National Grid Final Salary DB Scheme

MoneySaverLog

I'm a member of the NG DB Gas scheme. Are there any members in this scheme at the moment on this forum?

With all the talk going on at the moment with their DB scheme what would be the best solution for retirement now.

I don't feel the scheme is as safe as it use to be anymore, and thinking about alternative investments but fear I've left it too late, with 16 years until I reach 60 it does not leave a lot of time to build up another pot elsewhere.

I know it's all up in the air at the moment and the unions are going to oppose the plans and fear that they may just go ahead and close the scheme altogether in that case. This would be a disaster as I don't have enough years service in the pot.

What's the better option going from 1/60th to 1/80th or triple the employee contributions from 3% to 9%? If they lowered the multiple would additional years AVC be a good idea to make up the extra years lost.

Who's best to advise the members, as it looks like Grid are only there to look after themselves and s*rew the members on this one.

JoeCrystal

*shurgs* As long they keep the DB pension scheme open and no matter what kind of chance it is, it is still hellish better than mere pension scheme. If they do decide to convert to the DC pension scheme, it is quite likely that it will have a high employer contribution and you still have deferred DB pension. Frankly, there is nothing to stop you from setting up an alternative pension scheme now on top if you truly worry about your retirement provision.

Cheers,
Joe

MoneySaverLog

I know just looking at the directors share holding Steven Holliday has 2.1 Million Shares alone

http://www.trustnet.com/Investments/Article.aspx?id=201305080700081816E

that makes you wonder...

hyubh

MoneySaverLog wrote: »

What's the better option going from 1/60th to 1/80th or triple the employee contributions from 3% to 9%?

In a nutshell: the important thing is to hang on to the pure defined benefit basis. A 1/60 scheme with 3% employee contribution rate is la-la land economics.

C_Mababejive

hyubh wrote: »

In a nutshell: the important thing is to hang on to the pure defined benefit basis. A 1/60 scheme with 3% employee contribution rate is la-la land economics.

Why is it?

It has worked for decades and the scheme is well funded and generates good returns. Those pulling out of the pot are slowly dying so liabilities will peak and then fall off. Where will the £11 billion or so thats in the scheme go then?

No..whats going on is a race to the bottom perpetuated by media and received wisdom that this sort of pension no longer works and yet it has worked for years. Gas workers are not noted for their longevity as can be seen from the "with regret" monthly lists published on NG pensions own website.

If workers schemes are la la land ,what about executive schemes at 1/30th accrual rates?

atush

Why is it?

It has worked for decades and the scheme is well funded and generates good returns.

Could it be because workers who used to live to 70 or so, now live to 90+? Could it be that an increased worker contributions for a rare DB pension is required for the long term health of the fund?

I do think that executives should have the same pension as the workers though, at the same accrual rate and same contribution. After all, they get bonuses and share incentives on top.

MoneySaverLog

The DB pension scheme, at the time I was employed, was considered part of my overall employment benefits package. Slowly these benefits over time have dwindled down to next to nothing. They now want to attack what's left of our pensions. It's the straw that will break the camels back.

Us workers are reliant on these pensions to see us through retirement. If I had knew back then this was going to happen I could have done something about extra pension provisions through added year AVCs.

Time has since moved on, with now less time to build up any considerable sized investment outside the scheme for retirement.

The company is in good shape financially, it has committed to growing the dividend yield by at least the rate of inflation for the foreseeable future for investors. It's not as bad as they make out and could easily afford the shortfall in my opinion they are just jumping on the bandwagon with all the other DB scheme closures.

somethingcorporate

Of course they are jumping on the bandwagon but it could be a wise move to protect the company long-term. A 3% contribution for a DB scheme is insanely good value for you so you've done very nicely, even if they do go on to change it - the company are probably contributing ten times as much to balance the books.

You'll keep what you've accrued and even if they do water down your scheme you'll still likely be better off than 99% of the rest of the population in the private sector. It's always going to end up unfavorable comparing yourselves to Execs, they make their own rules up!

JoeCrystal

MoneySaverLog wrote: »

The DB pension scheme, at the time I was employed, was considered part of my overall employment benefits package. Slowly these benefits over time have dwindled down to next to nothing.

