Boots And Coop Offload Workplace Pensions To Insurers

Marcon

Pat38493 said:

Marcon said:

xylophone said:

https://www.pinsentmasons.com/out-law/analysis/pensions-risk-transfer-discretionary-pension-increases

may be  of interest.

Likely to be rather heavy going for many, so picking out a particularly relevant extract:

Buy-out and discretionary increases

On buy-out, insurers will not provide discretionary increases and will only be prepared to insure guaranteed benefits. Trustees therefore need to have regard to the loss of any future discretionary increases on buy-out. Although relevant for schemes of all benefit types, this is especially important for schemes with no guaranteed increases to any pre-1997 benefits.

If the trustees want to secure increases to pension in payment beyond that which is guaranteed to be provided, this will need to be insured as further guaranteed increases with an additional premium to be paid. Unless there is a surplus and the sponsor agrees for it to be used in this way, the sponsor would need to provide additional funding. Therefore, as part of trustees’ decision to enter into a full buy-in and buy-out, one consideration amongst others will be the impact on discretionary increases.

The trustees’ primary legal obligation is to ensure the security of accrued benefits. The specifics of the scheme and sponsor covenant need to be considered. However, it will generally be right for trustees to prioritise the security of guaranteed benefits over the possibility of future discretionary increases.

Hi Marcon - ok but if they have sent me a letter setting out a table with the increases set out for different parts of the pension, I would assume that those are not discretionary?

Sounds like it. They are likely to be the increases guaranteed under the Rules (which will be subject to a minimum of any statutory increases).

Pat38493 said:

Also on a linked point - if there is a surplus in the fund beyond what the insurer has as their buyout fee, does that surplus go back to the original employer or the members?  I guess this would depend on what it says in the rules - the trustees should ensure that it goes to the members unless the rules say otherwise?

The starting point is, as always, the rules of the individual scheme. Some provide for any surplus to be returned to the employer; other require consultation between employer and trustees; others give the whole discretion to the trustees.

But no, it is certainly not the case that 'the trustees should ensure it goes to members'. The recent PO determination in the Bristol Water case makes it very clear that the employer is a potential 'beneficiary' and that the trustees in that particular case were entirely correct to decide to return a surplus to the employer. https://www.pensions-ombudsman.org.uk/decision/2023/cas-92093-n4d9/water-companies-pension-scheme-bristol-water-plc-section-cas-92093

Ganga

Marcon said:

Pat38493 said:

Marcon said:

xylophone said:

https://www.pinsentmasons.com/out-law/analysis/pensions-risk-transfer-discretionary-pension-increases

may be  of interest.

Likely to be rather heavy going for many, so picking out a particularly relevant extract:

Buy-out and discretionary increases

On buy-out, insurers will not provide discretionary increases and will only be prepared to insure guaranteed benefits. Trustees therefore need to have regard to the loss of any future discretionary increases on buy-out. Although relevant for schemes of all benefit types, this is especially important for schemes with no guaranteed increases to any pre-1997 benefits.

If the trustees want to secure increases to pension in payment beyond that which is guaranteed to be provided, this will need to be insured as further guaranteed increases with an additional premium to be paid. Unless there is a surplus and the sponsor agrees for it to be used in this way, the sponsor would need to provide additional funding. Therefore, as part of trustees’ decision to enter into a full buy-in and buy-out, one consideration amongst others will be the impact on discretionary increases.

The trustees’ primary legal obligation is to ensure the security of accrued benefits. The specifics of the scheme and sponsor covenant need to be considered. However, it will generally be right for trustees to prioritise the security of guaranteed benefits over the possibility of future discretionary increases.

Hi Marcon - ok but if they have sent me a letter setting out a table with the increases set out for different parts of the pension, I would assume that those are not discretionary?

Sounds like it. They are likely to be the increases guaranteed under the Rules (which will be subject to a minimum of any statutory increases).

Pat38493 said:

Also on a linked point - if there is a surplus in the fund beyond what the insurer has as their buyout fee, does that surplus go back to the original employer or the members?  I guess this would depend on what it says in the rules - the trustees should ensure that it goes to the members unless the rules say otherwise?

The starting point is, as always, the rules of the individual scheme. Some provide for any surplus to be returned to the employer; other require consultation between employer and trustees; others give the whole discretion to the trustees.

But no, it is certainly not the case that 'the trustees should ensure it goes to members'. The recent PO determination in the Bristol Water case makes it very clear that the employer is a potential 'beneficiary' and that the trustees in that particular case were entirely correct to decide to return a surplus to the employer. https://www.pensions-ombudsman.org.uk/decision/2023/cas-92093-n4d9/water-companies-pension-scheme-bristol-water-plc-section-cas-92093

There is no surplus in the Boot,s fund in fact there is a shortfall BUT Boots are putting in £170M and following up with £500M later.

