Pension "enhanced transfer value"

d7guy

Hi all, my Company has in the last six months changed my pension from a Defined benefit (DB) to a Defined contribution (DC) going forward.


The DB portion of my pension was "locked in " .however the company did say at the time that they would come back with an offer for our DB portion
The Company have arranged a meeting and are going to offer me an my colleagues an " enhanced Transfer Value " to move my locked in DB portion over to my DC pension.
I have no idea what questions to ask in relation to this . what amount of money ( if any ) would make this deal advantageous to me etc...
So any help or advice would be greatly appreciated.

ANXIOUS

How long have you got until retirement?
What is the solvency of the DB scheme like?

d7guy

18 years until retirement. Not sure but I think its 100,000,000

notharrypotter

d7guy wrote: »

Not sure but I think its 100,000,000

Short or over?

How many existing pensioners drawing from the fund?

How many people currently in the DB scheme to be offered this deal?
How many deferredd if any DB pensioners?

Independent advice time.

Leprechaun77

It is generally never a good idea to take a transfer value from a defined benefit scheme, as even the 'enhanced' values are known to fall short of the realistic fund needed to buy an equivalent pension. The truth is that the defined benefit pension schemes are a huge burden on a company and they may be just trying to get it off the balance sheet as it can represent a future funding risk if investment returns etc fall.

As outlined above, there are many factors to consider, but if the company is in good shape and the scheme is fully funded, the enhanced value would need to be special to warrant a transfer. (It can be a god idea to transfer if the company outlook is poor, the scheme is underfunded or if you are last in the queue to receive benefits). It may perhaps be an idea to suggest to your company that they offer to pay €300-500 towards professional fees for independent advice as this is a big decision that they are putting on you (for their ultimate benefit). You need a separate professional outside your company to advise on the risks/benefits for remaining or transferring.

d7guy

Thank you guys for all your advice keep it coming. I will update you all after this weeks meeting all your advice is greatly appreciated

ANXIOUS

Very few schemes with a positive solvency rate are closing only two I can think of off hand are Intel and Irish life. All others offers should be at least listened to.

Fanny Wank

Any company I know who did this appointed an independent advisor (at the company's expense) to have a one to one session with each employee if they wanted

bridster007

What are the Trustees saying ?
They should at least have served a claim on the company requesting a market value transfer value for all members. They won't get it, but depending on the wording of the trust deed, are possibly obliged to do so following recent court cases. It then serves as a negotiating point.

brisan

Has anybody got any idea how the transfer values are worked out.
I checked online and its all double dutch .
I checked an English company's website (Tideway and it gave me a figure of 1.2 million so that cant be right.

Liam D Ferguson

brisan wrote: »

Has anybody got any idea how the transfer values are worked out.
I checked online and its all double dutch .
I checked an English company's website (Tideway and it gave me a figure of 1.2 million so that cant be right.

If your expected pension from the pension scheme is of the order of €40,000 per year, with spouse's pension and escalation on pensions, then this figure would be in the right ballpark. Whether or not your DB scheme actually has that sort of money in the pot towards paying you the benefit is a different story.

Henry Ford III

Leprechaun77 wrote: »

It is generally never a good idea to take a transfer value from a defined benefit scheme, as even the 'enhanced' values are known to fall short of the realistic fund needed to buy an equivalent pension. The truth is that the defined benefit pension schemes are a huge burden on a company and they may be just trying to get it off the balance sheet as it can represent a future funding risk if investment returns etc fall.

As outlined above, there are many factors to consider, but if the company is in good shape and the scheme is fully funded, the enhanced value would need to be special to warrant a transfer. (It can be a god idea to transfer if the company outlook is poor, the scheme is underfunded or if you are last in the queue to receive benefits). It may perhaps be an idea to suggest to your company that they offer to pay €300-500 towards professional fees for independent advice as this is a big decision that they are putting on you (for their ultimate benefit). You need a separate professional outside your company to advise on the risks/benefits for remaining or transferring.