Really? I would judge that it is even more valuable as you get older and get more years. Especially if you get a pay rise every year then the defined benefit would have to go up, thus potentially cost more money. Let make an example in a private pension scheme. Supposing I started work at 25, earning a salary of £15,000. Supposing I want 40 years at 1/60 accrual rate and want to get £9,900 in real value, it would cost me £237.5 per month and praying very hard for 7% annual growth to maintain real value term.

However, supposing I am suddenly earning £30,000 a year in real term on my 55th year, through saving for retirement provision. I would hopefully already got my pension fund of £141,862 by 55 which is on the track to achieve £9,900 but not £19,800 by 65 so I will have to increase the contribution to £1775 per month just to keep the aim on target. The working above is most likely wrong but you do get the idea behind it. In other word, as the years increased for an employee and the earnings will go up, the cost to the employer is much higher and therefore, more valuable for you.

Cheers,
Joe

jamesd

C_Mababejive wrote: »

The National Grid pension scheme is in good health

No, it isn't. It has assets of only about 11 billion and a shortfall of more than a billion. It also has a massive structural deficit, with 5,600 workers, 75,000 current pensioners and 35,000 deferred members. Just 5,600 current workers with 75,000 current pensioners and 35,000 deferred implies a huge risk of major funding failure or high costs for the business that may cause it to fail unless the scheme is very carefully managed by its trustees and employer.

C_Mababejive wrote: »

How much investment income do you think that generates?

Perhaps 5% of the 11 billion capital value. About £27.5 million a year. Or more usefully, about £366 a year for each of their current retired pensioners. That's not going to go a long way towards paying the pensions. The current scheme value is only £95,000 per person entitled to a pension under it.

If this scheme gets into more trouble it would be very hard for a business with only 5,600 current employees to rescue a scheme with 110,000 other people entitled to pensions. It's sensible for the company to do all it can to try to reduce that risk, lest it cease to be able to keep the scheme funded.

You can forget any thoughts of the current employees paying for the pensions of the retired ones, 5,600 people can't pay enough to pay for the pensions of 75,000. Even if the pensions were only £5,000 a year the 5,600 would have to pay in £67,000 a year each to pay for them.

Any current member of the defined benefit scheme has reason to be glad that the company is trying to do something to keep the scheme able to continue with any level of employee contribution. If it does that it'll still be more generous than most of the private sector. But it still might be best for current employees if it switched to defined contribution, to eliminate the PPF risk.

jamesd

It's almost certainly going to be best to choose to pay a higher employee contribution and keep at 60ths. 80ths is next best. Defined contribution is likely to be the worst choice as well as the normal one in the private sector these days. But I don't know your pay level and hence how exposed you are to a possible PPF cap if the scheme fails.

Given the risks to the scheme you might usefully say more about your rough age and rough income level. If you are a high earner, well into higher rate tax band, and if the scheme and company fail, the high earners with long service will be most affected by the Pension Protection Fund cap on how much it will pay out in pension benefits. The risk is greater for those far from retirement than those close to it. But if you're a relatively young employee and can afford to take the risk it's best to get defined benefit pension benefits accumulated while you still can, for the clock is ticking to the end of all of these schemes in the private sector.

Young high earners might choose to also pay in to a personal pension so that they can benefit from the diversification of a defined benefit pension and a defined contribution one.

Those who are close enough to retiring that they could choose to retire early should familiarise themselves with the PPF rules and caps and how they might be affected if they were to retire early.

High earners, well into higher rate tax, should carefully watch the funding state of the scheme because those with benefits well above the PPF cap are one of the few groups who might benefit from transferring out of a defined benefit pension scheme, to avoid the massive loss that they could face due to the PPF cap. While a personal pension will pay less per Pound of value, the potential loss of a large part of the value to the cap can make the personal pension a better choice when there is a high risk of imminent scheme failure.

National Grid should probably follow most of the private sector and switch to a defined benefit scheme. That's the outcome that is likely to be best for the company, its owners, gas and electricity bill payers and the safety of the pension pots of its current employees, though with the employees then ending up with the investment risk. At least their pots are then safe and owned by the employees individually and independent of the health of the company. That increased certainty will be of significant benefit if it has many employees who are well into the higher rate tax band and vulnerable to the PPF cap.