Final salary scheme wound up and replaced

peterh32

I have just been told that our final salary scheme is being wound up and replaced with a money purchase scheme. Anybody had any similar experiences and been able to do anything about it? I am not happy about it!!

chubbybrown4real

Ask one of the Trustees why it is being wound up
surely they should have informed them and you before it was wound up
Is it being frozen or remain open to members but not to new members.

dunstonh

A very large number of final salary schemes have been replaced with money purchase schemes.

You may not be happy about it but it has become too much of a liability to companies to continue this type of scheme.

Jacster_2

This is really common these days. There are very few final salary pension schemes open to new members and many have closed for existing members too. The Trustees are the people who will make these decisions, based on the funding available in the pension pot and how big the projected shortfall is.

Fortunately, everything you've built up until the change remains as final salary.

Unfortunately, there's not a lot you can do going forward. The way pension rules tend to be written is that changes can be made at any time, through 'pension rules' processes, eg role of trustees, length of notice given to members, etc.

Just make sure you get the best for your money out of the new scheme and take advice on your overall retirement planning.

Good luck.

Chester_Draws

Fortunately, everything you've built up until the change remains as final salary.

Jacster,
I left an employer after 30 years service, and left a final salary pension frozen with them. Does that mean that it will always remain frozen as a final salary under the terms I left it there ? If they were change to money purchase, and I would not be in a position to hear about it, would it therefore not apply to me ?

Jacster_2

Chester_Draws wrote:

I left a final salary pension frozen. Does that mean that it will always remain frozen as a final salary under the terms I left it there ? If they were change to money purchase, and I would not be in a position to hear about it, would it therefore not apply to me ?

Chester

Quick disclaimer - I'm not a qualified pensions person, and someone did once tell me that a 'bit' of pensions knowledge is more dangerous than none....I believe them!;)

So, my first bit of advice is check it out with someone who can read the pensions rules of your particular scheme - every scheme is different.

That said, I believe the principles of

- 'benefits earned in the past can't be changed'
- 'changes can be made to future benefits in accordance with pension scheme rules'

are both correct across all pension schemes.

Anyone more qualified to comment......? :think:

Hope this helps.

Debt_Free_Chick

Are you absolutely certain that it's being wound-up? That would be very unusual as the company would have to fund any shortfall to buy annuities.

More likely is that the scheme is being closed to all further pension accrual, but it will continue to exist and simply pay out benefits when they are due.

I think you need the full facts first. The company or the trustees should send you a written communication telling you exactly what's happening.

dunstonh

Pal is the forum expert on occupational pensions so you could wait for his response.

However, these are the common ways of closing down/phasing down a defined benefit scheme:
1 - Existing members remain in the scheme but new recruits join a money purchase scheme
2 - The scheme ends but benefits accrued remain in the scheme. All future pension entitlement beyond that point goes into a money purchase scheme (so two pensions are held)
3 - The scheme closes altogether and is transferred into a money purchase scheme.

thirdparty

Ultimately it is down to the employer whether or not to keep the scheme open They decide whether or not to keep it open for future accruals for current members or closed it down for future accruals i.e only provide for beneftits accrued to date.

If the employer remains solvent, then they will need to continue to fund the scheme to pay the benefits accrued. The scheme will pay benefits as usual.

You can request a copy of the scheme accounts to find the current situation of the scheme and find out how well funded it is.

The only way benefits will be changed i.e reduced is if the employer goes bust and cannot fund any deficit in the scheme

Pal

I don't have much more to add to the above except that it is a company decision to close down a final salary scheme, not a Trustee decision.

Also there is a way of convincing an employer to keep a final salary scheme open - offer to pay a higher proportion of the contributions e.g. 10% of salary instead of 5%. Depending on the numbers involved the employer may be willing to reconsider.

peterh32

Its a bit ironic as our scheme has a healthy surplus and with the new accounting rules coming in that may make it less attractive than a final salary scheme that is massively in deficit.