Advice on moving DC pensions to DB pension

Terron

EsoTarek said:

Brie said:

Find out from the DB scheme where transferred in money goes.  I suspect it will go in to your AVC pot and I suspect that you may well be able to use that differently than your actual DB money so potentially it will be both a DB & DC scheme in one place. 

Also I would almost guarantee that the DB scheme will close at some point.  Likely first to new joiners but possibly also close to current members who will be transferred into a related DC only scheme.  My best guess would be that this will happen within the next 5 years so well before retirement early or otherwise.  

I've just double checked this and it goes into the pension fund scheme and not the AVC pot unfortunately. 

Our pensions were actually under review thanks to the outrageous demands set by this tory government with the bailout money because of covid. Fortunately the RMT union have managed to hold off any attacks on the pension for now but I do fear that this is something that they will come back to attack again in the near future even though the scheme is healthy.

According to the website the fund is in deficit despite employer contributions of over 27% (employees contribute 5% of salary). Any private company with a scheme like that would be looking at closing it. 

EsoTarek

Albermarle said:

Most Shariah funds are rather high risk , as they are usually 100% equity ,so I would check this again .  
Although as said higher risk , higher equity is better at your age .

Doesn't really state the level of risk in terms of low/medium/high on the factsheet but I assumed it was medium just from looking at the companies in the top 10 holdings which include Apple, Microsoft, Amazon, Tesla, Alphabet, NVIDIA, Meta Platforms, Johnson and Johnson, Visa, and Procter & Gamble. You are right in that it is 100% equity so I guess that makes it high risk. 

Having looked at past performance it's been on the up so despite showing some volatility recently which can be expected it's performed well. Hopefully I'll get a decent return in 20-30 years time 

EsoTarek

Terron said:

According to the website the fund is in deficit despite employer contributions of over 27% (employees contribute 5% of salary). Any private company with a scheme like that would be looking at closing it. 

Management have ruled out moving to a DC scheme but the threat to move to a career average scheme remains on the table. London Underground is a public body so shouldn't really be compared with the private sector. Higher contribution rates (from 5% to over 12%

EsoTarek

Terron said:

According to the website the fund is in deficit despite employer contributions of over 27% (employees contribute 5% of salary). Any private company with a scheme like that would be looking at closing it. 

Management have ruled out moving to a DC scheme but the threat to move to a career average scheme remains on the table. London Underground is a public body so shouldn't really be compared with the private sector. Higher contribution rates (from 5% to over 12%) are discussed in a recent report, along with other proposals. The report makes it clear that benefits cannot be reduced without the agreement of the majority of fund members. Ultimately, an act of parliament could be sought to allow TfL to ignore the legal basis of our fund and just close it down to then be replaced with a less favourable fund. You would have to create a new section of the local government pension fund, which is a career average scheme with higher contribution rates than TfL's. The fund is actually not in deficit and is healthy and well managed according to the latest report so the cost to TfL will reduce substantially this year. 

hyubh

EsoTarek said:

You would have to create a new section of the local government pension fund, .

What a radical thought, a municipal transport authority to put its employees in the scheme for local government employees (PS, did you know the Environment Agency for historic reasons is an LGPS administering authority? So not an arm of local government at all, unlike TfL.)

which is a career average scheme with higher contribution rates than TfL's

How horrific, a 1/49th CARE scheme with uncapped revaluation and increases 

Formally TfL becoming an administering authority in the LGPS would actually secure pension rights - LGPS funds don't participate in the PPF, benefits accrued are effectively guaranteed by statute instead. From a taxpayer POV this may seem to raise a concern, but in practice, TfL apart from the LGPS isn't any more prudent than the average LGPS fund in the choice of discount rates etc. Substantively in terms of structure and organisation there would be few changes - 'the TfL Pension Fund' would still be 'the TfL Pension Fund' managing its own investments. At most you'd have the odd formal name change, e.g. the trustee board would no longer be trustees in law, however an LGPS pensions board has basically the same role.

Silvertabby

hyubh said:

EsoTarek said:

You would have to create a new section of the local government pension fund, .