There's another angle to consider:-

If the employer wants to it can just wind up the d.b. scheme, which would leave remaining members in a less than ideal position. It can justify that by mentioning liquidity, cost, enhanced longevity, low interest rates and investment returns.......

A broker won't be qualified to give advice on the true value of an enhanced t.v. and you won't hire an Actuary (who would be qualified) for €500 either.

I've seen d.b. schemes wound up and members getting poor values.

Ultimately the promises made by such schemes depend on a number of factors, including the financial health of the scheme itself and also that of the employer who funds it and takes the risk.

3DataModem

I worked in pensions and financial services for almost two decades, and hold two small defined benefits plans.

My advice: DO NOT ACCEPT A TRANSFER VALUE FROM A DEFINED BENEFIT PLAN.

Unless;
1. You have a significant health problem that will shorten your life.
2. (There isn't a 2.)

Here's another bit of advice: BE CAREFUL ABOUT SHARING THIS ADVICE WITH YOUR CO-WORKERS. The more of them that take the transfer value, the more likely it is that your scheme won't have to be wound up. A DB pension trustee will stop new members, then stop new contributions, long before they actually wind it up.

Henry Ford III

3DataModem wrote: »

I worked in pensions and financial services for almost two decades, and hold two small defined benefits plans.

My advice: DO NOT ACCEPT A TRANSFER VALUE FROM A DEFINED BENEFIT PLAN.

Unless;
1. You have a significant health problem that will shorten your life.
2. (There isn't a 2.)

What happens if the scheme gets wound up? All bets are off.

Your thoughts are absolutely sound for financially healthy schemes/employers.

coylemj

3DataModem wrote: »

I worked in pensions and financial services for almost two decades, and hold two small defined benefits plans.

My advice: DO NOT ACCEPT A TRANSFER VALUE FROM A DEFINED BENEFIT PLAN.

Generally agree with you but .... what about Henry Ford's point that a fund could be wound up before you reach retirement age, potentially leaving you in a very poor position?

3DataModem wrote: »

Here's another bit of advice: BE CAREFUL ABOUT SHARING THIS ADVICE WITH YOUR CO-WORKERS. The more of them that take the transfer value, the more likely it is that your scheme won't have to be wound up.

I had to read that a few times before I got your point. Which is that the people who stay are better off each time a person leaves i.e. the more people take the money and leave, the better funded the scheme will be. Which backs up a point made to me by an actuary which is that people who leave hardly ever get the true value of their pot.

3DataModem

coylemj wrote: »

Generally agree with you but .... what about Henry Ford's point that a fund could be wound up before you reach retirement age, potentially leaving you in a very poor position?

If the scheme is at risk of wind-up, then this changes things. However transfer value buyout offers are still likely to lowball the likely share of the fund unless it has been grossly mismanaged to enrich those accepting a transfer value. Still, it is a good point. I'd make that my real number 2 reason.

coylemj wrote: »

Which backs up a point made to me by an actuary which is that people who leave hardly ever get the true value of their pot.

Whoever you spoke to is correct. People who are willing to take a TV from a DB either (a) think they can do better than the pension fund, or (b) lack the understanding as to why this is a bad idea. This is why they can be lowballed. It is also in the interests of the fund that the requested TVs are as low as possible, as this protects the fund in future (the actuary's first responsibility is to the fund, not the leavers).

Henry Ford III

I agree. Generally it's a very bad idea. There's a question on P.I. renewals to cover advise relating to such a transfer!

However if the employer/scheme are in difficulty it might be different. The real trouble is that an ordinary member won't be able to know if that's the case.

p.s. I recall a scheme where the Directors took very healthy t.v's, and then promptly wound up the then poorly funded d.b. scheme. A nasty case.

coylemj

3DataModem wrote: »

People who are willing to take a TV from a DB either (a) think they can do better than the pension fund, or (b) lack the understanding as to why this is a bad idea.

