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DB pension in semi state company.

  • 29-06-2020 12:26am
    #1
    tom1ie
    Registered Users, Registered Users 2 Posts: 10,603 ✭✭✭✭


    Hi all, I need some advice and would appreciate any help. I am automatically enrolled in a defined benefit scheme in a semi state company.
    The dB scheme is closed since 2011.
    I got my statement in the door this week and I gave it a good read where I seen:
    “The scheme is funded by contributions paid by the employees plus the company. There is no guarantee that the scheme will have sufficient funds to pay projected benefits and it is possible that projected benefits under the scheme could be reduced”
    Am I right in thinking that because my scheme is closed, there are no new employees paying into the fund only money going out to current pensioners, so how will the fund be able to provide for my pension at the benefit rate shown on my scheme?

    should I be thinking of changing over to a dc scheme?
    I’m not too well up on pensions so any help you can give would be great.
    thanks.


Comments

  • #2
    coylemj
    Registered Users, Registered Users 2 Posts: 25,479 ✭✭✭✭coylemj


    tom1ie wrote: »
    Am I right in thinking that because my scheme is closed, there are no new employees paying into the fund only money going out to current pensioners, so how will the fund be able to provide for my pension at the benefit rate shown on my scheme?

    No new employees have been admitted to the scheme since 2011 but you and the other serving employees and your employer are continuing to contribute.

    You quoted this from the statement you received......
    tom1ie wrote: »
    “The scheme is funded by contributions paid by the employees plus the company.


  • #3
    tom1ie
    Registered Users, Registered Users 2 Posts: 10,603 ✭✭✭✭tom1ie


    coylemj wrote: »
    No new employees have been admitted to the scheme since 2011 but you and the other serving employees and your employer are continuing to contribute.

    You quoted this from the statement you received......

    Yeah.......... so does this mean the dB scheme statement isn’t worth the paper it’s wrote on? Or am I picking it up wrong?


  • #4
    coylemj
    Registered Users, Registered Users 2 Posts: 25,479 ✭✭✭✭coylemj


    tom1ie wrote: »
    Yeah.......... so does this mean the dB scheme statement isn’t worth the paper it’s wrote on? Or am I picking it up wrong?

    It's a standard disclaimer - 'your mileage may vary'.

    If all of the pensioners live to 100 and stock market returns dip below expected levels, there will not be enough money to pay the promised benefits. It's the risk associated with all DB schemes.

    What's more important in your case is the current funding level, as determined by the last actuarial valuation of the scheme. Do you get a copy of the trustees' annual report? If not, ask for the last one.

    It might be worth your while reading the guide for scheme members on the Pensions Authority website, it's the second one at this website, called 'How does my pension scheme work?'

    https://www.pensionsauthority.ie/en/i_have_a_pension_prsa/checklists_and_guides/


  • #5
    Henry Ford III
    Moderators, Business & Finance Moderators Posts: 17,737 Mod ✭✭✭✭Henry Ford III


    tom1ie wrote: »
    Yeah.......... so does this mean the dB scheme statement isn’t worth the paper it’s wrote on? Or am I picking it up wrong?

    Don't entertain actually doing this, but ask for a transfer value.


  • #6
    tom1ie
    Registered Users, Registered Users 2 Posts: 10,603 ✭✭✭✭tom1ie


    coylemj wrote: »
    It's a standard disclaimer - 'your mileage may vary'.

    If all of the pensioners live to 100 and stock market returns dip below expected levels, there will not be enough money to pay the promised benefits. It's the risk associated with all DB schemes.

    What's more important in your case is the current funding level, as determined by the last actuarial valuation of the scheme. Do you get a copy of the trustees' annual report? If not, ask for the last one.

    It might be worth your while reading the guide for scheme members on the Pensions Authority website, it's the second one at this website, called 'How does my pension scheme work?'

    https://www.pensionsauthority.ie/en/i_have_a_pension_prsa/checklists_and_guides/

    Thanks for that info.
    My main concern though is if no new members have been admitted into the scheme since 2011 but more pensioners are withdrawing money how will there be anything left in the pot for my pension when I retire? I have 25 years left approx.
    Thanks.


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  • #7
    coylemj
    Registered Users, Registered Users 2 Posts: 25,479 ✭✭✭✭coylemj


    tom1ie wrote: »
    My main concern though is if no new members have been admitted into the scheme since 2011 but more pensioners are withdrawing money how will there be anything left in the pot for my pension when I retire? I have 25 years left approx.

    The taxes paid by existing workers pays for the state old age pension but private pension schemes don't work in the same way i.e. you don't need new employees coming on board to maintain the fund at a healthy level. Since the day the scheme was closed to new members, the overall number of members (serving, deferred and pensioners) will have been capped and thereafter dimnishing.

    'more pensioners' may be drawing pensions but that number will eventually plateau as pensioners die off. Your contributions and those of your fellow employees and the company will accumulate and if all goes well, there will be enough to fund your pension. Ask for the latest trustees' report and see what the funding level is at. It's highly unlikely to be fully funded because virtuallly every DB scheme is underfunded but hopefully it's >90%.


  • #8
    Jim_Hodge
    Registered Users, Registered Users 2 Posts: 11,052 ✭✭✭✭Jim_Hodge


    tom1ie wrote: »
    Thanks for that info.
    My main concern though is if no new members have been admitted into the scheme since 2011 but more pensioners are withdrawing money how will there be anything left in the pot for my pension when I retire? I have 25 years left approx.
    Thanks.

