What would you do?

HappyJnP

Company in distress but pension protected, what would you do?
I am 50. DB element approx 2k p.a DC element approx 25k. Deferred member.
DB transfer quote from earlier this year was approx 40k
Should I transfer out DC element, if allowed to do separately or hang tight?
Any other sensible options?

"
Dear Member

You may have heard on the news or read in the press that De La Rue have issued an announcement about its long term future and its ability to continue trading.

We know you may have some questions on these events and have hopefully answered these questions below.

How does this news affect the pension scheme?

The defined benefit section of the scheme currently has assets of over £1bn. These assets are held securely in a separate trust which is managed by the Trustee. De La Rue has no access to these assets.

What is the current funding position of the scheme?

Like many defined benefit pension schemes in the UK there is gap (deficit) between the value of the assets in the fund and the value of the benefits due to be paid from the scheme. To help close this gap De La Rue is currently paying contributions of £21.3m each year.

What is the trustee doing to manage the deficit?

The Trustee is currently in negotiation with the company and the Pensions Regulator over the ongoing funding of the scheme and is working hard to agree an ongoing plan. De La Rue has every intention to continue to support the scheme.

What could happen in the future?

Nothing is likely to change in the future whilst De La Rue remains solvent and is able to support the scheme. This will allow the trustee to continue to pay your pension if you are a pensioner, and if you are a deferred member your benefits will be paid in full when they become due.

If De La Rue is no longer able to support the scheme the trustee would aim to secure members benefits by buying an insurance policy.

In the unfortunate event De La Rue were to cease trading and the trustee was not able to secure your pension benefits via an insurance policy your benefits could be transferred to the Pensions Protection Fund (PPF). The Government has set up the PPF to provide compensation to members if the worst was to happen."

sandsy

Transferring out will cost you as you have to take regulated advice from an FCA authorised pension transfer specialist. Assuming you could find anyone to take it on - which is questionable given the low value - advice will probably cost you around £4k (about 10% of your transfer value).

If the company goes bust, your pension could end up in the Pension Protection fund where it will be reduced by 10%. See https://www.ppf.co.uk/what-it-means-ppf for more details.

Malthusian

In itself the letter is not a reason to transfer out. The deficit could be eliminated by a bunch of scheme members dying earlier than expected, or not being as sexy as the actuaries thought (thus dying without widow/ers' pensions), or investment growth being higher than assumed, or all of the above and more.

If you had a CETV "earlier this year" then it's almost certainly expired, or will expire before you have the chance to find an IFA with pension transfer permissions and they have the chance to obtain the information they need. To get another free CETV you would usually have to wait until 12 months since the last one. Until then they might charge for another or refuse to provide one at all. So you might have to put your feet up and think about something more interesting for a few months anyway.

Even if De La Rue went bust, someone might agree to buy the company and its pension liabilities, or the buyer might do a Tata / British Steel and agree to fund a compromise that is not full support but better than the PPF.

If you did manage to get another CETV you might find that it was reduced due to the scheme's funding position.

As Sandsy suggests, the cost of specialist professional advice is likely to be prohibitive for a pension this size. If your retirement would be unduly compromised by a £2k per year pension suffering a 10% haircut and caps on inflation-linking, then the realistic solutions available do not involve your £2k a year DB pension. We would be in the realms of boring solutions like "save more" "work longer" or "manage expectations".

HappyJnP

Thank you for the advice
Yes I think I just have to sit tight on the DB element. I don't think the DC element is linked and that should be safe regardless as simply invested in funds, but I may enquire to transfer to my current ongoing/growing sal sac DC pension fund, but just learned today that my current employer is looking to set up aegon as new pension provider soon, instead of current Aviva, so I'll maybe wait and see what options are on the table when that is formally announced before looking to transfer the DC pot.
The DB is planned to grow at CPI so will be patient with that and probably ask for another transfer quote next year just out of interest. (To save funds the pension scheme changed from RPI a couple of years ago, so might just about hold ground, if it survives, or if not still should get 90% of value). I guess the best hope would be De la rue is bought and part of deal is the new buyer puts a whack of money into the pension fund! Que sera!

Marcon

HappyJnP wrote: »

Should I transfer out DC element, if allowed to do separately or hang tight?

The DC element isn't at risk. Whether you transfer out or not depends on whether you think you can better deal elsewhere in terms of lower charges and/or a choice of investment options which you believe better meet your needs. Given the relatively modest amount involved, there's no urgency to do anything so waiting a while looks the most sensible option unless you have good reason to do otherwise.

Malthusian

The other thing you should check if you are considering a DC transfer is whether the DC pension is linked to the DB one and can be used to fund a tax free lump sum if you draw benefits from both simultaneously. Effectively this would give you the right to take more than 25% as tax free cash. It may be a long shot but worth checking.

As Marcon says De La Rue could go bust with no buyer, the DB fund could be stolen by goblins and the PPF could be abolished by Corbyn, but the DC fund would be completely unaffected.