Marcon

Ganga said:

Marcon said:

Pat38493 said:

Marcon said:

xylophone said:

https://www.pinsentmasons.com/out-law/analysis/pensions-risk-transfer-discretionary-pension-increases

may be  of interest.

Likely to be rather heavy going for many, so picking out a particularly relevant extract:

Buy-out and discretionary increases

On buy-out, insurers will not provide discretionary increases and will only be prepared to insure guaranteed benefits. Trustees therefore need to have regard to the loss of any future discretionary increases on buy-out. Although relevant for schemes of all benefit types, this is especially important for schemes with no guaranteed increases to any pre-1997 benefits.

If the trustees want to secure increases to pension in payment beyond that which is guaranteed to be provided, this will need to be insured as further guaranteed increases with an additional premium to be paid. Unless there is a surplus and the sponsor agrees for it to be used in this way, the sponsor would need to provide additional funding. Therefore, as part of trustees’ decision to enter into a full buy-in and buy-out, one consideration amongst others will be the impact on discretionary increases.

The trustees’ primary legal obligation is to ensure the security of accrued benefits. The specifics of the scheme and sponsor covenant need to be considered. However, it will generally be right for trustees to prioritise the security of guaranteed benefits over the possibility of future discretionary increases.

Hi Marcon - ok but if they have sent me a letter setting out a table with the increases set out for different parts of the pension, I would assume that those are not discretionary?

Sounds like it. They are likely to be the increases guaranteed under the Rules (which will be subject to a minimum of any statutory increases).

Pat38493 said:

Also on a linked point - if there is a surplus in the fund beyond what the insurer has as their buyout fee, does that surplus go back to the original employer or the members?  I guess this would depend on what it says in the rules - the trustees should ensure that it goes to the members unless the rules say otherwise?

The starting point is, as always, the rules of the individual scheme. Some provide for any surplus to be returned to the employer; other require consultation between employer and trustees; others give the whole discretion to the trustees.

But no, it is certainly not the case that 'the trustees should ensure it goes to members'. The recent PO determination in the Bristol Water case makes it very clear that the employer is a potential 'beneficiary' and that the trustees in that particular case were entirely correct to decide to return a surplus to the employer. https://www.pensions-ombudsman.org.uk/decision/2023/cas-92093-n4d9/water-companies-pension-scheme-bristol-water-plc-section-cas-92093

There is no surplus in the Boot,s fund in fact there is a shortfall BUT Boots are putting in £170M and following up with £500M later.

Indeed, so no awkward decisions for the trustees there, unlike Bristol Water.

molerat

Ganga said:

.......... Boots are putting in £170M and following up with £500M later.

I suspect a small price to pay for getting shot of the responsibility.

Hoenir

molerat said:

Ganga said:

.......... Boots are putting in £170M and following up with £500M later.

I suspect a small price to pay for getting shot of the responsibility.

A scheme closed to new entrants is only going to become increasingly costly to operate on a per head basis. Beneficial all round. With the members themselves guaranteed their benefits for life. 

Marcon

Hoenir said:

molerat said:

Ganga said:

.......... Boots are putting in £170M and following up with £500M later.

I suspect a small price to pay for getting shot of the responsibility.

A scheme closed to new entrants is only going to become increasingly costly to operate on a per head basis. Beneficial all round. With the members themselves guaranteed their benefits for life. 

Pity the title of this thread didn't reflect the fact that security of members' benefits has been increased, rather than going for the more emotive 'offload to insurers'.

bolwin1

Marcon said:

Hoenir said:

molerat said:

Ganga said:

.......... Boots are putting in £170M and following up with £500M later.

I suspect a small price to pay for getting shot of the responsibility.

A scheme closed to new entrants is only going to become increasingly costly to operate on a per head basis. Beneficial all round. With the members themselves guaranteed their benefits for life. 

Pity the title of this thread didn't reflect the fact that security of members' benefits has been increased, rather than going for the more emotive 'offload to insurers'.

A more accurate title would be Boots pensioners worse off due to offload of pension to insurance company. The Boots DB pension (at least for my 'cohort') had a normal retirement age of 65, but you could withdraw it at 60 with no early retirement penalties. It has been that way for at least 35 years (when I joined the scheme). With this move, the policy has changed & now pension withdrawals before 65 will incur significant penalty. So people will either lose 5 years of pension payments & take it from 65 or a lower pension for the rest of their retirement. There is a transitional option for those close to retirement, but the numbers are still worse. 

molerat

bolwin1 said:

Marcon said:

Hoenir said:

molerat said:

Ganga said:

.......... Boots are putting in £170M and following up with £500M later.

