Unstable final salary pension

House_of_Tee

I received notification that my final salary pension (which I no longer pay into), has a huge pension deficit currently. The company has to pay into it over a period of about 6-7 years to remove the deficit. However if the company should go bump, currently only 49% of the pension would be secured. 

I am concerned and want to transfer this pension but is that possible? I thought pensions should be secure!! 

Bimbly

If your employer is pledged to invest in your pension over the next seven years to ensure it is fully funded, then I would be pleased it is addressing this issue. 

Defined benefit pensions are protected by the Pension Protection Fund, so you would lose some if the worst happened, but not all https://www.ppf.co.uk/our-members/worried-about-your-pension

A lot of this depends on your employer. If they are sound and will make those payments over the next seven years, then I would be reassured. If they are in financial difficulty, then I would share your concern.

ex-pat_scot

House_of_Tee said:

I received notification that my final salary pension (which I no longer pay into), has a huge pension deficit currently. The company has to pay into it over a period of about 6-7 years to remove the deficit. However if the company should go bump, currently only 49% of the pension would be secured. 

I am concerned and want to transfer this pension but is that possible? I thought pensions should be secure!! 

Much will depend on when the last actuarial valuation date was.
For some (eg university superannuation scheme), this was at Mar 2020, in the depths of Covid initial stock market collapse. Since then, markets have rebounded, but as the scheme and its funding plan is based on a 3 yearly valuation, it can look rather pessimistic.
It's not unusual to have a 6-7 year funding plan.
Key to this is the company continuing to meet its commitments under the funding plan. 
Be also aware that scheme valuation on a "wind up basis" (going bump) is much more pessimistic than on an "ongoing basis". The former would require an insurance company buy-in, which is hugely expensive, and leads to alarming shortfall headlines.

The key factor ought to be your own view of the stability of your employer -the scheme sponsor. If it is stable, profitable and secure, then that should largely settle your concerns.

Be also aware that the pension protection fund can step in if your scheme fails, and will largely cover your pension. There are limits and caveats though, but it's an important lifeboat.

Malthusian

To transfer the pension you would need advice from a pension transfer specialist which would cost thousands of pounds which you would have to pay out of your own pocket. You do not need a positive recommendation to transfer but transferring against advice is extremely difficult. (As far as we can tell, you need to either run your own pension scheme or have a stakeholder pension already open.)

The scheme currently being in shortfall would not in itself be a reason to transfer out. Particularly as the transfer value may be reduced to take into account the deficit. Anyone who tells you otherwise is trying to steal your pension.

The actuaries can reduce the CETV by any amount to protect the other members' interests. The maximum your existing DB pension can be reduced by is 10% if it goes into the Pension Protection Fund, plus a cap on inflationary increases.

The pension is secure, shortfall or no shortfall. A guaranteed inflation-linked pension which is 90% backed by the taxpayer is more secure than anything you could have got on the open market for the same money.

MEM62

House_of_Tee said:

I am concerned and want to transfer this pension but is that possible?

Probably not as it is DB.  And even if you could it would be with a degree of difficulties.    

Marcon

House_of_Tee said:

I received notification that my final salary pension (which I no longer pay into), has a huge pension deficit currently. The company has to pay into it over a period of about 6-7 years to remove the deficit. However if the company should go bump, currently only 49% of the pension would be secured. 

I am concerned and want to transfer this pension but is that possible? I thought pensions should be secure!! 

Presumably you've just received the Summary Funding Statement and went into panic mode!

Huge deficits are not uncommon and the employer has a recovery plan in place to make good the funding position. Six to seven years is also far from uncommon - many such plans are longer than that.

In the meantime, read the bit in your SFS which explains about the PPF, which Bimbly has already mentioned above.

You also need to be aware that if a scheme is seriously underfunded, trustees may have been given permission by the Pensions Regulator to (temporarily) pay reduced transfer values, so if you do consider transferring out, you need to bear that in mind.

Albermarle

I am concerned and want to transfer this pension but is that possible? I thought pensions should be secure!! 

Just to be clear , even if you could transfer it , it would not be to another DB scheme .

xylophone

my final salary pension (which I no longer pay into),

Because your company has closed the scheme to new contributions and opened a DC scheme to which you and it contribute?

Or because you have left the company and this is a deferred pension?

House_of_Tee

xylophone said:

my final salary pension (which I no longer pay into),

Because your company has closed the scheme to new contributions and opened a DC scheme to which you and it contribute?

Or because you have left the company and this is a deferred pension?

It is because I’ve left the company. But the scheme is also now closed for employees still there. 

Albermarle

 But the scheme is also now closed for employees still there. 

That's pretty much the norm in the private sector , so nothing unusual. 

xylophone

Does your current employer offer a DB pension?