Knock on effect of BHS pension

elantan

Hi all,

was thinking about the situation going on with the BHS pension, I understand that the pension in the main should be safe ( heard this second hand admittedly) but I wondered what the knock on effect if any other people in final salary pensions may experience due to this situation.

My husband has a final salary pension which we consider to be a good one, however, he still has atleast 12 years left to work before he can start claiming the pension, he had heard that due to the situation with BHS there has been talk about changing final salary pensions to an average earnings pension, this was not discussed via his employer but by programmes he watched that were discussing the BHS situation.

Does anyone know if this is possible? or likely ?

thanks in advance

surbitonian

Possible? - yes. Likely? - depends on the employer. Has happened in many instances but you will need a crystal ball for a definitive answer.

kidmugsy

If the BHS pension scheme falls into the hands of the rescue outfit, the Pension Protection Fund, a likely outcome is that the surviving Defined Benefit schemes, such as your husband's, will have to pay a higher levy to keep the PPF in business. That makes the cost of such schemes to the employer even bigger, making employers even more reluctant to carry on funding them.

If, however, your husband's scheme is a government one, that logic doesn't apply because those schemes depend on the taxpayer not the employer.

dunstonh

but I wondered what the knock on effect if any other people in final salary pensions may experience due to this situation.

Higher levies to the PPF. However, in the scheme of things, that is little different to the levies that get charges on all pensions, investments etc.

he had heard that due to the situation with BHS there has been talk about changing final salary pensions to an average earnings pension, this was not discussed via his employer but by programmes he watched that were discussing the BHS situation.

BHS will have nothing to do with an employer making that change. They will only be doing it to reduce their own future liabilities and costs.

elantan

His isnt government, another ( I spose crystal ball question ... and I do understand there is no definitive answer) would any changes be back dated or from the time the changes are made?

just wondering if going forward he could be salary averaged, ie from say May 2016 till retirement.... or if they can say any pension contributions from 1995 will automatically become salary average pensions ( or any other type)

dunstonh

and I do understand there is no definitive answer) would any changes be back dated or from the time the changes are made?

Normally, it is future qualification from the date of change. Historic entitlement is retained.

The most common move from final salary is not to career average but to money purchase.

elantan

dunstonh wrote: »

Higher levies to the PPF. However, in the scheme of things, that is little different to the levies that get charges on all pensions, investments etc.



BHS will have nothing to do with an employer making that change. They will only be doing it to reduce their own future liabilities and costs.

sorry I dont think I am fully understanding this, I think (could be wrong) that yes it would be up to his employer to decide if they want to change the scheme etc but if they choose not to there may be higher costs incurred should his employer choose to stay with the scheme due to the BHS situation.

These incurred costs may make it more economically viable for his employer to change the terms of his pension

so whilst it isnt BHS fault that this situation has arisen, had the situation with BHS been different then there may not have been any need to contemplate changing the terms of the pension,

is that about right ?

elantan

dunstonh wrote: »

Normally, it is future qualification from the date of change. Historic entitlement is retained.

The most common move from final salary is not to career average but to money purchase.

Thanks Dunstonh that appears to be what has happened to the NHS pension I am now a member of ( we have went from defined benefits to defined contributions)

Thanks if this is to be the case with my husbands pension the sooner we know the sooner we can make plans for our retirement, his pension is good just now and we are trying to concentrate on my pension just now saving over £500 a month into a pension, it isnt easy but we need to make the change just now if we are to retire early and have a better retirement

elantan

kidmugsy wrote: »

If the BHS pension scheme falls into the hands of the rescue outfit, the Pension Protection Fund, a likely outcome is that the surviving Defined Benefit schemes, such as your husband's, will have to pay a higher levy to keep the PPF in business. That makes the cost of such schemes to the employer even bigger, making employers even more reluctant to carry on funding them.

If, however, your husband's scheme is a government one, that logic doesn't apply because those schemes depend on the taxpayer not the employer.

I did wonder this and I spose it is the reason for my asking

greenglide

The BHS mess may make employers look harder at their pension schemes and especially their costs but if they did change in the months ahead they almost certainly would have done so anyway.

It is all down to how successful the company is (at the end of the day pension schemes are funded out of profits), what they believe the future looks like (shrinking markets, losing staff etc), what the competition offers etc.

What does the funding of the pension scheme look like? Their regular communications should tell you. If it is 100% or more then good, if there is a shortfall of hundreds of millions of pounds then worrying is justified.

A career average scheme has more certainty although there is still investment risk. Members who are not expecting their salary to increase more that inflation don't tend to lose anything.

dunstonh

sorry I dont think I am fully understanding this, I think (could be wrong) that yes it would be up to his employer to decide if they want to change the scheme etc but if they choose not to there may be higher costs incurred should his employer choose to stay with the scheme due to the BHS situation.

Pensions have levies whether it is to the PPF or the FSCS. The cost of the levies is factored into the pricing of the product (when money purchase) or the terms (how much you pay or the employer pays). Savings accounts result in levies. Insurance has levies. investments have levies. If BHS ends up in the PPF then the cost will have to be borne by the rest but BHS itself wont change a company position.

If they move to money purchase, then there will be levies there. If they move to career average, there will be levies there. Effectively, what I am saying is that the cost of the levies is small fry compared to the cost of the overall liability. It it is the liability that scares employers.