Pension Query

[armanimick]

Hi experts

My company are about to make a statement re our Final Salary scheme.

I'm 4 year off retirement and have 20 years of accrued pension, I'm worried as to what is going to happen to that. Should I apply for early retirement now so as to secure something.

We are in top 100 companies and still making a profit overall.

Not sure if stopping to new members but knowing the company feel they will try to stop it completely.

KNow somethingis underfoot as one board member retired a few months ago and the word on the ground was it was to secure his retirement fund ?

Appreciate any hints and tips on what I can do please...

Thanks

[boxtops]

it would be hard for a company (IMO) to change an existing pension scheme for current members. Ours is changing for new employees, but people already in it stay on their current Ts & Cs. You need to ask your pensions department!

[ubasses]

You need to see if you can find out any more information. it would be very unusual for a Pension scheme to be changd for someone so close to Normal Retirement Age. Historically they tend to close to new members and then amend rules for younger members.
The other problem you could have is that early retirement is usually at the Companies discretion and pensions are invariably reduced by 5% for each year before NRA that you retire.

[Hymie]

I have heard similar stories of high-fliers within companies claiming to ‘retire’ to secure their pension – but I reckon that this is more likely to be a bit of a cover for other reasons for jumping ship.

Having said that – once a pension scheme is wound up, current pensioners are at the front of the queue to claim monies from any remaining funds. So it is possible for a scheme to be judged to have just enough money to cover its liabilities to current scheme pensioners – and those paying into the scheme for their pension get nothing.

But remember that the UK government guarantees to pay out 90% of what you would have got – should your pension scheme go belly-up. A further downer on this figure of 90% is that it is not indexed linked – it is fixed at the time you take it, for the rest of your life.

Very few companies still offer final salary schemes to new starters – so if your company is still offering this – I would suspect that this will end, with new starters being offered a money purchase scheme, whereby they build up a pot of money with which to buy an annuity.

Whether it is worth retiring early might well depend on the pension reduction (for taking it early). Should you continue to pay into your pension for another 4 years – you will have 24 years of contributions. Assuming you earn 1/60 of your pensionable salary per year – you will get 24/60 (0.4) of your pensionable salary – as a pension.

Assuming that your pensionable salary is £25k, this will equate to a £10k per annum company pension + your State pension(s).
When you come to retire you can take 25% of your pension fund as a tax free lump sum, but you will give up 25% of the pay out in taking this.
Notionally, for every £1 of indexed pension – the pension pot must hold £20. Therefore to buy a £10k indexed pension – your company pension scheme should have £200k – in theory you could be looking at having around £50k tax free in a few years time.

[armanimick]

thanks Hymie,

Your assumptions are about right. I a fair bit if I retire now ( I have a statement). Just concerned if I didn't do something now, I'd lose more long term...

[factor-fiction]

I disagree slghtly with the above. Most companies have revised their pension offerings and in my experience the changes affect all members regardless of age and length of service. However it is true that change stend to hit older/longer serving member least because accrued benefits are retained.

Your fellow employees are in fact fortunate that your final salary scheme still exists as many have now been closed to new members and replaced by 'career average' schemes.

My guess is that your scheme's changes will be some or all of these:
- it will close to new members
- contribution rates might increase by 1 - 2%
- actuarial reductions will be increased for those retiring early
- the scheme will become 'career average' rather than 'final salary'.

These changes won't affect you much as you will keep the 20 years' accrued 'final sal ry' benefits you already have and will only pay any higher contribution rates for a few years.

The worst case scenario is they close the scheme completely so you can't contribute any more. But your existing accrued benefits will remain and be payable when you retire.

I suggest you wait and see what happens then come back on here and tell us.

[armanimick]

thanks all, I'll wait for the announcement first before I panic !

[Hymie]

One of the possible changes that factor30 mentions (actuarial reductions will be increased for those retiring early) happened to me.

I have a deferred pension from a previous employer. The pension was payable from age 60 without reduction. When times got hard for the pension scheme, that went by the board, and to get the full pension I’d have to wait until age 65.

Personally I think this a con – I paid into the pension scheme based on set terms and conditions – which have been changed to my detriment and there is nothing I can do about it.
It is a bit like paying into a savings account offering a fixed interest rate over a number of years – come the end of the investment period, because the bank is short of money, they pay out less than contractually agreed.

[craft1948]

I retired a few years ago from BT with a final salary pension...............my old boss reckons that under the new scheme which has been forced upon them I have a better pension than he will have.

[armanimick]

Hi all,

So we are now under consultation and a decision will be made- meaning we will stop the final pension salary to a defined contribution pension. Company will pay max 5% into new scheme when it comes into force.

Current fund 8million in deficit. I've been in scheme 20 years with 4 to go before I draw a pension.

So unsure what to do.

Any advice now anyone ?

[bednobs]

this is such an important decision, you need to pay for professional advice i think

[factor-fiction]

You'll still get a final salary pension based on current salary and 20 years service to date, so it won't affect you as much as younger employees.
I can't see a reason to go now unless you want to leave and can afford to live on the pension. Maybe you should get a quote.
You could even draw the pension and keep working.
Assuming you stay, it's probably still worth contributing to the new DC scheme if the employer also contributes

[armanimick]

Thanks to date people. have listed my questions on the consultation site and asking for a quote to see if I can get out completely....