A query about DB pensions...

C_Mababejive

I have a question about DB pension schemes. I've directed this question to the trustees of the PS but the answer was ambiguous and lacking in detail.

Under a DB scheme i assume all the assets are owned by the pension trustees.

When all pensioners and dependents have died, who gets all the assets of the scheme?

If a DB scheme dwindled to such a level that it only had a very small number of beneficiaries, would the amount they get paid go up or stay the same? 

JoeCrystal

C_Mababejive said:

I have a question about DB pension schemes. I've directed this question to the trustees of the PS but the answer was ambiguous and lacking in detail.

Under a DB scheme i assume all the assets are owned by the pension trustees.

When all pensioners and dependents have died, who gets all the assets of the scheme?

If a DB scheme dwindled to such a level that it only had a very small number of beneficiaries, would the amount they get paid go up or stay the same? 

That would have everything to do with how the deeds are drawn up. Logically, the company still sponsoring the DB pension scheme will get all the assets back from the pension scheme. What does your DB pension scheme's trust deed have to say on this matter?

DullGreyGuy

C_Mababejive said:

I have a question about DB pension schemes. I've directed this question to the trustees of the PS but the answer was ambiguous and lacking in detail.

Under a DB scheme i assume all the assets are owned by the pension trustees.

When all pensioners and dependents have died, who gets all the assets of the scheme?

If a DB scheme dwindled to such a level that it only had a very small number of beneficiaries, would the amount they get paid go up or stay the same? 

Not necessarily, some pension schemes will do a "buy-in" with an insurance company. They transfer assets to the insurer in exchange for a flow of payments broadly in line with the pension liabilities (they aren't necessarily perfectly matched). As such the pension fund is protected from the assets crashing in value, inflation spiralling  or its pensioners living much longer than anticipated

If a scheme does go down the insurance route then most will ultimately move to a "buy-out" where the scheme bows out and the insurer pays the pensioners directly. There are administration costs in winding up the scheme but if there are excess assets then these are normally used to buy additional benefits for the pensioners. It ultimately comes down to the pension rules.

Pat38493

I don’t think it’s correct that the trustees own the assets.  Surely  the assets are held in trust for the benefit of the pension holders?

Marcon

JoeCrystal said:

C_Mababejive said:

I have a question about DB pension schemes. I've directed this question to the trustees of the PS but the answer was ambiguous and lacking in detail.

Under a DB scheme i assume all the assets are owned by the pension trustees.

When all pensioners and dependents have died, who gets all the assets of the scheme?

If a DB scheme dwindled to such a level that it only had a very small number of beneficiaries, would the amount they get paid go up or stay the same? 

That would have everything to do with how the deeds are drawn up. Logically, the company still sponsoring the DB pension scheme will get all the assets back from the pension scheme. What does your DB pension scheme's trust deed have to say on this matter?

DullGreyGuy said:

If a scheme does go down the insurance route then most will ultimately move to a "buy-out" where the scheme bows out and the insurer pays the pensioners directly. There are administration costs in winding up the scheme but if there are excess assets then these are normally used to buy additional benefits for the pensioners. It ultimately comes down to the pension rules.

As both answers above correctly say, it all depends....much of it comes down to the Trust Deed & Rules of the scheme in question, which may or may not say that any surplus is returned to the employer on a wind up. Alternatively, the trustees may have a say in how any surplus is used, so it's far from certain what will happen when the scheme is finally wound up. There is no 'normally' about it - this is, after all, the magical world of pensions!

C_Mababejive said:

I have a question about DB pension schemes. I've directed this question to the trustees of the PS but the answer was ambiguous and lacking in detail.

Under a DB scheme i assume all the assets are owned by the pension trustees.

When all pensioners and dependents have died, who gets all the assets of the scheme?

See my answer above.

C_Mababejive said:

If a DB scheme dwindled to such a level that it only had a very small number of beneficiaries, would the amount they get paid go up or stay the same? 

It's likely the scheme will have been wound up and the assets 'bought out' with an insurance company when it gets to the true endgame. The insurer is responsible for paying benefits until the last member has died and will either lose money on the buy-out contract if it costs more than anticipated, or make a profit if the total cost is less than expected. Either way, pensions aren't impacted.

Pat38493 said:

I don’t think it’s correct that the trustees own the assets.  Surely  the assets are held in trust for the benefit of the pension holders?

A trust is not a legal entity in its own right (unlike a company, which is a 'persona at law'). Trustees are the legal owners of the assets, holding these in trust for beneficiaries both actual and potential.

MX5huggy

This happened to my grandmother, as the surviving spouse receiving what I presume was a DB from a defunct company, the details are lost (I was a teenager). I believe her pension was increased as there were only a dozen or so surviving members. 

Marcon

MX5huggy said:

This happened to my grandmother, as the surviving spouse receiving what I presume was a DB from a defunct company, the details are lost (I was a teenager). I believe her pension was increased as there were only a dozen or so surviving members. 

The legislation has changed over the years. It used to be the case that all pensions had to meet certain statutory standards when a scheme was wound up with a surplus of assets, but that's not automatically the case now (albeit with the usual caveat 'depending on the rules of the scheme').

Pat38493

Marcon said:

A trust is not a legal entity in its own right (unlike a company, which is a 'persona at law'). Trustees are the legal owners of the assets, holding these in trust for beneficiaries both actual and potential.

OK I stand corrected.  But then as a weird thought experiment - what would happen if all the trustees happened to be on the same flight that crashed and they all died on the same day?  What would happen to the fund?

Marcon

Pat38493 said:

Marcon said:

A trust is not a legal entity in its own right (unlike a company, which is a 'persona at law'). Trustees are the legal owners of the assets, holding these in trust for beneficiaries both actual and potential.

OK I stand corrected.  But then as a weird thought experiment - what would happen if all the trustees happened to be on the same flight that crashed and they all died on the same day?  What would happen to the fund?

If it's a corporate trustee (and these days most pension schemes have corporate trustees), the shareholders of the corporate trustee company would simply appoint new directors. 

If they're individual trustees, the principal employer would appoint new trustees. The Trust Deed & Rules will provide the appropriate authority to do so.

At some point elections would need to be held to replace any member nominated trustees.

So to answer your question: nothing would happen to the fund.

bostonerimus

As people say...it depends.
My DB plan is run by a US state. It's liabilities are 72% funded, but backed by the state. If the pension fund ever closes, once all the liabilities are met the state would take what was left, but right now it would have to put money into the fund to meet all the liabilities.

Marcon

bostonerimus said:

As people say...it depends.
My DB plan is run by a US state. Its liabilities are 72% funded, but backed by the state. If the pension fund ever closes, once all the liabilities are met the state would take what was left, but right now it would have to put money into the fund to meet all the liabilities.

That's certainly not what would happen in the UK - and this is a UK board, so I think focussing on the UK position is probably helpful to the vast majority of users of this board (although always interesting to know what happens elsewhere!).