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How safe is DB scheme?

shelley17
Posts: 24 Forumite
If a company simply closes, (not due to insolvency) and the defined benefits scheme is underfunded, how safe is the pension?
I've asked the Pension Protection Fund, but it seems that protection is related to companies that are insolvent.
Can a company with assets simply cease trading or do they have to cover their liabilities first?
This relates to a scheme whereby the trustees are also the owners, and reached pensionable age a few years ago.
I'm wondering IF they decided to call it a day and draw their own pensions what happens to everyone else's. It's a limited company( if that makes any difference).
Thanks in advance.
I've asked the Pension Protection Fund, but it seems that protection is related to companies that are insolvent.
Can a company with assets simply cease trading or do they have to cover their liabilities first?
This relates to a scheme whereby the trustees are also the owners, and reached pensionable age a few years ago.
I'm wondering IF they decided to call it a day and draw their own pensions what happens to everyone else's. It's a limited company( if that makes any difference).
Thanks in advance.
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Comments
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This is a situation that may concern the Pensions Regulator because there can be a mismatch here between the interests of the trustees and the interests of the other scheme members. I suggest that you initially contact the Pensions Advisory Service and ask for assistance in determining whether the scheme should be reported to the Pensions regulator as one that needs their intervention, and how to go about that. They should also be able to tell you how you can get information about the scheme funding and plans to deal with any shortfall.
The scheme trustees are supposed to be taking steps to see that the pension scheme is sufficiently funded and to be making arrangements to do that if there is a shortfall, and those are supposed to meet the standards set by the Pensions Regulator.
It doesn't seem likely that simply winding up a trading company would be acceptable to truly independent trustees, given the loss it would impose on scheme members. The trustees might instead seek to have the business sold or acquire ownership of it to seek a sale or management buyout by those not retiring. In this area there can be a conflict of interest between owners and trustees if the owners are also the trustees.
However, sensible owners would tend not to just close a company. A company has a name, ongoing business and recognition and those have value to possible buyers. So they would probably want to sell the business if it was not making a loss. The new buyer would need to take over the pension liabilities or the trustees would need to come to some suitable alternative - another area where there is a possible conflict of interest in this case.0 -
Thankyou jamesd,that was very helpful. The company has been trading on a three day week for several years. They were a manufacturing company but cheaper imports mean the business is just about ticking over. There wouldn't really be a business as such to sell, so I don't think they'd be concerned about goodwill.
We've been trying to transfer the pension, but they've refused as they say it's detrimental to the fund. We're in the process of disputing this via the IDPR.
I'll contact the Pensions advisory service as you suggest and see what they recommend.
Thanks again.0 -
What sort of transfer have you been trying? For some transfers they would be right, it could be very detrimental indeed.
One transfer sometimes used is to an insurance company and that might well be roughly on the cost of buying annuities basis, which would probably be horrendously and unaffordably expensive for the company.
Given the three day week it might instead be wondering whether they are interested in the business and whether they might consider hiring a new manager who might want to try to improve the trading the company is doing. Disruptive for all involved but it might prolong the jobs significantly and remove the owner worry.0 -
We were trying to transfer the fund to buy either an annuity or use for income drawdown. I know it's definately not advisable, but to pension novices like us, it seemed preferable to potentially losing the entire fund.
The guaranteed transfer value was just over £200k.
I think if we had assurance that the money is safe, even at 90% we'd rethink our plans and not be so anxious. I've emailed the Pensions Advisory Service, hopefully they'll be able to help. Thanks again.0 -
Just how bad is the shortfall? Annuity purchase or transfer for income drawdown don't seem like options that are likely to be beneficial. Annuity that could pay as much as a DB scheme would be prohibitively expensive and you'd all end up with substantially less income unless the company was able to pay in a lot more. Drawdown would remove the collective aspect that helps to protect each of you from individual investment problems and risks of retiring at different times, when the markets might be down for some and up for others.
Have you had any professionals review the scheme to consider the best options? I'm worried that you might be concerned but pursuing a course that would actually make you worse off, but it's impossible to know either way because nobody here knows enough about the true state of the pension scheme, notably its assets and liabilities.
One thing that can be said with some certainty: the money in the pension fund now is pretty thoroughly safe, so you don't really need to be concerned about losing the actual current value of what it could buy you. It does seem that it might be useful to have at least one independent trustee, though.0 -
Pension scheme in wind up http://www.pensionsadvisoryservice.org.uk/security-of-pensions/your-scheme-is-winding-up0
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I guess you are still working on that post count.
And yes, there is always a risk for loss.
And I too think the situation of this pension is unsettling and would also like to see at least one independent trustee. Quite frankly I am amazed this isn't required.0 -
The scheme needs £3,000,000 to meet its liabilities and has a deficit of £501,000.
Of the three trustees, two are owner/directors and one is a member of staff.
The company is an old family business and had huge assets including their old business premises.
I've been doing some research via land registry and companies house and discovered that when they relocated a few years ago, selling their old building in a prime London location, they purchased a new one . However, they registered the Freehold under a new company name( Ltd) and lease the building effectively back to themselves. The directors of the new company are the same two trustees!
The lease ends in three years, so the trustees could, if not already start drawing their own pensions. The original company, is now trading at a loss with not enough assets to cover it's liabilities.
So, in reality, the trustees could start to draw their own pensions and then wind up the company. They'll get their full pension and the scheme will have to be taken over by the PP fund.
At the same time, the trustees could then sell on the building since it's owned by the other company they set up.
I've reported this to the pensions regulator, but I feel sure there's not a lot that can be done since they've done nothing illegal, however it should be considered unethical.
Seems it's fairly easy to get rid of any pension liability so long as you have a long term plan.
I found several companies that they've set up, with them both as directors, no staff. They've effectively managed to move their assets quite easily.
Anyhow, seems like it's just a waiting game now. Thanks for all your help and advice.0 -
The company is an old family business and had huge assets including their old business premises.
Then the property was an asset of the company, not the trustees of the pension scheme/directors of the company?
The consideration received for the sale belonged to the company?
The new company (which owns the freehold of the current business premises) is a subsidiary of the old and wholly owned by it?
The new company has granted a lease on the freehold property to the old?
When the lease ends, the property reverts to the new company which is wholly owned by the old?
http://www.thepensionsregulator.gov.uk/trustees/role-trustee.aspx0 -
I've emailed the Pensions Advisory Service,
Have you tried a preliminary discussion on the phone?https://forums.moneysavingexpert.com/discussion/comment/63932484#Comment_639324840
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