Pension - inflation adjustment (DHL)

Xbigman

I'm a member of the Exel final salary pension scheme. Now DHL owns Exel the pension has been reviewed (surprize, surprize) and a number of quite small but ultimately significant changes are being made.

One of these changes is that the pension is still being increased in line with inflation (RPI) each year, but the cap is being reduced from 5% to 2.5%. They state that this is in line with government guidelines.

Lets get real about this, how often will inflation (and it is RPI not CPI) be below or at 2.5%? Surely this is simply a recipe to see the real pension value eroded.

Does anyone know if this really is what the government recomends?


FYI

Other changes.
A. Final salary level is now average of last three years - used to be best year of last ten.
B. Age adjuster now comes in if you leave before 65, it used to be 62.
C. Payments go up from 7.5% pensionable pay to 8.5% pensionable pay.

My only comment on this is that the old system was designed to protect older workers who ended up retiring early through ill health and who ended up with their last few years salary being low because of time off sick. Under DHL it looks like there is a policy of penalising these people. [EMAIL="!!!!"]!!!![/EMAIL]
Regards



X

DRS1

I may be a bit out of date on this but yes the change to pension increases down from RPI capped at 5% to RPI capped at 2.5% has been allowed for a few years now. As I recall though it only applies for the pension you earn after the date of the change. The old rate of increase ought to apply for any pension you have already clocked up. You may want to check this as it could make quite a difference if you have clocked up most of your pension already.

EdInvestor

I don't think you have to be taken over to find these changes occurring in a company f/s scheme, unfortunately.The cost of running them is now prohibitive, mainly because of longevity, though stockmarket falls have played a part in creating deficits as well, as have Government mandated improved benefits such as index linking,which have become more costly.

To give an example, to buy the equivalent of the basic state pension (87 pounds a week, joint life, RPI linked) as an open market annuity would cost between 140k and 160k depending on gender.

These tweaks seem fairly reasonable compared with what's happening elsewhere where schemes have often been closed completely.

Xbigman

DRS1 wrote: »

I may be a bit out of date on this but yes the change to pension increases down from RPI capped at 5% to RPI capped at 2.5% has been allowed for a few years now. As I recall though it only applies for the pension you earn after the date of the change. The old rate of increase ought to apply for any pension you have already clocked up. You may want to check this as it could make quite a difference if you have clocked up most of your pension already.

You are correct. Everything earned up to 1st Jan 2008 is locked in using the old scheme rules and can't be touched. Unfotunately I've only got 5 years in the final tier so far.

Which brings up another point. The scheme was split in two. Up to age 40 members were in a money purchase tier but after 40 they were put in the FS tier. This has now been scrapped. It apparently falls foul of age discrimination laws. Anyone under forty is now barred from the FS tier.
Regards



X

Xbigman

EdInvestor wrote: »

I don't think you have to be taken over to find these changes occurring in a company f/s scheme, unfortunately.The cost of running them is now prohibitive, mainly because of longevity, though stockmarket falls have played a part in creating deficits as well, as have Government mandated improved benefits such as index linking,which have become more costly.

To give an example, to buy the equivalent of the basic state pension (87 pounds a week, joint life, RPI linked) as an open market annuity would cost between 140k and 160k depending on gender.

These tweaks seem fairly reasonable compared with what's happening elsewhere where schemes have often been closed completely.

I have no problem with the majority of the changes if it secures the FS scheme long term, although it is annoying that Exel (pre DHL) had agreed to support the scheme with more money for a number of years. They didn't pay anything in for a long time and the scheme was touted as one of only four FS schemes that came out of the 2000-2003 market crash with a surplus. I guess thats why it still exists at all!

The cut in the indexation I do have a problem with. It is a long term problem, made worse by the fact I plan to live forever . Although it seems my issue should be with the government, not DHL on this one.
Regards




X

Garnet_Gem

Inflation at present seems stable but if it increases and pensions stay under at 2.5% maximum annual increase we'll see a lot of pensioners really struggling.

DRS1

Which brings up another point. The scheme was split in two. Up to age 40 members were in a money purchase tier but after 40 they were put in the FS tier. This has now been scrapped. It apparently falls foul of age discrimination laws. Anyone under forty is now barred from the FS tier.

Isn't there a rule which allows you to convert the money purchase pot into added years when you move over to the final salary tier? I cannot recall the details but it may be worth investigating.

Xbigman

DRS1 wrote: »

Isn't there a rule which allows you to convert the money purchase pot into added years when you move over to the final salary tier? I cannot recall the details but it may be worth investigating.

Yes and I have done so. Anyone not yet in the FS tier is now blocked out and won't have this option.
Regards




X