    The idea is that your (and employer's) contribution is invested to pay your pension. New members didn't pay for your pension.


  • #9
    tom1ie
    Registered Users, Registered Users 2 Posts: 10,603 ✭✭✭✭tom1ie


    Jim_Hodge wrote: »
    The idea is that your (and employer's) contribution is invested to pay your pension. New members didn't pay for your pension.

    no, my point is, the money I and my employer invest is put into a pot that existing retirees draw out of.
    there are less people paying into this pot (as the pot no longer accepts new members) and more people drawing out of it, hence the pot will empty before I reach retirement, unless as has been said here, the company will be on the hook for all due benefits.


  • #10
    Jim2007
    Moderators, Business & Finance Moderators Posts: 10,360 Mod ✭✭✭✭Jim2007


    tom1ie wrote: »
    no, my point is, the money I and my employer invest is put into a pot that existing retirees draw out of.
    there are less people paying into this pot (as the pot no longer accepts new members) and more people drawing out of it, hence the pot will empty before I reach retirement, unless as has been said here, the company will be on the hook for all due benefits.

    So have you checked your pension documents? We are assuming it works the same as what we have seen and experienced, we cannot help you beyond that.


  • #11
    coylemj
    Registered Users, Registered Users 2 Posts: 25,479 ✭✭✭✭coylemj


    tom1ie wrote: »
    no, my point is, the money I and my employer invest is put into a pot that existing retirees draw out of.

    The pensions of existing retirees are not being paid from your contributions. For every retiree in receipt of a pension, there is money in the pot from the contributions which accumulated during their service. That's where their pensions come from.
    tom1ie wrote: »
    there are less people paying into this pot (as the pot no longer accepts new members) and more people drawing out of it, hence the pot will empty before I reach retirement, unless as has been said here, the company will be on the hook for all due benefits.

    See my answer above but even if that was the case, the most recent actuarial evaluation of the scheme will say so and will be raising alarm bells - have you asked for the latest copy of the trustees' report and have you read it?


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  • #12
    homer911
    Registered Users, Registered Users 2 Posts: 5,132 ✭✭✭homer911


    tom1ie wrote: »
    no, my point is, the money I and my employer invest is put into a pot that existing retirees draw out of.
    there are less people paying into this pot (as the pot no longer accepts new members) and more people drawing out of it, hence the pot will empty before I reach retirement, unless as has been said here, the company will be on the hook for all due benefits.

    Following that logic a pension is just a pyramid scheme - this is definitely not the case


  • #13
    POBox19
    Registered Users, Registered Users 2 Posts: 694 ✭✭✭POBox19


    I went through something similar a good few years back, the DB scheme was divided when it closed.
    You have a right to all the information about your pension fund and the administrator of the fund has an obligation to provide it to you. I'd suggest taking an opportunity to meet with your pension administrator. They should be able to demonstrate what your portion of the old scheme was, where it is now and the current contributions from your employer and yourself.


  • #14
    tom1ie
    Registered Users, Registered Users 2 Posts: 10,603 ✭✭✭✭tom1ie


    coylemj wrote: »
    The pensions of existing retirees are not being paid from your contributions. For every retiree in receipt of a pension, there is money in the pot from the contributions which accumulated during their service. That's where their pensions come from.



    See my answer above but even if that was the case, the most recent actuarial evaluation of the scheme will say so and will be raising alarm bells - have you asked for the latest copy of the trustees' report and have you read it?

    Yeah I have asked for the report when that was first mentioned in this thread and I am still waiting on that report after two emails and a number of phone calls.
    The online portal that is supposed to show the investment setup and financial records is in fact a broken link which I have reported on numerous occasions from 3 months ago.
    As soon as I get that report I will report back.
    Thanks for all the advice so far guys, as I really am on unsure ground when it comes to pensions.


  • #15
    tom1ie
    Registered Users, Registered Users 2 Posts: 10,603 ✭✭✭✭tom1ie


    homer911 wrote: »
    Following that logic a pension is just a pyramid scheme - this is definitely not the case

    Tbh that’s kinda the impression I have of it and yes it is quite ignorant but a view I am determined to educate myself on as it is such an important part of life.
    Are there any online documents or courses I could do or even a pensions for dummies book specific to Ireland which covers DB’s that have been closed.


  • #16
    coylemj
    Registered Users, Registered Users 2 Posts: 25,479 ✭✭✭✭coylemj


    tom1ie wrote: »
    Are there any online documents or courses I could do or even a pensions for dummies book specific to Ireland which covers DB’s that have been closed.

    Except for the eventuality covered in the last paragraph below, closing a DB scheme to new entrants has no effect as far as the existing members are concerned. So the information you're looking for does not exist.

    Probably wasting my time but here goes again... the fact that there are no new members coming on board does not mean that the fund will be depleted by the time you retire. If the scheme was admitting new members, their contributions would be set against their future pension entitlements. Which is revenue-neutral as far as each member (including you) is concerned.

    As the scheme is now closed, it means that at some stage in the future and when all of the members are retired and in receipt of a pension, the number of retirees will drop close to a critical level. The risk of running the numbers to zero is that one of two things has to happen (1) the fund will run out of money or (2) there will be a surplus remaining when the last pensioner dies. So well before that stage is reached, the trustees will make a decision to wind up the scheme by handing the remaining assets to a life company who will agree to pay the pensions of the remaining retirees.


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