Former Employer Pension Scheme from '98'-'03': Forum Feedback/Ideas Request

matt.j_3

Dear Forum,

I am coming to the forum because I am not to knowledgeable about pensions presently but I am trying to self education to make better decisions on investing into a pension for the future of myself and my family. If you take a moment to read this post I am extremely grateful. Thank you.

When I was 18 I was working for an Aerospace firm and paid into a final salary pension from 18 to about 23 when I left the company, this scheme was a % me and a % contribute from my employer. I do not remember the % values but I was on about £18-£24k at the time. Over the years since I have been in a few jobs and I didn't really gain any sort of pension from those employers until 2009 when I joined a small consultancy firm and opened a private pension through a local IFA which I have been paying into. 

At some point, and I do not remember the date, the consultancy firm had to give me a pension, so they decided to contribute to my personal pension scheme. In 2018 the consultancy firm closed due to the boss/owner retiring, I was fortunately taken on by one of the main clients I was working with. This client is a German firm and I am on a German employment contract but based permanently based in the UK (for ref I am a British Citizen since birth and a full UK resident).

When the consultancy closed I continued paying into my personal pension and increased my contribution to include the % contribution from the consultancy firm, plus a but more.

My German employer doesn't contribute to my personal pension, but I think they pay, all be it a very small amount, in to their company pension scheme on my behalf. I need to look into this also and get some details, but in the main it won't be much at all.

Where I am now is a realisation that I have paid zero attention to my Aerospace Company pension and I had completely forggoten about it until recently. I found some old paperwork with my details on and the details of the Pension Trustee. I have contacted them and asked for some details on the pension scheme, the current value of my pension, recent performance etc. 

When I get this information back I do not expect it to be much of pension value. In the document I found with the details of the pension scheme on I think it stated it was about £14,000, but this could be wrong, so I will wait to see what it really is.

So, in preparation to receiving pension statement from the Trustees I am looking for some opinions of what I could consider as options or things I should think about in general with pensions as I am currently educating myself in the subject. 

I am 41, therefore still have plenty time left as employable, so I am wondering what considerations I could have to leaving the aerospace pension where it is to let it grow without any further contributions from myself, or possible move it into my personal pension which I am starting to learn more about to actively work with to increase for my future, or is there something else I could consider regarding my aerospace company?

I will talk to my IFA about the aerospace pension when the details come back in, but I was hoping to get some thoughts of people on the forum who have been in a similar situation, have experience in their own pension and are actively interesting in their own investments etc.

Thanking you in advance for you thoughts, comments or questions if I need to provide some more detail or clarity..

Regards,
Matt

hyubh

matt.j_3 said:

When I was 18 I was working for an Aerospace firm and paid into a final salary pension from 18 to about 23 when I left the company, this scheme was a % me and a % contribute from my employer. I do not remember the % values

[...]

I found some old paperwork with my details on and the details of the Pension Trustee. I have contacted them and asked for some details on the pension scheme, the current value of my pension, recent performance etc. 

When I get this information back I do not expect it to be much of pension value. In the document I found with the details of the pension scheme on I think it stated it was about £14,000, but this could be wrong

[...] 

I am 41, therefore still have plenty time left as employable, so I am wondering what considerations I could have to leaving the aerospace pension where it is to let it grow without any further contributions from myself

Assuming it was a final salary pension, then contribution rates have no bearing on what you get from it. Similarly, the concepts of  'performance' and 'growth' are not applicable - the 'pension' (= annual income promised on 'retirement') is defined by scheme rules and based on a combination of 'final pay' (i.e. when you were 23 in your case) and 'service' (i.e. length of active membership in the scheme). Speaking of its 'value' might therefore mean two very different things - annual income at the scheme's 'normal pension age' (NPA) vs. a fluctuating 'cash equivalent transfer value' (CETV) - and I'm not sure the £14K will likely be either.

In terms of understanding the scheme pension (which is a prerequisite to considering whether to take the CETV and transfer out or not), the material aspects are less how the amount earned on leaving was determined, than things like when its NPA is, how it 'revalues' to retirement, and how it increases when in payment.

