scheme.

I couldn't find anything definitive looking around their site - do you have a link?

The most relevant I could find was this page and the text "Transfer the value of your retirement pot to another pension scheme" which I think is sufficiently ambiguous as to reasonably include a CETV calculation within plausible interpretation.

With different scenarios you will get different comparisons but in general I am convinced that in almost all scenarios you gain by being in the Morrison scheme rather than a private stakeholder.

Unless there is an definitive reference saying you will take the headline value of the pot as cash without any actuarial adjustments, I still don't agree with this.

The only scenarios I can see where you could benefit by taking out a private pension is when you know for certain that you will be working at Morrisons for less than 2 years or you know you will be working there for the rest of your life. In the former case you gain by the investment returns over 2 years (which will be pretty small). In the latter case you may have a gain dependent on your investment skills by paying into a private pension for a few years and then joining the company scheme. But of course if your plans dont work out and you unexpectedly leave early then you lose out big time.

I agree with the under 2 years case, but don't see why lifelong employee is relevant in this case.

Whether in a personal pension, Stakeholder or Morrisons, it is only the comparison of the value of a single year of contribution that matters as there isn't any linking to future earnings - the value of the pension accrued from a year of employment in whichever scheme is whatever it is, regardless of what happens in your future employment.

So whether or not it is right to opt-out at any particular age is independent of whether you will be a lifelong employee or not. I don't see why you would lose out big time by not joining the scheme if you then left the employer early in your career?

Linton

hugheskevi wrote: »

I couldn't find anything definitive looking around their site - do you have a link?

The most relevant I could find was this page and the text "Transfer the value of your retirement pot to another pension scheme" which I think is sufficiently ambiguous as to reasonably include a CETV calculation within plausible interpretation.



Unless there is an definitive reference saying you will take the headline value of the pot as cash without any actuarial adjustments, I still don't agree with this.



I agree with the under 2 years case, but don't see why lifelong employee is relevant in this case.

Whether in a personal pension, Stakeholder or Morrisons, it is only the comparison of the value of a single year of contribution that matters as there isn't any linking to future earnings - the value of the pension accrued from a year of employment in whichever scheme is whatever it is, regardless of what happens in your future employment.

So whether or not it is right to opt-out at any particular age is independent of whether you will be a lifelong employee or not. I don't see why you would lose out big time by not joining the scheme if you then left the employer early in your career?

1) Reason for belief that you can transfer out the full pot when you leave the company.

Your referenced page in conjunction with the definition of how the retirement pot builds up here.

Were I an employee I could reasonably take those two pages as being pretty clear. The only mention of a CETV is in relation to taking early retirement.

However if there is doubt it is essential in my view that the OP clarifies the situation with the pension department.

2) Why it could be a big time loss to join the scheme later, putting money in a private stakeholder in the meantime

This is assuming that the pension pot can be taken when one leaves. The advantage of the increased return from a stakeholder takes many years to outweigh the large company contribution to the pot. The criticism of the scheme is that this long period is less than one's working lifetime.

So take a scenario:

An employee at 23 decides he is going to spend all his life at Morrisons. He is investment-aware and realises that perhaps the first 15 years of investment would be better invested in a stakeholder for his full working life than in the Morrisons scheme. After say the first 15 years the Morrisons scheme is better in that there is insufficient time for the increased return to overtake the extra employer contribution.

Fine - I believe the employee is doing what you and James recommend. However suppose events cause him to leave the company and the scheme after 6 years. What is his transferable pot?

With his stakeholder, an arguably optimistic 7% return, and the OPs income figures I work it out to be £4937. If he had joined the Morrisons scheme the pot would be £13971.

I call losing out on 65% of your pension pot a big time loss.

Judwin

If you can transfer the full headline value 'pot' out of the scheme, then I think that I would ....

Join the scheme imediatley. Then after two years opt out, and transfer the accumumlated pot to a private pension, (and pay year three's personal contributions in too). Then opt back into the Morrisons scheme in year 4, opt out again 2 years later for a year, and transfer out again, then opt back in. Rinse and repeat every 3 years till you leave the company, or retire.

I *think* the law is that they have to opt you back in every 3 years anyway, so re-joining/opting back in could be semi-automatic. However, every 3 years your PP would get a big dollop of cash which could then rise (or fall!) at normal market/investment rates, rather than (at best) 2.5%.

If you cannot transfer the full headline value 'pot' out of the scheme, then I wouldn't join till the breakeven point, which appears to be in your late 40's/early 50's.

