DB Pension Funds - What happens as the pensioners die off?

Mickey666

I have a DB pension from an old employment in the 80s.  The company no longer exists but the pension fund seems properly managed by the trustees and seems perfectly adequate to provide for the pensions being paid and the deferred liability (as far as I can tell from the annual reports).

I also have a personal pension pot, converted to a draw-down scheme, and I manage that prudently enough (I hope!) to provide me with regular payments until I die.  I'm anticipating (hoping!) that there will still be some of it left when I die, which is no problem as it will then become part of my estate and passed on accordingly.

My question is what happens to DB schemes when their last pensioner dies?  Indeed, what happens to DB schemes as the pension liabilities tail off and they end up with more in the pension fund that they need?  Perhaps this never happens, but it must be a possibility, or even an inevitability if the trustees are being suitably conservative?  Do the last few pensioners start receiving large discretionary increases or bonuses? 

Basically, what happens to any money left in a managed DB pension fund when the last pensioner dies?

Andrew31

Mickey666 said:

?  Indeed, what happens to DB schemes as the pension liabilities tail off and they end up with more in the pension fund that they need?  Perhaps this never happens, but it must be a possibility, or even an inevitability if the trustees are being suitably conservative?  Do the last few pensioners start receiving large discretionary increases or bonuses?  

Basically, what happens to any money left in a managed DB pension fund when the last pensioner dies?

Sorry, i misread your question. The Company who provide the income,  took the risk of paying out all that income, they will keep the money (if any left)  

drumtochty

As most DB schemes are in deficit you do not have to worry about what will happen to the money that is left in the slightest.

The only worry you have is will you outlive the funds in your existing DB scheme.

Thrugelmir

Long before the last member is left. The liability will be passed to an insurance company to ensure that the benefits are paid to the remaining scheme members. 

Mick70

long livers score financially and the unfortunate ones who pass away early loose out 

drumtochty

The fund can only be passed to an insurance company if the scheme is not in deficit. Can anyone here advise of a private company that is no longer trading that has left a fund in surplus.

Looks like the pension lifeboat to me in years to come.

Brynsam

drumtochty said:

The fund can only be passed to an insurance company if the scheme is not in deficit. Can anyone here advise of a private company that is no longer trading that has left a fund in surplus.

Looks like the pension lifeboat to me in years to come.

A surplus is an illusory concept at any given point in time, until that surplus (if any) is crystallised at the point a scheme is wound up and its liabilities bought out with an insurance company. If a non-trading company had a scheme in surplus on a buy-out basis (as opposed to an on-going basis, known as 'technical provisions' for anyone enthralled by jargon), the scheme would be bought out. 

A pension scheme cannot usually continue to run without a principal/participating employer/s, who remain/s on the hook for any shortfall in the fund - so if by a 'non trading' company you mean one with no source of income, it would have to be replaced by another company (possibly within the same group), or possibly head for the PPF, depending on the level of funding.

Brynsam

Mick70 said

long livers score financially and the unfortunate ones who pass away early loose out 

Nobody 'loses out' if they get the benefits promised under the rules of the scheme.

sandsy

Mick70 said:

long livers score financially and the unfortunate ones who pass away early loose out 

Mick, it's the concept of pooling insurance risks.
It's the same with life insurance: everyone pays premiums but the life company only pays out for those who die. We don't talk of everyone except those who died having lost out. It's about everybody knowing they have protection in case they need it. It's exactly the same with a DB scheme. 

Thrugelmir

Schemes cost money to run and require considerable administration effort. The sponsoring company will no doubt wish to offload the responsibility of a closed scheme at the earliest available opportunity. 

Around three years ago I was offered a CETV to leave a DB scheme that closed to new members in 1999. Declined the offer. In December last year advised that my benefits were to be transferred and underwritten by an insurance company. In essence an annuity linked to RPI. 

ffacoffipawb

Thrugelmir said:

Schemes cost money to run and require considerable administration effort. The sponsoring company will no doubt wish to offload the responsibility of a closed scheme at the earliest available opportunity. 

Around three years ago I was offered a CETV to leave a DB scheme that closed to new members in 1999. Declined the offer. In December last year advised that my benefits were to be transferred and underwritten by an insurance company. In essence an annuity linked to RPI. 

Lucky call. 100% protection too.