Company pension transfer value query

bugfriendlygardener

I have an old company pension (Fujitsu). I worked for them in two short stints under two subsidiaries. Contributions from Jan 1985 to June 1988 were transferred into the main fund when I rejoined in Jan 1989. I left in Aug 1994 having contributed just another £4425 . My final pensionable pay was £16351.
I've never understood how transfer values accrue ( due to pension fund performance ?).

in 2008 tfr value was £37789. Then by 2011, my annual statement tfr value has jumped to £93964 and now, 2016, it is £196248. Aren't these huge increases in light of my contributions ?

thankyou if you can answer.

hyubh

bugfriendlygardener wrote: »

Aren't these huge increases in light of my contributions ?

Yes, but (at the risk of sounding blunt) so what? There is zero connection between your original contributions and the transfer value.

mark5

Surely this is a defined benefit pension, so the annual pension payable is the important bit?

xylophone

This is a deferred Defined Benefits pension.

The pension is revaluing in deferment.

At Scheme Pension Age, a pension must be paid to you for the rest of your life.

http://www.mycompanypension.co.uk/Redundancy-Transfer-Values-Preserved-Members-DB

"In order to place a value on your pension benefits, the scheme trustees who are responsible for the calculation basis of your transfer value looks at the pension benefits that you have earned up to the date of your redundancy (or more accurately – the date you ceased to be an active member of the pension scheme).

Your pension benefits are then ‘projected forward’ to your Normal Retirement Age to get an estimate of what your pension benefits would be at that date. A monetary value is then placed on this - effectively the amount of ‘pension fund’ that would be needed in the future to provide you and your dependants with the projected level of benefits that has been estimated.

This ‘future value’ is then discounted back to the present day (the date the transfer value is calculated) to arrive at a current value, which is termed the ‘transfer value’."

sandsy

It's normal for transfer values to increase:
- the benefit itself is being increased with inflation each year
- as the benefit becomes closer to being paid, it's worth more in today's terms

it should continue to increase, perhaps not at the same rate, particularly if economic circumstances change.

Your contributions are irrelevant. The important factor is the promised income.

deaglecat

sandsy wrote: »

Your contributions are irrelevant. The important factor is the promised income.

... and whether it eventually can fund its obligations.

jamesd

bugfriendlygardener wrote: »

in 2008 tfr value was £37789. Then by 2011, my annual statement tfr value has jumped to £93964 and now, 2016, it is £196248. Aren't these huge increases in light of my contributions ?

It's due to interest rates. Lower interest rates increase the transfer values used in pension calculations because the interest rate is a key part of the calculations. Once interest rates go up, transfer values will go down.

At the moment transfer values can be so high that it can make sense to transfer out of defined benefit pension schemes when that's not normally the case.

Low interest rates also increase the projected deficits of pension schemes for the same reason, the way the calculation rules work. Again, something that will recover by itself as rates rise, though of course some of the deficits aren't solely artefacts of low rates.

These variations are also part of why companies have been closing down defined benefit pensions. They have to report these as part of their annual reports and it makes the management look bad if the company has done a great job but the interest rate drop has caused a poor final result.

kidmugsy

bugfriendlygardener wrote: »

Aren't these huge increases in light of my contributions ?

Every now and again this forum receives hysterical rants about how vile capitalists are closing DB pensions.

Every now and again this forum receives expressions of surprised delight about how much of a pension the writer is getting from some long-forgotten DB pension from a job he'd worked in for only a short time, or how high his CETV is.


These two sorts of posts make essentially the same: DB pensions can cost the employer a packet.

bugfriendlygardener

thankyou, I am suitably enlightened.