But IMHO you MUST take out a PP if you don't join the scheme.

Cheers
Judwin

hugheskevi

Were I an employee I could reasonably take those two pages as being pretty clear.

I'd normally agree, but the rules about scheme literature are very slack - for example, a lot of DB schemes literature clearly stated benefits increased by RPI when they didn't. Also, most pension schemes favour active members and at best treat deferred members as well as active members - to significantly favour those leaving the scheme over those remaining in the scheme would be extremely unusual.

The exact wording on one of the web pages is "Transfer the value of your retirement pot to another pension scheme."

Playing Devil's Advocate, compare the Morrisons' scheme (16% of salary contributed, increasing by CPI capped at 2.5%) to an otherwise identical scheme except that the other scheme increases by CPI capped at 5%.

Clearly the value of the retirement pot in the other scheme is greater as it has more generous increases. Therefore the value is not the same in both schemes. That would imply that the amount you can transfer should be different in both schemes, and hence not equal to the headline pot amount.

Personally if this wasn't scheme literature I wouldn't have doubts, but knowing how little scheme literature counts for and how DB schemes work, I would be wanting written confirmation from the scheme administrators before making any decisions.

Everything hinges around the key point of whether you can or cannot take the headline value of the pot - if any Morrisons' employees could clarify that point with the scheme administrators (in writing preferably) and post the information here it would be extremely helpful. If someone would like some sample text, I'd be asking them:

"Could you please confirm that if I were to build up a pot of, for example, £5,000 after three years then this pot of £5,000 would increase by CPI capped at 2.5% whilst the pot remains in the Morrison's scheme, or else I could take a transfer value of £5,000 to take to another scheme.

Specifically, I would like confirmation that it is the headline pot amount that would be the transfer value, not an actuarially adjusted value that is lower than £5,000 in the example above."

xylophone

http://www.which.co.uk/news/2012/04/government-considers-new-type-of-pension-283146/
http://www.which.co.uk/money/retirement/guides/company-pensions-explained/defined-benefit-and-final-salary-pensions/

"A defined benefit (DB) pension scheme is one that promises to pay out a certain sum each year once you reach retirement age.

This is normally based on the number of years you have paid into the scheme and your salary either when you leave or retire from the scheme (final salary), or an average of your salary while you were a member (career average)."

A cash balance scheme is not a DB scheme if the definition above is correct.

I think calling these Frankenstein:) schemes defined benefit could confuse staff into thinking that they are getting something similar to the old FS or newer CARE pension which they are not.

hugheskevi

A cash balance scheme is not a DB scheme if the definition above is correct.

See article here and especially the final sentence:

However, as the scheme technically qualifies as a DB scheme, auto-enrolment will not begin for the entire workforce until 2017.

Or if that takes you to a pay-wall, this article
or just google morrisons defined benefit cash balance for multiple articles confirming it is DB.

A cash balance is definitely a Defined Benefit scheme. Basically, anything where a deficit can arise is a Defined Benefit scheme. Hence, anything that isn't pure Defined Contribution is Defined Benefit.

xylophone

this article

"The scheme works like a hybrid between defined benefit and defined contribution plans."

Neither fish nor fowl nor good red herring.... Frankenstein as I said before...:eek:
Because something is not purely in one category doesn't place it wholly in another?

And I still think that describing it as DB could lead people to think that they are getting something better than is actually on offer.
"This makes pension planning easier for employees, as their pensions are not at the mercy of the market."

They are at the mercy of the annuity market, heaven help them...

hugheskevi

Because something is not purely in one category doesn't place it wholly in another?

Speaking in a technical sense, ie pension legislation, it does

Although the Bridge court verdict a year or so back caused some exceptions to that, but those will be amended through changed legislation in due course.

Lots of people use the term Defined Benefit incorrectly, often interchangeably for final salary when it is a technical term and much broader than final salary. Of course, people can be misled if they don't understand technical terms and interpret them incorrectly.

hyubh

hugheskevi wrote: »

Basically, anything where a deficit can arise is a Defined Benefit scheme.

Does the paywalled article say that, because the non-paywalled one certainly doesn't? That said, even assuming as true its claim that the new auto-enrolment rules redefine the term 'defined benefit' to mean what you say, that hardly says the term has been redefined more generally. E.g., auto-enrolment staging dates are determined by employer size, yet whether an organisation is defined as its own employer or not is for auto-enrolment purposes relative to PAYE references, which causes some oddities.