I suspect a small price to pay for getting shot of the responsibility.

A scheme closed to new entrants is only going to become increasingly costly to operate on a per head basis. Beneficial all round. With the members themselves guaranteed their benefits for life. 

Pity the title of this thread didn't reflect the fact that security of members' benefits has been increased, rather than going for the more emotive 'offload to insurers'.

A more accurate title would be Boots pensioners worse off due to offload of pension to insurance company. The Boots DB pension (at least for my 'cohort') had a normal retirement age of 65, but you could withdraw it at 60 with no early retirement penalties. It has been that way for at least 35 years (when I joined the scheme). With this move, the policy has changed & now pension withdrawals before 65 will incur significant penalty. So people will either lose 5 years of pension payments & take it from 65 or a lower pension for the rest of their retirement. There is a transitional option for those close to retirement, but the numbers are still worse. 

Have you received the official notification letter ?  I took mine at 55 with a minimal deduction.

Pity the title of this thread didn't reflect the fact that security of members' benefits has been increased, rather than going for the more emotive 'offload to insurers'.

The long term viability of the scheme as a whole has probably been protected but not necessarily the level of payments for those yet to retire as indicated above. The title is correct. At a corporate level they have indeed offloaded their responsibilities onto insurers and the reason was not to protect their pensioners, both current and deferred, but to protect corporate interests.

Tommyjw

molerat said:

bolwin1 said:

Marcon said:

Hoenir said:

molerat said:

Ganga said:

.......... Boots are putting in £170M and following up with £500M later.

I suspect a small price to pay for getting shot of the responsibility.

A scheme closed to new entrants is only going to become increasingly costly to operate on a per head basis. Beneficial all round. With the members themselves guaranteed their benefits for life. 

Pity the title of this thread didn't reflect the fact that security of members' benefits has been increased, rather than going for the more emotive 'offload to insurers'.

A more accurate title would be Boots pensioners worse off due to offload of pension to insurance company. The Boots DB pension (at least for my 'cohort') had a normal retirement age of 65, but you could withdraw it at 60 with no early retirement penalties. It has been that way for at least 35 years (when I joined the scheme). With this move, the policy has changed & now pension withdrawals before 65 will incur significant penalty. So people will either lose 5 years of pension payments & take it from 65 or a lower pension for the rest of their retirement. There is a transitional option for those close to retirement, but the numbers are still worse. 

Have you received the official notification letter ?  I took mine at 55 with a minimal deduction.

Pity the title of this thread didn't reflect the fact that security of members' benefits has been increased, rather than going for the more emotive 'offload to insurers'.

The long term viability of the scheme as a whole has probably been protected but not necessarily the level of payments for those yet to retire as indicated above. The title is correct. At a corporate level they have indeed offloaded their responsibilities onto insurers and the reason was not to protect their pensioners, both current and deferred, but to protect corporate interests.

I mean ultimately if Boots fails and your pension goes to the PPF you'll be even worse off, so there is a level of protecting its members in going to buy in. Of course they will view it financially in their interest too.

Marcon

molerat said:

bolwin1 said:

Marcon said:

Hoenir said:

molerat said:

Ganga said:

.......... Boots are putting in £170M and following up with £500M later.

I suspect a small price to pay for getting shot of the responsibility.

A scheme closed to new entrants is only going to become increasingly costly to operate on a per head basis. Beneficial all round. With the members themselves guaranteed their benefits for life. 

Pity the title of this thread didn't reflect the fact that security of members' benefits has been increased, rather than going for the more emotive 'offload to insurers'.

A more accurate title would be Boots pensioners worse off due to offload of pension to insurance company. The Boots DB pension (at least for my 'cohort') had a normal retirement age of 65, but you could withdraw it at 60 with no early retirement penalties. It has been that way for at least 35 years (when I joined the scheme). With this move, the policy has changed & now pension withdrawals before 65 will incur significant penalty. So people will either lose 5 years of pension payments & take it from 65 or a lower pension for the rest of their retirement. There is a transitional option for those close to retirement, but the numbers are still worse. 

Have you received the official notification letter ?  I took mine at 55 with a minimal deduction.

Pity the title of this thread didn't reflect the fact that security of members' benefits has been increased, rather than going for the more emotive 'offload to insurers'.

The long term viability of the scheme as a whole has probably been protected but not necessarily the level of payments for those yet to retire as indicated above. The title is correct. At a corporate level they have indeed offloaded their responsibilities onto insurers and the reason was not to protect their pensioners, both current and deferred, but to protect corporate interests.

You refer to 'they'. Do you mean the employer or the trustees?