Work Pension

Trayn123

All,

My current place of work offer a final salary pension scheme - before you think it, I know I'm very lucky.

To summarise the main rules:
1) Each year of employment gives 1/60 of your final salary
2) I pay 7% of my annual salary to be in the scheme

Roughly speaking, if I earned £10K per annum for 30 years, and then I retired. I would have paid £21,000 into the pension (not taking into account the time value of money) and I would be entitled to a pension of 30/60 of my final salary - £5K forever more (ignoring taking lump sums, paying AVCs etc etc)

Sounds great.

I've always been a cynic, and so do not believe in getting a free lunch or something for nothing. I know my work will be helping the scheme and that is why is may seem to good to be true.

With recent reports that most private final salary pensions will probably close to new entrants soon, and that they may well cease to exist by 2010, I'm concerned that I'm tying my money up when I could be doing better things with it.

I've also read that companies can change defined benefit schemes to money purchase schemes, without having to gain consent of trustees or members.

Also alarming is stem cell research (perhaps meaning everyone will live longer) and my work's pension fund having a huge deficit under IAS 19.

This note is not supposed to be technically perfect or accurate. I'm merely using it to highlight my concerns and get some independent advice on these matters.

Many thanks

dunstonh

Pension funds are suffering larger deficits recently due to 1/ stockmarket crash 2/ Gordon Brown taking massive amounts of tax from them 3/ new accountancy requirements.

Also, the realisation of the longer life and less willingness to have an open ended liability has led many companies to close final salary schemes.

You would not be able to invest personally to match the benefits offered by a final salary scheme. Whether its enough in its own right is a different matter but based on what you pay and what you get back, nothing else will come close.

The usual course of action when reducing benefits is:
1 - increase employee and employer contributions
2 - do not allow early retirement or if you do, enforce penalties.
3 - increase retirement age
4 - close scheme to new entrants
5 - close scheme for all but retain benefits already built up.
6 - transfer whole scheme into money purchase.

Pal is the forum expert on occ schemes so he may add other things to that list. The last option, is the least likely to occur in the short term and I wouldnt worry about it unless it happens to you.