Final Salary pension scheme closing

Ghostgirll

Hi all,

So the dreaded - yet fully expected - news has finally come, they are closing my Final Salary pension scheme to future accrual!


The obligatory Consultation has just ended, and the final outcome is as follows:

* Scheme will close 31st Dec - employee contributions to that scheme have habitually been 2% of salary

* New DC scheme opens 1st Jan 2017 the basics of which are:
a) 2 year "transitional period" , which is 2% (year 1) 3% (year 2) and then in 2019 4% of employee salary, this to be combined with 10% company contributions with an additional employer contribution of 9% for the first two years. Employees have the option to increase their' contribution by a further 2% (from year 1) culminating in a 6% contribution by 2019 which would be matched by the company for a total possible company contribution of 12% post-2019.

* New DC scheme will open "under the same umbrella" (or so it's been described) as the current DB scheme, and administered by the same Trustee Board, so that at retirement employees will have the option to use the contents of their' DC pot as part of their 25% tax free lump sum (something that we are told would not be possible had the DC scheme not been set up under this same umbrella thingy).

Considering that for more than 10 years the company contributions to the DB scheme have been 27% it would appear that the company now wants to rake back some of their' past contributions at the expense of employees total yearly remuneration, but hey ho, that's the way of the world. Right?? :mad:

Anyway, I am 52 years old - the majority of the workforce is between 50 and 62 incidentally - with a NRA of 62, and a salary of around £33,000 per annum and 30 years service with the company, so I have around 10 years left of my working life to pay into a DC scheme. According to the pension forecast I've just received it looks like I will be loosing around £5000 a year in retirement should I work till I'm 62. This, given a 5% to 7% increase on investments as per my forecast.

Having been in a Final Salary scheme basically all my life, what I really want to know is, what the devil do I do now? How do I decide what to do with my DC pot? How do I even begin to choose how to invest it with absolutely no background knowledge in the subject whatsoever? How relevant is my age in making that sort of decision? And what (if any) other options do I have in order to attempt to recoup some of the £5000 a year loss of pension that I've obviously been basing my retirement plans on?

RuleTheWorld

if it was 27% before then certainly poor form that they haven't got nearer to that figure.

You like to think when these old pensions are closed that the driver is protecting themselves from deficits, spiralling commitments and NOT day to day running costs

tacpot12

How your age is relevant to your decision depends on a) when you think you want to retire, and b) how long you think you will live. Early retirement would suggest lower risk investments, e.g. Less focused on equities and more on Gilts & Bonds. Long life expectancy would suggest higher risk investments.

You should post your thoughts on these questions once the possible investment funds for the new DC scheme are published, to get better advice from the forum as to what might be the best choice.

Your options to recover what has been lost are to pay more in, to take more risk, or to pay more into another pension scheme, e.g. a SIPP.

sandsy

DB: unlimited employer liability
DC: employer liability a fixed % of payroll -employee takes all the risk of insufficient funding

At least you are in the fortunate position of having a decent retirement income underpin in retirement.

What sort of investment options do you have? How sure are you you will keep working until 62? Do you have a partner and, if so, have you done any joint retirement planning taking into account their pension provision, if any?

Ghostgirll

Thank you everyone for replying.

Ok so as yet I don't have any idea what investments will be open to me, other than to say that my pension pot will be run by Friends Life, don't know if that helps or not. I will say this, I've never been a big gambler, so the mere thought of having to make a personal choice as regards my pension terrifies me!?

Another perhaps important point is that my partner of 9 years works in the same place as me, so we are in a very similar situation right now, slight difference is that he has 3 more years service than me (33) and he is one year older (53). We live together, and share all our finances - bills, car loan, living expenses, and currently a small mortgage of around £20,000 - equally. Which actually isn't hard to arrange since of course our wages are identical.

We had both planned to retire in our mid-to late 50's, however that may not be an option any more unless something changes. And there is a possibility of that, since our company appears now to be "running for cash" as it were, we've gone from almost 1500 employees when we started, to around 220 now, and have been up for sale since 2011, without any apparent interest. The possibility of a site closure, therefore, sits right up there as a distinct possibility some time over the next few years. If this were to happen then we do have a very decent contractual redundancy scheme which would furnish each of us with a lump sum of around £50,000.

A Deferred pension is available to us any time we want to lift it, as you can do that in our DB scheme from age 50 onwards with no need for company or trustee consent. It's not a feature of that pension that you have to leave the company, although with the severe reduction factors involved it's unlikely that anyone would ever wish to access a Deferred pension before they really had to. Reduction factors are currently 7% for one year under NRA (62) a further 6% one to two years, 4 and a half two to three years, 4and a half three to four years, four and a half four to five years... and so on... so for someone age 57 the reduction would total 26 and a half % if my sums are right.

Neither of us has any real savings to speak of, although that's partly because for the past 4 years we've been doubling our mortgage payments every single month instead of saving much beyond what we use for holidays, Christmas, etc. Hence that's come down from £66,000 3 and a half years ago to just over £20,000 today.

C_Mababejive

Have you obtained a transfer out valuation for your DB pension "pot"?

Thrugelmir

Ghostgirll wrote: »

And there is a possibility of that, since our company appears now to be "running for cash" as it were, we've gone from almost 1500 employees when we started, to around 220 now, and have been up for sale since 2011, without any apparent interest. The possibility of a site closure, therefore, sits right up there as a distinct possibility some time over the next few years. If this were to happen then we do have a very decent contractual redundancy scheme which would furnish each of us with a lump sum of around £50,000.

Is the Company in a strong enough financial position to fund contractual redundancy payments at that level. You say that the work force is ageing and one assumes has many people with sizeable entitlements. Better to make your own plans than rely on "what might be".

kidmugsy

C_Mababejive wrote: »

Have you obtained a transfer out valuation for your DB pension "pot"?

Interesting idea. Maybe the couple could diversify their risks by having one transfer out and the other stay in. But that wouldn't solve the problem of the couple having no taste for, nor experience in, managing their own investments.

In fact, they may feel they'll already be getting enough diversification by having both DB and DC sections.

Ghostgirll

Oh wow, thanks everyone!

Ok @ C_MABABEJIVE
No, neither of us has asked for a transfer out value, but others with similar age, salary and years of service have, it looks to be around £450,000 give or take. All the advice i find on the web says not to consider taking money out of a DB scheme though, is that not always the case? Should we look into it maybe? I know at least one bloke is taking his entire pot out and going for a lump sum and Drawdown. Not that i really know much about that either, I just know what he's told everyone.

But you're right, a redundancy payment would be nice, we aren't banking on it though


@ Thrugelmir

Yes, absolutely, the problem isn't about how much money the company has, it's a massive multi-national, one of the biggest Chemical companies in the world actually, its just that the product we make at our Scottish site is not making much profit any more, we basically make it way cheaper in China and Japan, where our sister company's are based.


@ kidmugsy

Your final sentence about sums it up, I guess, I'm not sure we would want much more diversification. Maybe we just need more education though??

neilvw

Presumably there will be a default fund in the DC section, but by all means do research on the options.

C_Mababejive

I think its always useful to have an idea of what your transfer out value might be.

That doesnt mean its a good idea to transfer out of course. That is down to individual circumstance.

The thing is, if you dont tranfer out,,well all the assets and liabilities rest with the pension trustees/company. If you do transfer out,,well it all rests with you.

Im no expert,,there are plenty on here who know far more than I but isnt it the case that if you tx a DB pension to a sipp, you can take an income from 55 and still carry on working?