I'm aware of several people taking a TV from a specific DB fund in the past few years. Their motivitation was not that the fund might be wound up soon (it's >95% funded) or that they could do better than the fund managers, it was that that the money they got would then form part of their estate whereas if they and their spouse were wiped out in a car crash, their share of the pot would disappear into the ether.

These people were not directors milking a fund as they marched out the door, the TV would have been calculated by a well known pension company which administers the fund.

Henry Ford III

coylemj wrote: »

I'm aware of several people taking a TV from a specific DB fund in the past few years. Their motivitation was not that the fund might be wound up soon (it's >95% funded) or that they could do better than the fund managers, it was that that the money they got would then form part of their estate whereas if they and their spouse were wiped out in a car crash, their share of the pot would disappear into the ether.

These people were not directors milking a fund as they marched out the door, the TV would have been calculated by a well known pension company which administers the fund.

That's a bit odd.

Estate planning is usually some way down the list of key considerations.

The nature of pensions in payment and/or annuities is quite complex.

3DataModem

coylemj wrote: »

it was that that the money they got would then form part of their estate whereas if they and their spouse were wiped out in a car crash, their share of the pot would disappear into the ether.

That's weird. If their DB plan had no spouses benefit (rare), then an alternative strategy would have been to take out a life policy between now and retirement date for about the same amount as the transfer value.

Unless they are talking about post-retirement spousal benefits. I guess it could make sense to take a TV before retirement if you have a younger / healthier spouse and your DB plan has zero spouse death-in-retirement benefits. It's a weird case but I suppose I can see it.

coylemj

3DataModem wrote: »

That's weird. If their DB plan had no spouses benefit (rare)....

The scheme does have the usual spousal/survivor benefit. That's why I mentioned the possibility of both of them (the deferrred pensioner and partner) being wiped out in a car crash, that's what would need to happen for the value of their pot to completely disappear back into the fund.

I'm aware of at least one rep. from a household name Irish financial company who is chasing deferred pensionrs who left before retirementage on very high salaries, part of the sales pitch is to instill the fear of this event and to present options to protect the fund so that their children can inherit some of the pot.

Henry Ford III

coylemj wrote: »

The scheme does have the usual spousal/survivor benefit. That's why I mentioned the possibility of both of them (the deferrred pensioner and partner) being wiped out in a car crash, that's what would need to happen for the value of their pot to completely disappear back into the fund.

I'm aware of at least one rep. from a household name Irish financial company who is chasing deferred pensionrs who left before retirementage on very high salaries, part of the sales pitch is to instill the fear of this event and to present options to protect the fund so that their children can inherit some of the pot.

I'd imagine the Central Bank might be interested in having a word with him/her if they ever found them.

There would be P.I. considerations too.

coylemj

Henry Ford III wrote: »

I'd imagine the Central Bank might be interested in having a word with him/her if they ever found them.

There would be P.I. considerations too.

But if you are allowed to withdraw your pot via the TV route, there has to be legitimate ways to invest it. So why do you think the CB might object to intermediaries offering their services to people who need to find somewhere to invest their pension fund?

What are 'P.I.' considerations?

Henry Ford III

coylemj wrote: »

But if you are allowed to withdraw your pot via the TV route, there has to be legitimate ways to invest it. So why do you think the CB might object to intermediaries offering their services to people who need to find somewhere to invest their pension fund?

What are 'P.I.' considerations?

It's the advise that's the issue I'd say.

P.I. is Professional Indemnity - the doomsday insurance against bad advise and consequential loss.

AndrewJRenko

coylemj wrote: »

But if you are allowed to withdraw your pot via the TV route, there has to be legitimate ways to invest it. So why do you think the CB might object to intermediaries offering their services to people who need to find somewhere to invest their pension fund?

What are 'P.I.' considerations?

TV route?

coylemj

AndrewJRenko wrote: »

TV route?

Transfer Value, it's in the thread title.