Help Needed Frozen Final Salary Pension
Options
bernie_m
Posts: 21 Forumite
Hi All
Apologies if this subject has been covered in other threads but I tried to find some but failed.
In October 2011 I was made redundant after working 33 years in manufacturing. During those years I contributed to the final salary pension scheme until the new management closed it in Feb 2009. I then joined the company money purchase scheme which the company paid into until I left.
I am 52 next month.Under the final salary scheme the retirement age (NRD) without penalty is 62. My last statement of deferred benefits was sent to me in 2009, at that time it stated I would be paid a pension of £51k upon reaching the NRD. In the event of my death either before or after starting my pension my wife would receive a spouses pension of £34k.
I am inclined to leave things as they are but I am worried about what would happen if the company went belly up in the interim or even after I retire, given the current economic climate. What would happen if:
1. The company completely folded?
2. It went into receivership? would a new entity taking over the company be legally obliged to keep the scheme afloat?
3. What is the position if the company is sold by the major shareholders (banks as the company is venture capitalist owned)?
I ask because I have been approached by a company who have sent me details of a scheme to transfer the whole value of this pension without tax penalty into a SIPP. Whilst I am reticent to do this after reading the general posts on this board about such schemes, I am not sure if it would be better to do so than get nothing should events 1 & 2 happen. I was told I would probably lose most of my pension should this happen.
Many thanks in anticipation
Apologies if this subject has been covered in other threads but I tried to find some but failed.
In October 2011 I was made redundant after working 33 years in manufacturing. During those years I contributed to the final salary pension scheme until the new management closed it in Feb 2009. I then joined the company money purchase scheme which the company paid into until I left.
I am 52 next month.Under the final salary scheme the retirement age (NRD) without penalty is 62. My last statement of deferred benefits was sent to me in 2009, at that time it stated I would be paid a pension of £51k upon reaching the NRD. In the event of my death either before or after starting my pension my wife would receive a spouses pension of £34k.
I am inclined to leave things as they are but I am worried about what would happen if the company went belly up in the interim or even after I retire, given the current economic climate. What would happen if:
1. The company completely folded?
2. It went into receivership? would a new entity taking over the company be legally obliged to keep the scheme afloat?
3. What is the position if the company is sold by the major shareholders (banks as the company is venture capitalist owned)?
I ask because I have been approached by a company who have sent me details of a scheme to transfer the whole value of this pension without tax penalty into a SIPP. Whilst I am reticent to do this after reading the general posts on this board about such schemes, I am not sure if it would be better to do so than get nothing should events 1 & 2 happen. I was told I would probably lose most of my pension should this happen.
Many thanks in anticipation
0
Comments
-
DO NOT transfer this pension.
It can't possibly be a good idea for you to do so, and in any case would surely need to be signed off by an IFA (who would not do it).
I suspect the company who approached you (always a HUGE Red light of bad ideaness) isn't regulated.
AFAIK, pension schemes are now ring fenced, and benefits are preserved (well 90% I think) if a company goes bust. But someone will be along to clarify as I have never had such a pension I haven't memorized the details.
What are you going to do for the next ten years before the pension begins? Are you working elsewhere?0 -
Ordinarily this would be a no-brainer, but your pension is rather large so you would be more affected than most.
If the company folded, the final salary scheme would be transferred to the Pension Protection Fund (PPF). If you were under Normal Pension Age when the company went under, your benefits would be reduced by 10% and subject to a cap. The current cap for a 60 year old is just over £30k p.a., so you would lose a considerable amount of pension.1. The company completely folded?
Edited to add: If you were over Normal Pension Age when the company went under, you'd get the full benefits that you were due at the insolvency date, but pension increases would be the statutory minimum, and you'd get no increase on any GMP you might have.
All depends on the way that the company goes into receivership. Worst case scenario is that it goes to the PPF, as above.2. It went into receivership? would a new entity taking over the company be legally obliged to keep the scheme afloat?
If there is no insolvency event, the company has an obligation to keep funding the pension scheme - regardless of who owns the company.3. What is the position if the company is sold by the major shareholders (banks as the company is venture capitalist owned)?I ask have been approached by a company who have sent me details of a scheme to transfer the whole value of this pension without tax penalty into a SIPP. Whilst I am reticent to do this after reading the general posts on this board about such schemes, I am not sure if it would be better to do so than get nothing should events 1 & 2 happen. I was told I would probably lose most of my pension should this happen.
The simple fact that you have been approached is a big red warning sign. Anyone who has approached you is most likely not going to be competitive.
Add in the fact that if the scheme is seriously underfunded, they'll be reducing transfer values accordingly, and that transfer values for Final Salary schemes are usually nowhere near enough to buy the same benefits elsewhere. I'd not touch them with a bargepole.
