Company pension

superflygal

Hi Folks,

Been sent a letter saying my company pension isgoingbto be cut by 18% as a knock on effect of deficit for state pensions.

Whereas my lump sum was £ 25k and my pension after 30yrs was £11k a year and retire at 60; the new "changes" mean I work to 62, get £22.5k lump sum, then £9k a year.

Other staff members who are in same role but protected will see no alterations.

Is this fair and legal please? Is it an idea to approach my union? The union have showed no interest as yet as the reps are protected and as such, unaffected.

Many Thanks!

Sfg x

dunstonh

Been sent a letter saying my company pension isgoingbto be cut by 18% as a knock on effect of deficit for state pensions.

Strange way of wording it as that isnt what is happening. The only impact the state pension has on your works pension is the ending of contracting out. So, we have to assume you are contracted out.

Is this fair and legal please?

Depends on what they are doing. If they are just adjusting it to take into account the contract out differences then it is fair and legal. Remember your state pension qualification will be higher and you will get more there.

Protections shouldnt apply to contracted out alterations. So, it is possible there is something else going on at the same time with the scheme. The company may be looking to kill two birds with one stone.

We need more info and specific detail as to what has been said and why.

jamesd

Previously defined benefit pension schemes could opt their employees out of the S2P (formerly SERPS) system and receive a payment from HMRC. The earnings-related part of the state pension for the employee would be reduced. In exchange the pension scheme had to pay as part of their works pension the lost amount from the state pension.

From 6 April 2016 there is a flat rate state pension being introduced that has no earnings-related part. Transitional protection applies to those who already have some earnings-related part. With no new earnings-related additions to the state pension the ability for pension schemes to contract their employees out of the earnings-related state pension is being removed. This means that employers will no longer have the option to make their works pensions look better by including some of the state pension portion in the works pension income.

It's unlikely that you are losing out more than any other long term employed person from the flat rate state pension changes. Most of what is happening to you is just the money that would have shown up in the employer pension now showing up in the state pension instead.

Because you have been contracted out in the past you are likely to be a winner from the flat rate changes compared to people who have not contracted out. This is because the flat rate state pension is capped at about £155, the level for 35 years of flat rate contributions. As a person who has been contracted out you will reach that level later than a person who was not contracted out, so you will continue to gain from working more years for longer than the person who wasn't contracted out. You could potentially get both the maximum fat rate state pension and the works pension increase, while the person who wasn't contracted out would get only the flat rate.

Your employer is clearly doing something else as well because nothing in the change to contracting out rules requires a change in normal retirement age from 60 to 62.

It's acceptable to protect some employees, particularly common for employees who are relatively close to the existing normal retirement age of the scheme, who would have les time to plan for changes.

Your employer might be reducing their contributions. They might be changing to a career average instead of final salary system. They might be doing many other things. We don't know, all we can see is the changed result.

xylophone

Been sent a letter saying my company pension isgoingbto be cut by 18% as a knock on effect of deficit for state pensions.

Is this what the letter actually says?

superflygal

This is the lettter

"I wrote to you on the 21/01/16 to tell you about some changes we're propsing to make to your pension. I'm writing to you today to give you some information about the proposed changes and to tell you how you can find out more. These changes are relevant to you and it's really important taht you understand them.

WHY ARE WE MAKING CHANGES?

The government is making fundamental changes to the state pension. If we did not make changes to your pension scheme, then the cost of providing pensions would increase significantly. These changes are intended to recover this additional cost, thus helping to ensure the scheme is sustainable.

WHAT ARE THE CHANGES

For all members, we're proposing to introduce a "salary cap" of inflation plus 0.25% (based on the retail prices index measure of inflation)

For those members who arem't "PROTECTED" we're proposing to increase the Normal Retirement Age for pension built up after 1 April 2016 from 60 to 62. our records show you are a NON-PROTECTED member so this change will automatically affect you.

WHAT DOES THIS MEAN FOR MY PENSION?

Please see the attached "Member examples" which will help you understand the impact of the changes to your pension benefits hat are being proposed the company, these should be read in conjunction with the other information received as part of the consultation on these charges. We know that these changes are quite complicated, so we are planning a series of Pensions Surgeries, where one of our HR team and a representative from RMPI will be on hand to talk through the changes.

WILL MY CONTRIBUTIONS CHANGE?

Yes. The Railways Pnsion Scheme is a "Shared Cost" scheme, which means that members' contributions change whenever the companies' do. AS a result of the proposed changes you contribution rate would reduce from 10.80 to 8.33 for non-protected members.

It's important to note however, that at the same time, the Government is increasing the rate of NI you 'll have to pay."

After that there are a series of illustrations.

superflygal

This is as clear as mud to me. I could write what I know about pensions on a postage stamp.

This is a final salary pension.

The illustration that the Pension Scheme provided that is most pertinent to me is this one:

"Cathy has been a member of the scheme for 10 years and plans to retire at 60.

She is currently 40 years old, has a salary of £30,000 and is a NON-PROTECTED member.

Benefits at retirement BEFORE changes:

Pension of £11,600 a year

PLUS

A tax-free cash lump sum of £25,300

Benefits at retirement:

Pension of £9,800

plus

£21,900 lump sum.

Is it me? or is this a totally cr*p deal?

Thanks for all the replies so far. I really appreciate it. I phoned the pension company before to get info, but the person on the phone was literally incapable of giving my any figures based on a hypothetical end salary.

Sfg x

Kynthia

Who are protected staff? In my workplace staff that are very near retirement are often protected from changes, so if that's the same at your workplace it wouldn't be unusual. Also last year we were moved into a new scheme with a much later retirement age which was perfectly legal.

superflygal

They are ex British Rail staff, they kept their BR rights when tuped over to private sector.

dunstonh

Railway employees have different levels of protection based on their service. So, that explains why some get it and some don't.

It also appears that they are using the excuse of the change in contracted out as a way to shoe horn in extra changes that have nothing to do with the Government as a means to reduce their costs.

Is it me? or is this a totally cr*p deal?

No. it's a good deal. Still better than anything on the retail market. Just not as good as before.

jamesd

superflygal wrote: »

Yes. The Railways Pnsion Scheme is a "Shared Cost" scheme, which means that members' contributions change whenever the companies' do. AS a result of the proposed changes you contribution rate would reduce from 10.80 to 8.33 for non-protected members.

It's important to note however, that at the same time, the Government is increasing the rate of NI you 'll have to pay."

That appears to sort of explain it, at least partly.

They had you contracted out of the S2P earnings related part of the state pension. They were getting that money and using it to pay part of "their" contribution even though it was just from you in a roundabout way via your NI. Now they don't get that they are cutting what they pay in by at least that much. Because it's a shared cost scheme to do that they also have to cut your contribution level.

You'll get back much of the NI part from the state pension instead of this so that part isn't really something to worry about. But the cut in your contributions is real and so is any extra cutting they did on their end. So they have to reduce benefits somehow to cover the reduced payments going in. So later and lower pension.

Key question is whether they are cutting what they are paying in by more than the contracted out payments they were getting.

For you, the reduced pension contributions should mean more in your pay. You can use that to make contributions to a personal pension and that can be used to cover the time between the old and new start dates. Maybe also some of the payment decrease, depends how much the difference is and how much extra state pension you get as a result of more of your NI going to the state pension.

superflygal

There is the option of "BRASS" where once can make tax free pension pot contributions per month. The company do not match this. Would this be worth doing? Or are there better investments?

Many thanks for all the great advice by the way!

SFg x