Defined pension

horse7

Can someone please explain today's news from Joan Burton about defined pensions? My dad (55yrs) left eircom with 38 years service and is due his pension in 5 years time. It's a defined scheme, was state (p&t) ,then semi state (telecom), then eircom. Would this have an effect on his pension

Merowig

http://www.independent.ie/business/personal-finance/pensions/move-by-joan-burton-will-mean-lower-pensions-for-400000-workers-34646363.html

(...)
The order signed by the minister will hit 414,000 deferred pension scheme members.


These are people who were in a defined benefit pension, but left the scheme to get another job, the scheme has been closed down, or they took redundancy but have yet to retire.
(...)

It advises trustees of defined benefit schemes to apply a charge of minus 0.3pc on the value of funds for deferred pension members and make it retrospective for 2015.


The order will mean that every €1,000 of pension funds of a deferred member will be reduced to €997.


Actuaries will have to factor in and back-date the negative rate for these funds, and lawyers have expressed concerns that it may not even be allowed in many schemes whose rules only permit an increase in the pension rate, in line with the Consumer Price Index (CPI).
(...)

horse7

Merowig wrote: »

http://www.independent.ie/business/personal-finance/pensions/move-by-joan-burton-will-mean-lower-pensions-for-400000-workers-34646363.html

Reclarifying the question, this Burton announcement is about private DB pensions, is eircom involved?

AlexisM

I'm not sure if it applies to eircom pensions but for those pensions it applies to:

Every year, deferred pensions are revalued in line with inflation. So if someone leaves a job with an entitlement to, say, a €10,000 per annum pension when they retire, if inflation is 1%, the annual revaluation that year would meanthat their pension entitlement becomes 10,100 (and the next year, it could go to 10,200 or 10,400 - all depends on inflation each year). The revaluation is done every year until the person reaching retirement age so that they should retire with a pension inflation-adjusted to be about the same real value as when they left the job (which could be 20/30 years previously in some cases).

Revaluation is relatively recent (last 10/15 years maybe?) - before that, people left jobs and their entitlements were fixed in euro (£) terms so could lose a lot of real value over time from leaving a job/changing jobs to retirement. So it is a very fair process to have.

What's happened this year is that the inflation index is negative so the revaluation will be a negative 0.3%. So if someone's entitlement before revaluation was 10,000, now if will be 9,970.

I thought the Indo's headline was a bit sensationalist - they didn't have headlines in previous years saying that thousands of workers would see increases from Joan B signing the revaluation statutory instrument...

coylemj

AlexisM wrote: »

Revaluation is relatively recent (last 10/15 years maybe?) - before that, people left jobs and their entitlements were fixed in euro (£) terms so could lose a lot of real value over time from leaving a job/changing jobs to retirement. So it is a very fair process to have.

+1 it probably dates from the Pensions Act 1990 which was the first major piece of legislation in that area for many years. Prior to that your benefits were frozen in absolute terms if you left early with a preserved benefit but my guess is that service prior to the passing of the act was not covered i.e. the provision was not backdated. Otherwise the legislation could have pushed several private sector schemes into immediate insolvency if a lot of deferred pensioners' benefits had to be revised upwards.

So it's possible that the revaluation provision only applies to part of the OP's dad's pension since he mentioned 38 years service which would clearly have started before 1990.