Pension question.

tom1ie

Hi all
I will start by saying I really don’t know much about pensions and I’m trying to educate myself fully on the subject.
I work for a semi state company and I have a defined benefit pension. We have the option of changing to a defined contribution pension.
I am 36.
My understanding is if a defined benefit scheme was to be deemed financially unsound, pensioners will be fully paid up first and whatever’s left in the pot will go to the workers.
In a defined contribution, the money you put into the scheme is your own and is looked after by trustees. So what you put in, you’ll get out plus expected growth at retirement, if all goes well.
So taking into account my age and the fact the semi state company doesnt have as many workers paying into the pension as before but more pensioners, (new recruits to the company are automatically in the defined contribution for the last 8 years or so), what do you think I should do?
Thanks all.

Squatter

tom1ie wrote: »

Hi all
I will start by saying I really don’t know much about pensions and I’m trying to educate myself fully on the subject.
I work for a semi state company and I have a defined benefit pension. We have the option of changing to a defined contribution pension.
I am 36.
My understanding is if a defined benefit scheme was to be deemed financially unsound, pensioners will be fully paid up first and whatever’s left in the pot will go to the workers.
In a defined contribution, the money you put into the scheme is your own and is looked after by trustees. So what you put in, you’ll get out plus expected growth at retirement, if all goes well.
So taking into account my age and the fact the semi state company doesnt have as many workers paying into the pension as before but more pensioners, (new recruits to the company are automatically in the defined contribution for the last 8 years or so), what do you think I should do?
Thanks all.

Has you employer offered you the opportunity to have a free consultation with a pensions expert before deciding? If so, then take it up. If not, then ask them (or your Union if you're in one) to arrange one for you.

tom1ie

Squatter wrote: »

Has you employer offered you the opportunity to have a free consultation with a pensions expert before deciding? If so, then take it up. If not, then ask them (or your Union if you're in one) to arrange one for you.

Hi.
I will ask the question but I would like to know the right questions to ask during that meeting and know what I’m talking about to a certain extent. Just to make sure an in house pensions expert wouldn’t have a vested interest in swaying me one way or the other.

Squatter

tom1ie wrote: »

Hi.
I will ask the question but I would like to know the right questions to ask during that meeting and know what I’m talking about to a certain extent. Just to make sure an in house pensions expert wouldn’t have a vested interest in swaying me one way or the other.

I didn't mean an in-house pensions adviser - I meant an independent one.

If your semi-state employer is inviting you to make such a significant decision then it's incumbent on them to provide you with an appropriate level of professional advice.

Once you know that you (and your colleagues?) will be provided with such a consultation, then we can talk about what you should ask the expert!

ANXIOUS

What's the solvency rate of the current scheme? What are the proposed contribution rates of the new defined contribution scheme / will they increase based on age or service?

tom1ie

ANXIOUS wrote: »

What's the solvency rate of the current scheme? What are the proposed contribution rates of the new defined contribution scheme / will they increase based on age or service?

I have no idea. I take it these are the type of questions I need to be asking.
All I know is we get a statement every year from the dB pension telling us what we will expect to retire on at 60 and then at 65. The statement then says we are entitled to the state pension from the age of 68 or whatever the government decides that age will be at the time of retirement. So from 68 the pension is made up of the state pension plus the dB pension, but from 60 or 65 it’s only dB and the statement I’m getting shows the payment isn’t impressive.

Liam D Ferguson

I'd imagine that you will receive a comparison between the anticipated benefits at retirement on both options. If not, you should ask for a projected pension at 60 and 65 assuming you join the DC scheme, using a fairly conservative assumption of future fund growth, e.g. 3 or 4% per year. Then you can compare what you might get from the DC scheme with the DB projections you have. Be aware that both projections are based on all sorts of projections and assumptions that may or may turn out to be true over the next 30 years. But they're a decent place to start.

The DB projections are based on the assumption that the DB scheme will be in a position to pay you the promised benefits at 60 or 65. That's where the post from Anxious comes in. How solvent is the DB scheme now?

tom1ie

Liam D Ferguson wrote: »

I'd imagine that you will receive a comparison between the anticipated benefits at retirement on both options. If not, you should ask for a projected pension at 60 and 65 assuming you join the DC scheme, using a fairly conservative assumption of future fund growth, e.g. 3 or 4% per year. Then you can compare what you might get from the DC scheme with the DB projections you have. Be aware that both projections are based on all sorts of projections and assumptions that may or may turn out to be true over the next 30 years. But they're a decent place to start.

The DB projections are based on the assumption that the DB scheme will be in a position to pay you the promised benefits at 60 or 65. That's where the post from Anxious comes in. How solvent is the DB scheme now?

I haven’t a clue to be honest, but if the dB scheme is now closed and I was one of the last ones in the door, plus I still have 29 years to work (if I retire at 65), then I imagine it may not be too healthy?

Liam D Ferguson

tom1ie wrote: »

I haven’t a clue to be honest, but if the dB scheme is now closed and I was one of the last ones in the door, plus I still have 29 years to work (if I retire at 65), then I imagine it may not be too healthy?

Fundamentally, the switch from DB to DC is not in the interests of you, the employee. A DB scheme makes you a promise to pay you a pension at retirement based on your years of service and salary. You make a contribution but you don't care if the scheme invests your contributions in little plastic fuzzy wombats because the scheme has made you a promise to pay you a predefined level of pension. It's up to the scheme and your employer to make sure that there's enough money in the kitty to do that.

With a DC scheme, you make a contribution and your employer makes a contribution. You choose a fund or funds where your contributions will be invested, from the choice available. Your employer's obligation stops at making their contributions every month. If the value of your fund goes up, great. If it falls, hard luck.

So in switching from DB to DC you're taking on all the investment risk and the employer is getting rid of it, along with any obligations to pay you a set level of pension.

But if the DB scheme is insolvent anyway, then the promises made are irrelevant.