Marcon

matt.j_3 said:

Dear Forum,

I am coming to the forum because I am not to knowledgeable about pensions presently but I am trying to self education to make better decisions on investing into a pension for the future of myself and my family. If you take a moment to read this post I am extremely grateful. Thank you.

When I was 18 I was working for an Aerospace firm and paid into a final salary pension from 18 to about 23 when I left the company, this scheme was a % me and a % contribute from my employer. I do not remember the % values but I was on about £18-£24k at the time. Over the years since I have been in a few jobs and I didn't really gain any sort of pension from those employers until 2009 when I joined a small consultancy firm and opened a private pension through a local IFA which I have been paying into. 

At some point, and I do not remember the date, the consultancy firm had to give me a pension, so they decided to contribute to my personal pension scheme. In 2018 the consultancy firm closed due to the boss/owner retiring, I was fortunately taken on by one of the main clients I was working with. This client is a German firm and I am on a German employment contract but based permanently based in the UK (for ref I am a British Citizen since birth and a full UK resident).

When the consultancy closed I continued paying into my personal pension and increased my contribution to include the % contribution from the consultancy firm, plus a but more.

My German employer doesn't contribute to my personal pension, but I think they pay, all be it a very small amount, in to their company pension scheme on my behalf. I need to look into this also and get some details, but in the main it won't be much at all.

Where I am now is a realisation that I have paid zero attention to my Aerospace Company pension and I had completely forggoten about it until recently. I found some old paperwork with my details on and the details of the Pension Trustee. I have contacted them and asked for some details on the pension scheme, the current value of my pension, recent performance etc. 

When I get this information back I do not expect it to be much of pension value. In the document I found with the details of the pension scheme on I think it stated it was about £14,000, but this could be wrong, so I will wait to see what it really is.

So, in preparation to receiving pension statement from the Trustees I am looking for some opinions of what I could consider as options or things I should think about in general with pensions as I am currently educating myself in the subject. 

I am 41, therefore still have plenty time left as employable, so I am wondering what considerations I could have to leaving the aerospace pension where it is to let it grow without any further contributions from myself, or possible move it into my personal pension which I am starting to learn more about to actively work with to increase for my future, or is there something else I could consider regarding my aerospace company?

I will talk to my IFA about the aerospace pension when the details come back in, but I was hoping to get some thoughts of people on the forum who have been in a similar situation, have experience in their own pension and are actively interesting in their own investments etc.

Thanking you in advance for you thoughts, comments or questions if I need to provide some more detail or clarity..

Regards,
Matt

Good for you for biting the bullet and looking at your pension now rather than in 20 years!

If your aerospace pension was a final salary (aka a Defined Benefit) arrangement, you won't get the same sort of information that you'd get with a Defined Contribution scheme.

There is no 'pot' of money with a DB scheme; it is a promise to pay you the benefits you built up during your period of active (contributing) membership at a future date - the scheme's Normal Pension Date. Fund performance etc is irrelevant; what matters to you is that promise, which is set out in the Rules of the scheme. Don't be in any hurry to lose the benefit of that promise!

Have a look at https://www.pensionsadvisoryservice.org.uk/about-pensions for plenty of basic, plain English (or as plain as it can be, given the topic) information.

matt.j_3

Thank you for the comments so far, information that I didn’t realise or understand, but something I am going to need to look into so I can equip myself going forward.

My initial assumptions were based on that I contributed not a huge amount of the 5 or so years I was there, and I have no idea what my contribution meant etc or what the scheme is.

I think I left the scheme (and company) when it was final salary, but it quickly changed after I left the scheme, but I’m sure I was still in it as a final salary scheme, but I need to check.

