Contingency if DB scheme winds up

Crystal_Pixie

Hi,


I am a member of a DB Scheme with 15 years service looking at a potential of £19k pa at 65 - I am 45.


The company is talking about changing the scheme(s) and its made me think about organising a contingency if the scheme is wound up.


So a couple of questions - if they did wind up the scheme does that mean my DB pension would just be deferred (obviously it would mean I would get a lot lower pension) or would I lose a significant amount of the benefits already accrued?


I am guessing that the company would continue to pay into a DC pension instead.


If that's the case how much would I need to start saving to get anywhere near the benefits I have with this scheme? I have a £120k SIPP pot which I have been putting into but I am guessing this is just a very small amount. I put in £200 a month and I am a higher rate tax payer.


Its a bit disconcerting when you have done your best to try and plan ahead.

molerat

To match a DB scheme benefits a DC scheme needs contributions somewhere in the region of 25-30% of your gross income.

macca1974

Usually in this situation, they will close down the scheme for future benefits. So from the day that the scheme is no longer available for future accrual, your existing benefits will be safeguarded and will then re-value each year as per the scheme rules. So if from your 15 years service, you have for example £10K per annum in today's terms, then that is what you should get when you retire. So the £10K will be revalued each year in line with the scheme rules (RPI/LPI or something similar).

If they then move onto a DC scheme, then what you get from that will depend entirely on what you and your employer put in and the fund growth. As has been said, the rule of thumb for replacing a DB scheme is 20%-30% of salary. Its unlikely that your employer will put that amount in (although you never know).

I would have thought that the best thing to do would be to get an understanding of what you have built up under the DB scheme (assuming that the companies solvent etc) and then work out what your shortfall is for what you are going to want to retire on and then either see an IFA or use online calculators to see what the ideal amount that you should be contributing is. The problem of course is that under the DC scheme there aren't any guarantees and you will be at the whim of the markets and the generosity of your employer. I would expect though that if you wanted to match your current benefits then you will probably have to boost the amount that you are paying in.

jamesd

If a scheme is "wound up" it would normally pay out "winding up lump sums" to members where permitted. But you're not really writing about winding up, just closing to new contributions and continuing to operate. The pension would just end up deferred in that case, as you surmised.

RuleTheWorld

I'm trying for 50% contributions to try and replace (hopefully overcompensating) a 1/50th scheme

Crystal_Pixie

Thank you for all the replies - some food for thought.


Nothing has been decided yet but I am concerned I have been too reliant on my work's scheme.


So for the time being I have decided to double the contribution to my SIPP instead of putting it into my S&S ISA.


I have asked for a valuation of what I already have in the scheme and what it would be today to get some idea of the value.


Thanks again....

atush

using a sipp like that is great, but do join the new DC scheme and put in enough to get the max the employer will put in.

during the negotiation period, should the dB scheme close, ask for a short term boost (whereby they put in more to the DC scheme for a few years to compensate) and for a good long term employers contribution (of at least 10%) and for the new DC scheme to be salary sacrifice (which will save both you and the employer Nics)