Legacy DB Pension Being Removed – What Are Our Options?

Aylesbury_Duck

"Another important point is that many of these employees accepted lower salaries over the years because the Defined Benefit pension formed a significant part of their overall remuneration package. For many, it wasn’t simply an employee benefit, it was a key reason for remaining with the organisation. In some cases, the pension was actively relied upon as an incentive to retain experienced staff during periods of organisational change and restructuring."

I'd be careful using this as an important point. The DB did its job to help retain you and others during those periods. Since then, other colleagues have arrived, seemingly happy on (similar?) salaries with a DC scheme instead. That suggests that the company doesn't need to retain the DB cohort as much as it once did. From the company's perspective, you've had the benefit of an "enhanced" pension for years because it suited them. It no longer does.

GenX0212

https://forums.moneysavingexpert.com/discussion/comment/82075285#Comment_82075285

Not sure about the threat of dismissal as such because I would be surprised if the employer isnt simply within its rights to close the scheme to further accruals and continue your employment. They are offering you an alternate DC pension option which meets at least the minimum legal requirements for providing a pension.

I went through similiar many years ago. The employer closed the DB scheme to further accruals and everyone became a deferred/frozen member. Despite lengthy dispute with the employer and seperate complaint to the Pensions Ombudsman (the PO found in the employers favour) we still lost out. Its unlikely that the employer would fall foul of not following the consultation rules, there has to be a process but in all honesty it is a box ticking exercise for the employer. You will quickly learn that Rights and Benefits have very specific legal meanings in terms of accrued pensions but in terms of future accrual they mean little or nothing.

Its definitely worth pushing the employer and unions to get the best possible deal you can but unless there are sufficient numbers of members who would be willing and able to carry out disruptive industrial action against the company in an effort to change their mind then sorry to say you are highly likely to lose your right to future DB accrual.

I do sympathise heartily having been through it myself, it is unfair and unjust and it sounds like your instincts (like mine were at the time) are to fight like hell but I would caution against letting this become a mental and emotional drain on yourself.

From someone who has been there.

EDIT: As with @QrizB it is unlikley that I would have retired 6 years before NRD if I had actually remained a fully paying member of the DB scheme, it changed my outlook and made me start thinking about and planning pensions more proactively

molerat

Went through this many years back. We moved owners and the new co opened a new DB on the same terms. We did though keep the old DB with the old group - which has now been moved to an insurer. A few years later they closed it in favour of DC. There was no choice given, DB is closing and it was being wound up. Over 40s though were given an employer contribution of 12% against the standard 6%. I can't see there being much choice - a bit of a "if you don't like it you can leave" scenario, even companies with a strong union presence have managed to push these sort of changes through.

DRS1

So the first question is Do you have a right to be in the DB scheme for all the time you are employed? What does your contract of employment say about pensions? Most of the time it won't give you a right to have the DB pension for as long as you are employed but maybe you are the exception. And if it did give you that right then it is still open to the employer to fire you and your right to be in the DB scheme would stop when your employment stops.

Of course your employment contract may give you the right to a notice period (or there is a statutory notice period). So are the changes being proposed to take effect after that notice period would have ended?

You say you understand the difference between accrued rights and future accrual. But the devil is in the detail there and you should not be limiting your concern to the future accrual. Consider what happens to the accrued rights. Are they still to be linked to future salary increases or are they to become deferred pensions with inflation adjustments (capped at 2.5%). Or something else - eg uncapped inflation? It can be important depending on the nature of your salary increases (sometimes they may lag inflation so it is not always good to keep the link).

How many employees are affected? You say it is a small group. That is one issue with closed DB Schemes - the expenses of running it for a small number of active members look horrific. So the smaller the group of active members the more the number crunchers will say let's draw a line under this.

If as you say DB members have had smaller salaries because of the DB scheme then maybe you need to quantify how much of a salary increase you need to put you on a par with the DC scheme members (going forward). Who knows the demand for an immediate 30% pay rise might make the employer think twice. And no there is no science behind 30% - I just plucked a number out of thin air.