I would assume that my request for information on the pension will come back with comments relating to what you have said so I can better education myself once the current trustee has given me an explanation etc. I guess I just asked some uneducated questions to the trustees but will be able to build up an clear picture soon.

ewaste

In terms of annual pension if you were on £24k when you left after 5 years in the scheme, it may well be somewhere in the ballpark of £24000 / 60 = £400 x 5 = £2000 at the most. Although schemes like BAEs had a much lower accrual rate of 80ths or 100ths so £1500 and £1200 respectively. That would be in terms of pension payable at Normal Retirement Age e.g. 60 or 65, since then it would have been uprated by inflation e.g. CPI or RPI.

I suspect the £14k may well have been the CETV value at the time you left as it’s not uncommon for employers or pension schemes to notify you of your options e.g. deferment, transfer a CETV out of the scheme or even to receive a refund of contributions.

It shouldn’t be too hard to find details of the employer scheme online somewhere which will give you details of the NRA and uprating for deferred pensions. Once you know the current CETV and annual pension it should be relatively straightforward to decide whether to leave it or not. It doesn’t sound like you have or are likely to accrue any other defined benefit income in future other than the State Pension.

matt.j_3

ewaste said:

In terms of annual pension if you were on £24k when you left after 5 years in the scheme, it may well be somewhere in the ballpark of £24000 / 60 = £400 x 5 = £2000 at the most. Although schemes like BAEs had a much lower accrual rate of 80ths or 100ths so £1500 and £1200 respectively. That would be in terms of pension payable at Normal Retirement Age e.g. 60 or 65, since then it would have been uprated by inflation e.g. CPI or RPI.

I suspect the £14k may well have been the CETV value at the time you left as it’s not uncommon for employers or pension schemes to notify you of your options e.g. deferment, transfer a CETV out of the scheme or even to receive a refund of contributions.

It shouldn’t be too hard to find details of the employer scheme online somewhere which will give you details of the NRA and uprating for deferred pensions. Once you know the current CETV and annual pension it should be relatively straightforward to decide whether to leave it or not. It doesn’t sound like you have or are likely to accrue any other defined benefit income in future other than the State Pension.

Thanks your replay. Sorry to be a bit dim on the subject, I am reading up pensions to better education myself but I have only just started.

If we use your numbers above as the hypothetical position of the scheme, my final salary upon leaving, what I contributed and the number has already been adjusted for inflation etc. 

I appreciate I need to find out the terms of the pension from the trustee first, but just to give me an idea of what it could mean.

Would that mean that my Aerospace pension in your example would be £2000 per year after I start drawing from it?

Therefore £2000/12 = £166.66 (less tax) per month after I retire, and if yes, is this for the remained of my life, or does it reduce of time or stop after a certain period?

Thanks.

ewaste

matt.j_3 said:

Would that mean that my Aerospace pension in your example would be £2000 per year after I start drawing from it?

Therefore £2000/12 = £166.66 (less tax) per month after I retire, and if yes, is this for the remained of my life, or does it reduce of time or stop after a certain period?

Thanks.

Indeed in that example it would be £2000 per year payable from Normal Retirement Age (NRA) e.g. 65. It would be payable for life usually increasing every year in line with CPI or RPI inflation, if you have a partner or dependants they would likely be entitled to a proportion of that amount should you pre-decease them. There are additional bits of detail e.g. are the CPI or RPI increases capped, typically this was set at 5%. If you are 41 and NRA is 24 years away what is the revaluation rate in deferment typically it again revalues upward each year with either the RPI or CPI measure of inflation often with a cap.

 

Once you have the detail together it’s a case of looking at your options e.g. leave it where it is or seek a transfer out and into your Defined Contribution Private pension. Your IFA will doubtless be able to run the numbers once you get them and be able to make a suggestion even if they aren’t able or willing to give ‘advice’ if the CETV is over £30k.

hyubh

matt.j_3 said:

My initial assumptions were based on that I contributed not a huge amount of the 5 or so years I was there, and I have no idea what my contribution meant etc or what the scheme is.

Contributions are irrelevant to a final salary scheme (some indeed had a contribution rate of zero back in the day). The pension will be small rather because of your salary as an early twenty-something (and the short period of service).

