Pension advice

[Brauny Blue]

A few months ago i asked the forum for any advice regarding doing some self employed work, after having my hours cut at work.
Yesterday i was dealt another blow when the company announced it will end our FINAL SALARY PENSION SCHEME in 2013. They are offering us another pension scheme, which whilst it looks o.k its obviously not going to be as good as the final salary scheme.
The advice i'm after, is should i freeze my final salary scheme immediately or continue until it ends in 2013, and then take the company offer of the new scheme?
The reason why i'm puzzled what to do, is that i believe the last 3 years of the final salary scheme are important to your pension payment. Not sure whether thats an exclusive ruling to my own company, or whether thats the general situation for all final salary schemes.
My employment was reduced to part-time hours in November 2011. If the last 3 years are what your pension (final salary) is judged on then i currently stand at having 2 year 9 months at 100% contribution level, and 3 months contributions on my part-time hours.
Obviously if i let my pension carry on, that equation will reverse so that my last 3 years will be made up mainly of part-time contributions.
In general i'm unsure how the pension is calculated for final salary, and i'm looking to find if it would be in my best interest to freeze it a.s.a.p.

Any advice appreciated.

 

[The Major]

Often when companies announce the ending of final salary schemes it usually means to new entrants. Could that be the case here?

 

[Brauny Blue]

Often when companies announce the ending of final salary schemes it usually means to new entrants. Could that be the case here?

Unfortunately not Major, they already done that about 2 or 3 years ago.

 

[bocadillo]

You will need to find out exactly how people who have reduced their hours are treated in your scheme - it varies from scheme to scheme.

You will also need to find out which years your pension calculations will actually be based on. Sometimes it is, as you say, the last three years - but it can also be the best of the last three years or the best three of the last five years, etc., etc.

Knowing these details will almost certainly make what should be your correct decision more clear to you. It is often the case that firms who are changing their pension arrangements bring in somebody to advise their employees who might have difficult decisions to make. I wonder if that will be so in your case.

 

[Chuck T Masala]

Somewhere within the company (or a contracted 3rd party) there should be a pension manager/administrator, they can't advise you but they can provide forecasts/figures etc and can explain the rules of the scheme. Worth booking some time with them to discuss your options.

 

[Dour]

The reason why i'm puzzled what to do, is that i believe the last 3 years of the final salary scheme are important to your pension payment. Not sure whether thats an exclusive ruling to my own company, or whether thats the general situation for all final salary schemes.

This is a really awkward problem and you would be best off taking some proper advice but I may be able to give a couple of pointers. The 'last 3 years' would normally mean your final salary in the last 3 years as an employee of the company - not the final 3 years of payment into the scheme - and this still should be the case as you've already paid for that benefit. But this is going to be complicated by your having been shifted to part-time - and the mixture of full-time payments and part-time payments and how this is dealt with.

As an example, say the pension pays out at 1/80th a year. If you have paid into the pension for 5 years as a full-timer, and 1 year as a part-timer, if you are lucky and the scheme is reasonably honest, you will get 5/80th of whatever the full-time wage is when you retire and 1/80th of a part-time wage. But it is by no means certain that that is what your pension will be doing, and it would also depend as to what happened when you were shifted to part-time.

However, almost certainly, the amount that you pay in over the next year, as a part-timer, will still be measured against your final salary when you retire, at part-time rates. So, if you think that your salary is actually going to increase by the time you retire, you should still pay into it the existing scheme. That's by no means certain, of course, and if you think the company will be lining up pay cuts, or terminating contracts and rehiring people, you should probably switch to the new scheme.

 

[OldGit]

As others have said you need to take advice from someone familiar with the rules of the scheme - the company pensions administrator, your union's pensions expert or the secretary to the trustees of the scheme. In general the scheme is obliged to treat part-time service pro-rata to full-time, but the precise details of how it does that can vary and so are of course important.

Another issue you need to look at is how deferred pensions are treated up to retirement - usually the value will be enhanced each year, but the actual basis of revaluing varies widely. Nevertheless, if as it seems your company is struggling it may well be that even a modest uprating over the next few years might well be more than actual pay rates will increase by.

 

[Brauny Blue]

Thanks chaps, some very good and useful points made.