DB pension worry

Muscle750

after having the company DB pension ripped from under our feet some ten years ago ive suddenly woken up to the fact that on the figures on the last statement that if i was to drop a week after i access it at 65 (another 10 years to go) My resulting spouses pension paid by it will mean she will have to live till shes over 100 to claw back all the money more to the point if she drops a week after me what happens to the pot of money?. There is no mention in the paperwork about accessing a lump sum either at any point either now or when i retire.

p00hsticks

Muscle750 wrote: »

after having the company DB pension ripped from under our feet some ten years ago ive suddenly woken up to the fact that on the figures on the last statement that if i was to drop a week after i access it at 65 (another 10 years to go) My resulting spouses pension paid by it will mean she will have to live till shes over 100 to claw back all the money more to the point if she drops a week after me what happens to the pot of money?. There is no mention in the paperwork about accessing a lump sum either at any point either now or when i retire.

In a DB pension there is no 'pot' - there's a guarantee to pay you an amount of money (index linked) from your retirement date until you die, and then (often) to pay your spouse a reduced pension until their death. Those that die shortly after retirement are effectively subsidising those who are long lived.

Having said that, many schemes do have some sort of rules to ensure that the nominees of those dying before retirement or shortly after do receive some money - you'd need to look into what your particular scheme offers. There may also be an option to take a lump sump and a reduced pension at the point of retirement.

If you want a 'pot' then you could ask the scheme to provide you with a Cash Equivalent Transfer Value and consider transferring the value into a pension pot that you manage yourself - although if the CETV is over £30k you will need to pay for advice from a suitably qualified IFA before being allowed to do so.

SandraD65

Hi there,

I am confused about the percentage of payment I will receive from my DB Pension on retirement. I have worked at a company for 31 years but have not paid into a DB pension for all of that time.

Does this mean that I get payment from a money purchase pension for the first 20 years and then a percentage of my final salary for the remainder of my working life with that company?

Thanks in advance for your replies!

hyubh

SandraD65 wrote: »

Hi there,

I am confused about the percentage of payment I will receive from my DB Pension on retirement. I have worked at a company for 31 years but have not paid into a DB pension for all of that time.

Does this mean that I get payment from a money purchase pension for the first 20 years and then a percentage of my final salary for the remainder of my working life with that company?

Thanks in advance for your replies!

To avoid confusing things with Mr Muscle, could you please start your own thread (exactly the same text you've used here will be fine), then delete this post?

(To delete, click the Edit button below the post, then the Delete button is the third one along below the 'Reason for Editing' box.)

hyubh

Muscle750 wrote: »

after having the company DB pension ripped from under our feet some ten years ago ive suddenly woken up to the fact that on the figures on the last statement that if i was to drop a week after i access it at 65 (another 10 years to go) My resulting spouses pension paid by it will mean she will have to live till shes over 100 to claw back all the money more to the point if she drops a week after me what happens to the pot of money?

As p00hsticks says, there is no pot of money with your name on it - a DB pension is more like a form of insurance that pays out for a certain contingency (old age) rather than a saving scheme.

That said, sometimes a scheme can operate a 'guarantee' or special death grant when a member dies within x years of retiring, but the precise nature of this (and whether it applies at all) will vary, so you'd need to check with the scheme administrator.

There is no mention in the paperwork about accessing a lump sum either at any point either now or when i retire.

Accessing a lump sum before the pension won't be possible for tax reasons. This has always been the case with DB.

However, in the case of taking a lump sum on drawing your pension, a common benefit structure in 'ordinary' private sector final salary schemes was/is 1/60 pension, no automatic lump sum, but the option to commute pension for lump sum on actuarially neutral terms. If you don't still have a scheme booklet, get in touch with the scheme administrator to confirm what your options will be.

Muscle750

I also draw little faith from the fact that the deficit in the scheme has increased in the last 12 months from £18 million to in excess of £34 million with the company statement saying "Poor returns and it could have been worse and that no money from the fund has been allocated to the company," They have said they have agreed to pay a sum to the scheme annually to cover this loss.

Shimrod

Muscle750 wrote: »

I also draw little faith from the fact that the deficit in the scheme has increased in the last 12 months from £18 million to in excess of £34 million with the company statement saying "Poor returns and it could have been worse and that no money from the fund has been allocated to the company," They have said they have agreed to pay a sum to the scheme annually to cover this loss.

To find out how much the company has paid into the pension scheme, you should look up the relevant section in the annual company report. "No money allocated to the company" means exactly that - no money has been paid to the company from the pension fund.

Muscle750 wrote: »

... if i was to drop a week after i access it at 65 (another 10 years to go) My resulting spouses pension paid by it will mean she will have to live till shes over 100 to claw back all the money

As has already been mentioned, there is no allocated pot of money, but defined benefits - the benefit being most probably a 50% spousal pension if you pre-decease your wife. If you were to drop dead one week after drawing the pension, there is normally a guarantee period of 5 years that would be paid out. You need to get a copy of your scheme rules to understand the benefits that would be paid out in the various circumstances you describe.

As a final point on 'getting the money back'. Have you actually checked how much you paid into the pension over the period you were an active member and how much pension you actually get for that? I was a member of a DB scheme for 13 years, and I only have to receive 2 years pension to more than cover the contributions (5% salary) I paid in over those years. That is why DB schemes are so good for employees, but so bad for companies.

hyubh

Muscle750 wrote: »

I also draw little faith from the fact that the deficit in the scheme has increased in the last 12 months from £18 million to in excess of £34 million with the company statement saying "Poor returns and it could have been worse and that no money from the fund has been allocated to the company," They have said they have agreed to pay a sum to the scheme annually to cover this loss.

So what, that's how DB works. From your point of view the relevant issue isn't the current funding level of the scheme (which will always be an educated guess at the end of the day, however highly paid the actuary), but the prospective health of the company to be able to continue to stand by the scheme. (If the company continues to be profitable, then deficit payments shouldn't be a problem.)