The scheme will be just the employer's scheme. If the company subsequently got taken over, then typically the taken-over company's pension scheme would become a 'section' in the new one with the rules for pensions already accrued essentially untouched.

I think I left the scheme (and company) when it was final salary, but it quickly changed after I left the scheme, but I’m sure I was still in it as a final salary scheme, but I need to check.

When a final salary scheme closes, previously accrued benefits don't suddenly become DC/money purchase, they stay as they were.

matt.j_3

Hi All, 

I am back with some numbers and a request for some further advice.

I have received back a letter from the Trustee's giving my Deferred Pension Values. I paid in to the pension scheme from Feb-1998 to Dec-2003. 

The following values have been rounded to make my numbers easy, but they are only a few £ off the values in the letter.

The £ per annum value in Dec-2003 = £1,400
The £ per annum value in April-2021 = £2,300
A change in value of £900

I am assuming this £900 increase over 17 years is due to inflation, which averages as £53 per year.

If I was at retirement age today then would get £2,300 per year (£191 per month less tax) from retirement to death?

If I use the same inflation figure above (£53 per year) as a hypothetical annual inflation value over the next 25 years then could I potentially see the £ per annum rise to £2,300 + (£53 x 25 years) = £3,625 (£302 per month less tax).

Based on the assumption above, if when I retire and the £ per annum pension value is at £3,625 and I live for a further 20 years, would I be affectively be taking £72,500 from the pension from retirement to death?

If this is the case then £72,500 is way more than I contributed over the 5 years '98' to '03'.

Leading this back to my original post to understand if it is best to leave it where it is and taken the monthly (or weekly) amount from it, or take a lump sum and reinvest it in my personal pension or other investment. The paperwork in 2003 offered a lump sum of £14,000, the Trustee's didn't give me a lump sum value in the letter the sent me, probably because I didn't ask, or maybe it is not possible to get it anymore. This I would need to ask. 

If all the above is correct then is what I need to consider (and take advise on) is could the lump sum value taken today be invested better to increase it's value over 25 years (of working life left) and the 20 years from retirement to death to a greater level than £72,500 or if it is best to leave it where it is with a guaranteed £3,625?

Also, I have heard times where company pensions have been raided or wiped out when they are taken over or mismanaged to bankruptcy etc. I friend of mine had a pension wipe out in the 90's when a US investment firm took it over. What is the risk of something like this happening or doesn't it work this way anymore?

Sorry if I have completely misunderstood all this, I am just trying to get to grips with pensions to make the most of my investments was I am only 41 and still many potential income working years left.

Regards,
Matt

rjmachin

That looks like roughly a 3% revaluation per year.  You would need to check to confirm, but I will go off this basis.

If you left it for 25 years (2046) and it kept using 3% per year revaluation, it would increase to £4844 (£403 per month)

After 10 years (2056) of taking payment and 3% per year revaluation, it would increase to £6511 (£542 per month), a total of £62k over 10 years

After another 10 years (2066) of taking payment and 3% per year revaluation, it would increase to £8750 (£792 per month), a total of £138k over 20 years.

These are theoretical numbers, but shows how good these pensions can be for just 5 years of your working life's worth of contributions

matt.j_3

rjmachin said:

That looks like roughly a 3% revaluation per year.  You would need to check to confirm, but I will go off this basis.

If you left it for 25 years (2046) and it kept using 3% per year revaluation, it would increase to £4844 (£403 per month)

After 10 years (2056) of taking payment and 3% per year revaluation, it would increase to £6511 (£542 per month), a total of £62k over 10 years

After another 10 years (2066) of taking payment and 3% per year revaluation, it would increase to £8750 (£792 per month), a total of £138k over 20 years.

These are theoretical numbers, but shows how good these pensions can be for just 5 years of your working life's worth of contributions

Ah yes, I forgot to take into account that interest on the higher amount the previous year doh!!! I just took a really rough calculation to get to the average annual increase value. 

So, it looks much better than I thought and well worth leaving were it is, forgetting about it and taking it out as a pension upon retirement. 

Cheers
Matt