Help! Final Salary Scheme closing.

anonn_2

Marcon said:

anonn_2 said:

Hi,

I am useless with pensions and was wondering if anyone could help?

I have been told today that we are entering into a consultation period as my company wants to change our final salary scheme to a Defined Contribution scheme. 

We have been told to seek Financial advice but its all too complicated for me to process and it is stressing me out!  

I have been in the scheme for 11 years and current pension is £27,000 - we have been told that instead of 18% the company will contribute 25% indefinitely. 

My current salary is just under £40,000. 

My husband says that I should be requesting compensation but have no idea where to start?

Any advice is much appreciated xx

Why do you need financial advice? If the scheme is going to close and the alternative is a DC scheme, the employer will have to contribute to that, and there won't be alternative options - but 25% is a thumping good contribution rate. You could always pay in more if you want a bigger pension. 

Your DB scheme is simply doing what the vast majority of such schemes in the private sector have done and are doing. Chances of compensation? Likely to be nil, unless membership of a DB scheme is a contractual entitlement (highly unlikely, but have a look at your terms of employment in case).

Hi ,

Thanks for your response. I think it is our contract as they want us to sign a new one to confirm we will be on the new DC scheme x

anonn_2

El_Torro said:

I'm no expert on DB pensions (never had one) but I'll give you my thoughts for free (worth every penny):

Over the years many DB pensions have closed, nothing unusual there. It's not clear from your post but you should be owed what you've accrued so far, you just can't add any more to the pension. 

If your employer is going to add 25% of your salary to a DC pension, and do it until you leave the company, this already looks like a very generous offer. Most people in DC employer pension schemes can only dream of such a contribution. 

What kind of compensation is your husband expecting? A higher salary? A lump sum? Something else? I've never heard of people getting compensation for this, though just because I haven't heard of it doesn't necessarily mean it's never happened. 

Hi! thanks for your response. I did not know that 25% is good

Also my husband thinks that as i will not be getting the same pension before - under the new scheme the company should provide projections as to what i may get in DC model and pay a % of the difference in compensation

anonn_2

Brie said:

If your current salary is £40k and if the expected pension is £27k that's pretty darn good.  And that will be sitting there waiting for when you hit retirement.

And 25% employer contribution into a DC scheme is excellent!  My last employer changed their scheme to 10% so you're doing really well with this.  

Also - chances are these will be considered 2 completely separate pensions.  The DB will have certain conditions attached to it, perhaps a normal retirement date of 60 or 65 and the DC more likely 65 or even older.  Because they are effectively 2 separate pensions it may be possible to do different things will them.  Again at my last employer people were able to continue working and paying into their DC scheme but could also (if they were the right age) start collection their DB pension.  Not something you are likely to want to do if it would push you into a higher tax bracket but some found that by doing this they could cut their hours without actually having less income.  

The one cautionary note I would add - check if the £27k DB pension is dependent on you continuing to contribute at your current rate until retirement age.  Your annual pension statement might say something like "if you continue to pay into the scheme until X date your pension will be £27k."  But you won't of course be contributing to it any more so I would just double check on that so you aren't caught out with false expectations in the years to come.  

But don't panic. And no, no one gets compensation for this sort of business decision.  (unless they are in the executive scheme)

Hi, thanks so much for that information ! I am entitled to the DB at 68 and will check to see if i still have to contribute to get the 27k. x

anonn_2

german_keeper said:

Just as an aside to the comments above are you sure you understand your pension position? 11 years service with a current salary of £40,000 giving a pension of £27,000? That's an accrual rate of about 1/16. I don't think there has ever been a DB scheme with that sort of accrual, even in the public sector.

Thanks! Ok maybe I misread my statement .. last year it said my pension was 25.7k , this year it is 27k - maybe if i take a picture and post it without the sensitive info it will be clear to those who know about pensions?

anonn_2

artyboy said:

...and make sure you are clear with your employer about whether your existing DB pension accrual will be preserved, ie you'll keep what you have amassed until now, and it's just a case that going forward, you'll get an extra DC pot of money on the new terms.

They may well try and 'encourage' you to transfer your DB benefits over, that's unlikely to be a good idea. Not sure if it would even be allowed without financial advice, given the current rules over CETVs above £30k, which yours surely must be...

Thank you. Yes they have told us to seek financial advice and have a 30 day consultation period.  there is no talk of a transfer, just that it will stop

Dazed_and_C0nfused

anonn_2 said:

german_keeper said:

Just as an aside to the comments above are you sure you understand your pension position? 11 years service with a current salary of £40,000 giving a pension of £27,000? That's an accrual rate of about 1/16. I don't think there has ever been a DB scheme with that sort of accrual, even in the public sector.

Thanks! Ok maybe I misread my statement .. last year it said my pension was 25.7k , this year it is 27k - maybe if i take a picture and post it without the sensitive info it will be clear to those who know about pensions?

Yes because a pension of £27k after 11 years service is highly highly unlikely.

anonn_2

Marcon said:

german_keeper said:

Just as an aside to the comments above are you sure you understand your pension position? 11 years service with a current salary of £40,000 giving a pension of £27,000? That's an accrual rate of about 1/16. I don't think there has ever been a DB scheme with that sort of accrual, even in the public sector.

Actually there has...I've seen several in the financial services field which had accrual rates as high as 1/10, back in the 1980s when such things were still possible! 

I think you are spot on to flag the flaw in OP's thinking. The £27,000 they are hoping for is based on two-thirds of their current salary, and is doubtless based on benefit statements which project to the scheme's retirement date - not to the current date.

OP - I'm sorry if that sounds as if it's pouring cold water on your hopes, but it really is important to grasp the point. 

no, i want the full picture as like i said this is all a bit over my head! thank you x

anonn_2

Thank you everyone for your responses. I will make a note of all your comments and try and get some answers x

FIREDreamer

anonn_2 said:

german_keeper said:

Just as an aside to the comments above are you sure you understand your pension position? 11 years service with a current salary of £40,000 giving a pension of £27,000? That's an accrual rate of about 1/16. I don't think there has ever been a DB scheme with that sort of accrual, even in the public sector.

Thanks! Ok maybe I misread my statement .. last year it said my pension was 25.7k , this year it is 27k - maybe if i take a picture and post it without the sensitive info it will be clear to those who know about pensions?

I suspect that would include future service to normal retirement date assuming you stay in the scheme to that date and based on current salary.

As the accrual rate is likely to be 1/60 per year your accrued pension to date is more likely to be of the order of 11/60 x £40,000 = £7,333

EDIT: 40/60 x £40,000 = £26,666.

Do you have a further 29 years to normal retirement date (40-11) which explains the difference?

barnstar2077

I think that 25% is incredible!  So good in fact that I would want some form of assurance that it won't be changed once a year or two has gone by and everyone is on the new scheme.  Something to add to the negotiations imo.

My employers scheme is considered good by many, and they only contribute 10%.

A DC scheme will add some flexibility to your retirement date, as you can frontload your withdrawals and don't have to take the same amount every year from it if you don't want to.  Also, at the moment, you should be able to access the DC scheme at 57.  So, it's not all bad, especially if they keep their contributions anywhere near the 25%.

One last thing, do you have to match their contribution to get the 25%, or will you be able to put in less?