The number of employees affected may also have a bearing on your point about individual consideration of "compensation". For 5 people maybe OK but for 5000?

You ask if the employer has considered alternatives to removing future DB accrual. Such as? Are you thinking of a USS style split where DB applies up to £x and DC applies above that? Or something else? And what do you mean by genuinely explored? Are you looking for a report prepared by a firm of actuaries and tabled at a board meeting? How many alternatives would the report have to contain? 2, 3, 500? From an outsider's perspective the obvious alternatives are keep it going or stop it. Future accrual on a DC basis is also an obvious route given that is what applies to the rest of the employees.

One thing you might want to look at is the latest actuarial valuation and the employer's contribution rate. They do a valuation every three years. It may be that the latest one has not been published yet but it could be the preliminary results are what are pushing the proposed changes.

You are asking if the process is fair and reasonable - no-one on here will know. But your union may well have a pension specialist and they will have a view. If there are negotiations to happen here it may also be wise to leave them to the union

Marcon

Not sure about the threat of dismissal as such because I would be surprised if the employer isnt simply within its rights to close the scheme to further accruals and continue your employment.

You're overlooking the (strong) possibility that trustee consent might be needed to make changes to the scheme, including closing it to future accrual.

Although it is well established that trustees are required to ensure that members' accrued rights are fully protected, rather than 'looking to the future', it makes their decision to agree to the closure a lot easier if they know the employer is willing to use the dismissal route if necessary to achieve a legitimate commercial aim.

Interesting as all these war stories from various posters might be, they don't really provide any useful precedent where there are no indications of the financial strength of the employer, how valuable this cohort of employees is, the employer's general attitude to benefits etc etc. The fact any compensation payment is being offered is good news.

Absolutely nothing to stop the trustees seeing if they can get 'something better' for members, though, if their consent to closure is required and a refusal to play ball might gum up the works and delay things or make them a lot messier… No guarantee they would succeed, but it's a question worth putting to the trustee board.

Marcon

That is one issue with closed DB Schemes - the expenses of running it for a small number of active members look horrific. So the smaller the group of active members the more the number crunchers will say let's draw a line under this.

Spot on. I wonder how many of this (understandably) unhappy cohort have read the scheme accounts, prepared and audited each year at considerable expense, and clocked just how much those costs are? Although the overall costs bear some relation to the number of members, the core costs vary precious little.

If as you say DB members have had smaller salaries because of the DB scheme then maybe you need to quantify how much of a salary increase you need to put you on a par with the DC scheme members (going forward). Who knows the demand for an immediate 30% pay rise might make the employer think twice. 

…but that hope is likely to be way off the mark. The DB has served its purpose in terms of retention as @Aylesbury_Duck has already pointed out. If the employer is keen to retain any of this cohort, they will offer a suitable salary increase - and if they don't, then it is always open to the employee to move on (not easy in the current jobs climate, especially for older employees).

GenX0212

https://forums.moneysavingexpert.com/discussion/comment/82075371#Comment_82075371

My original scheme required 2/3 of the affected membership to vote in favour of any 'detriment' for it to be allowed to take effect. Needless to say the employer still managed to weave a path that closed the scheme to further accruals without ever actuallly casting a member ballot. The PO was not swayed by the agument that closing the scheme to further accrual caused detriment….

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/82075357#Comment_82075357

 I can't see there being much choice - a bit of a "if you don't like it you can leave" scenario, even companies with a strong union presence have managed to push these sort of changes through.

A company I worked for went through a similar scenario and unions and managment could not agree. So the company said if you do not agree we will shut the whole site down as it will be uneconomic. As the company had some history in this regard, the union in the end agreed.

The savings made are currently helping to fund massive transfer fees for players to move to Old Trafford, and a Monaco lifestyle for the owner.

Tree_pipe99

13 years after they closed the DB pension I got to retire at 58 with a good DC pension in drawdown and the old DB pension paying me a good index-linked income.

I'm very happy with how it's turned out.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/82075452#Comment_82075452

Similar for me, but I had to put a LOT more into the DC pension myself, than I ever contributed to the DB one