That said, if I thought it likely that the company would go under, I'd certainly consider getting a transfer quote, and seeing what that would buy me elsewhere if I used a proper Independent advisor.0 -
Particularly if you could get better than 30K in a transfer?
I knew about the PPF 90%, but didn't realise there was a max pension of 30K.0 -
The cap only applies if you are under NPA at the insolvency date, and is age based. You can view the current cap figures at http://www.pensionprotectionfund.org.uk/Pages/homepage.aspx - go to Technical Guidance, then Compensation Cap.0
-
The direct link to the compensation cap details is http://www.pensionprotectionfund.org.uk/DocumentLibrary/Documents/Compensation_cap_factors_Apr_2011.pdf
Things to note:
(i)This is before the reduction to 90%, so for someone aged 60, the cap is actually more like £27k currently.
(ii)The cap applies when you retire, so it doesn't matter when the pension scheme enters insolvency. If you don't retire until you're 62, the cap based on the current figures will be £31,262.34 x 90% = £28,136.11 p.a.
(iii)The cap figures are regularly updated and increased. The figures for retirements up to March 2006 gave a cap at 62 of 25708.81 x 90% = £23,137.93, so in the last 6 years the cap has increased by 21.6%. Generally, it should rise roughly in line with inflation.0 -
Can you not apply to transfer your pension pot to another provider...say...HL or similar and within the pension vehicle,buy your own investments and live on the interest?
In this way you would capture the full value of your pension pot and not have to worry about it..retain its value,hopefully have some capital appreciation AND have an income from divis? I might be talking BS as im not an IFAFeudal Britain needs land reform. 70% of the land is "owned" by 1 % of the population and at least 50% is unregistered (inherited by landed gentry). Thats why your slave box costs so much..0 -
C_Mababejive wrote: »Can you not apply to transfer your pension pot to another provider...say...HL or similar and within the pension vehicle,buy your own investments and live on the interest?
In this way you would capture the full value of your pension pot and not have to worry about it..retain its value,hopefully have some capital appreciation AND have an income from divis? I might be talking BS as im not an IFA
Sounds good advice to me
The OP has three choices:
- take a big investment risk on the fate of his old company with a nominally great pension that will get savagely cut if his old company goes under
- transfer into another DB scheme with an insurer as the guarantor which almost certainly provide lower (but safer)benefits
- transfer the value of his pension pot to a DC scheme and take charge of the credit and investment risk himself
If the third one is an option thats the one I'd take0 -
Sounds good advice to me
The OP has three choices:
- take a big investment risk on the fate of his old company with a nominally great pension that will get savagely cut if his old company goes under
- transfer into another DB scheme with an insurer as the guarantor which almost certainly provide lower (but safer)benefits
- transfer the value of his pension pot to a DC scheme and take charge of the credit and investment risk himself
If the third one is an option thats the one I'd take
The big problem is that the OP has money in a final salary scheme, and as such the "pension pot" value is determined solely by the scheme's actuary. In these cases the value given is usually considerably below the actual value of the benefits, so transferring out - even to a scheme where the OP can manage the investments himself - will lose the OP a considerable amount.
Personally, I'd ask for a transfer value from the scheme, and see what they offer. Then based on that, decide whether it's worth transferring or not.
One thing that the OP might want to consider is a partial transfer. If the trustees of the current pension scheme would allow one, that is. If the OP transferred out enough of his benefits that he wouldn't be seriously affected by the PPF cap, but left the rest where it was, he might have the best of both worlds.0 -
The big problem is that the OP has money in a final salary scheme, and as such the "pension pot" value is determined solely by the scheme's actuary. In these cases the value given is usually considerably below the actual value of the benefits, so transferring out - even to a scheme where the OP can manage the investments himself - will lose the OP a considerable amount.
Personally, I'd ask for a transfer value from the scheme, and see what they offer. Then based on that, decide whether it's worth transferring or not.
One thing that the OP might want to consider is a partial transfer. If the trustees of the current pension scheme would allow one, that is. If the OP transferred out enough of his benefits that he wouldn't be seriously affected by the PPF cap, but left the rest where it was, he might have the best of both worlds.
You've got to consider the credit risk of the company providing the pension
(I knew the some of the directors of a big company that went bust years ago)
If your pension is with someone like Game, HMV, Peacocks or Woolworths, how much is the company's promise really worth?
To my puny, uneducated mind this is the single biggest problem with company DB schemes
Your idea of a partial transfer of the amount over the PPF limit is therefore a very good one :T0
This discussion has been closed.
Categories
- All Categories
- 343.8K Banking & Borrowing
- 250.3K Reduce Debt & Boost Income
- 450K Spending & Discounts
- 235.9K Work, Benefits & Business
- 609.1K Mortgages, Homes & Bills
- 173.4K Life & Family
- 248.5K Travel & Transport
- 1.5M Hobbies & Leisure
- 15.9K Discuss & Feedback
- 15.1K Coronavirus Support Boards