What a radical thought, a municipal transport authority to put its employees in the scheme for local government employees (PS, did you know the Environment Agency for historic reasons is an LGPS administering authority? So not an arm of local government at all, unlike TfL.)

which is a career average scheme with higher contribution rates than TfL's

How horrific, a 1/49th CARE scheme with uncapped revaluation and increases 

Formally TfL becoming an administering authority in the LGPS would actually secure pension rights - LGPS funds don't participate in the PPF, benefits accrued are effectively guaranteed by statute instead. From a taxpayer POV this may seem to raise a concern, but in practice, TfL apart from the LGPS isn't any more prudent than the average LGPS fund in the choice of discount rates etc. Substantively in terms of structure and organisation there would be few changes - 'the TfL Pension Fund' would still be 'the TfL Pension Fund' managing its own investments. At most you'd have the odd formal name change, e.g. the trustee board would no longer be trustees in law, however an LGPS pensions board has basically the same role.

As hyubh says.

Interesting that you appear to have such a dread of a transfer to a CARE scheme - when the details of the LGPS CARE were announced my colleagues and I were amazed at how generous it was!

Yes, someone who started as the teaboy (sorry - teaperson!) and then retired as CEO after a slow progression up the ranks would probably be better off in a final salary scheme, but how many people do that?  The vast majority, who stay in the same job with just one or two small promotions, will greatly benefit from the much higher accrual rate and uncapped revaluation of CARE.

NedS

Silvertabby said:

As hyubh says.

Interesting that you appear to have such a dread of a transfer to a CARE scheme - when the details of the LGPS CARE were announced my colleagues and I were amazed at how generous it was!

Yes, someone who started as the teaboy (sorry - teaperson!) and then retired as CEO after a slow progression up the ranks would probably be better off in a final salary scheme, but how many people do that?  The vast majority, who stay in the same job with just one or two small promotions, will greatly benefit from the much higher accrual rate and uncapped revaluation of CARE.

I see exactly the same in my job as a Civil Servant. My longstanding colleagues bemoan the loss of their final salary scheme (Classic), replaced with the Alpha CARE scheme, having spent their whole careers in the same role (or at least on the same grade).

Besides the higher accrual rate, I also note that my previous accrual is rising (by inflation) much faster than my final salary which year after year receives below inflation increases so not only am I benefiting from higher accrual rates, my CARE pension is also benefiting from, or rather not being held back by poor pay rises to the point where I now view my pension increases (my future pay rise) as more important than my current pay rise in a job I know I will only be in for a couple more years.

Silvertabby

NedS said:

Silvertabby said:

As hyubh says.

Interesting that you appear to have such a dread of a transfer to a CARE scheme - when the details of the LGPS CARE were announced my colleagues and I were amazed at how generous it was!

Yes, someone who started as the teaboy (sorry - teaperson!) and then retired as CEO after a slow progression up the ranks would probably be better off in a final salary scheme, but how many people do that?  The vast majority, who stay in the same job with just one or two small promotions, will greatly benefit from the much higher accrual rate and uncapped revaluation of CARE.

I see exactly the same in my job as a Civil Servant. My longstanding colleagues bemoan the loss of their final salary scheme (Classic), replaced with the Alpha CARE scheme, having spent their whole careers in the same role (or at least on the same grade).

Besides the higher accrual rate, I also note that my previous accrual is rising (by inflation) much faster than my final salary which year after year receives below inflation increases so not only am I benefiting from higher accrual rates, my CARE pension is also benefiting from, or rather not being held back by poor pay rises to the point where I now view my pension increases (my future pay rise) as more important than my current pay rise in a job I know I will only be in for a couple more years.

In the case of the LGPS those who were within 10 years of NRA at the date of the switch were given 'underpin' protections.  This meant that when they came to retire, we would do 2 calculations - one FS only, the other FS to 31 March 2014 and CARE from 1 April 2014 to date of leaving (but keeping the final salary/pensionable pay link for the pre 2014 service) - and pay the higher of the two.

It was a regular thing to be told by retirees that they had the underpin protections, and so they wanted their pensions to be calculated under the old, better rules.  It sometimes took a bit of doing to convince them that they, like 99.5% (at the time) of underpin protected retirees were better off with the FS/CARE combo.

michaels

Didn't there used to be a thing of civil servants getting an 'honary' proportion for their last 12 months pre-retirement purely to bump up their pension?!

draiggoch

I think CARE schemes are fairer for everybody, since many at a higher level worked  for 4-5 years before retiring on FS calculations and receiving pensions on salaries of £100,000 rather than the £50,000 level they had been earning for most of their careers.