Change to actuary reduction factors

madeinireland_2

My company has recently changed the actuary reduction factors for my defined benefit pension scheme such that if I take my pension next March (5 years early) I would get approximately £1k extra per year. Now I plan to defer the pension anyway so it's does not make any real difference to me other than perhaps it may encourage me to take it a little earlier.

Looking at the number of active members in the scheme it's a relatively small number compared to the size of the overall scheme.

Why would they change the factors like this and what does it say about the health of the scheme? Are they doing it to encourage more people to take it early for some reason?

I'm trying to understand the logic behind their move and perhaps more about the underlying factors that would make them do this?

Any views?

Thanks...

agarnett

You say the scheme has a relatively small number of members. How small? Are most of the members active (still-employed) members? Is your's the sort of company where those controlling it may be planning to sell up and disappear to their favorite palm tree sometime in the near forseeable?

hyubh

madeinireland wrote: »

Why would they change the factors like this and what does it say about the health of the scheme?

Nothing in particular, or rather, there are far more direct ways to consider the current funding situation. What did the last scheme valuation report say? Has the sponsoring employer recently been having to pay large sums into the pension fund that it didn't have to pay in before? And so on.

Being a relatively mature scheme (i.e., lower proportion of actives to deferreds and pensioners) also doesn't by itself mean anything, though if the asset allocation hasn't been evolving in step (i.e. the pension fund is still biased towards investing in equities) that could be a bad sign - as a DB scheme matures its investments should in general get more conservative.

zagfles

What was it before? Some scheme do have ridiculously large factors, maybe they're just bringing them into line with what is actually actuarily neutral (or more so), particularly if people tended to wait till normal pension age rather than suffer a big reduction.

robin61

Hi made in Ireland. I must admit I haven't noticed any difference on the pension planner. Are you sure ? if so how recently do you think it changed ?

robin61

You are right. Curiosity got the better of me and I had to log on to find out. Looks like good news although I can't for the life of me explain such generosity.

kidmugsy

Consider a scheme where people retire at 65 and die on average at 75, so they'd draw pension for 10 years. Now suppose they retire at 60 and live for 15 years. So, to a crude approximation their pensions should be reduced by a third so that the total they receive is unchanged. A 33% reduction in five years is about 6.5% p.a.

Now suppose that they die instead at 85. Then their pension has to last 25 years instead of 20 so the reduction need only be by 20% i.e. by 4% p.a.

So lengthening life expectancies ought to lead to smaller actuarial reductions.

Maybe that's part of the explanation.

madeinireland_2

robin61 wrote: »

Hi made in Ireland. I must admit I haven't noticed any difference on the pension planner. Are you sure ? if so how recently do you think it changed ?

It changed 1st Oct.

madeinireland_2

kidmugsy wrote: »

Consider a scheme where people retire at 65 and die on average at 75, so they'd draw pension for 10 years. Now suppose they retire at 60 and live for 15 years. So, to a crude approximation their pensions should be reduced by a third so that the total they receive is unchanged. A 33% reduction in five years is about 6.5% p.a.

Now suppose that they die instead at 85. Then their pension has to last 25 years instead of 20 so the reaction need only be by 20% i.e. by 4% p.a.

So lengthening life expectancies ought to lead to smaller actuarial reductions.

Maybe that's part of the explanation.

Yes that seems to make sense I suppose

robin61

This is definitely right I have just noticed an announcement on the pension portal to say that the trustees have reviewed the actuarial reduction factors effective 1 Oct 2015.

Mr_Prudent

Hi Robin 61. The website informs that the rates have been reviewed, but give no figures. Do you know what the new figures are as I no longer work for the company and so do not have have access to the portal.