"Risk" in private sector defined benefit schemes

Sobryma

I have a small legacy pension scheme that I can draw in a dozen years or so at 65 and I would like to risk assess it. The pension is worth £7.5k pa indexed.

The scheme like nearly all DB schemes has recently closed to new entrants, the business itself is overseas owned, in a cyclical industry with oversupply and dependent a single but profitable asset. While under funded, (although better than many), there is a commitment to additional contributions that has been delivered in prior years.

I understand through levies on the schemes the Pension Protection Fund offers some protection up to a capped level, so even though a private scheme the maximum loss I can take is 10% unless the Pension Protection Fund collapses. Is that correct?

kidmugsy

Why not read the PPF rules? In my case they would cost me almost all my inflation-protection. For me: "If you were beyond the scheme’s normal retirement age when your employer went bust, the Pension Protection Fund will generally pay 100 per cent level of compensation, which means we will generally pay you the same amount in compensation when your scheme enters the PPF.

Your payments relating to pensionable service from 5 April 1997 will then rise in line with inflation each year, subject to a maximum of 2.5 per cent a year. Payments relating to service before that date will not increase."



Worse they would cost my widow a huge chunk of her pension.
"How much compensation will my spouse, civil partner or relevant partner receive?
Where you have reached normal pension age and your survivor is eligible as described above, compensation will be payable at half the amount of compensation you were receiving immediately prior to your death."

So: 50% versus the nearly 90% she's due if the scheme survives. Plus, again, she'd lose almost all her inflation-protection. In short, it would be calamitous for her.

And that assumes that the PPF could survive one or more of the big schemes failing.

Sobryma

Thanks I did have a look through their website but its not exactly transparent or easy to navigate. Will have another dig.