# Minimum Funding vs Fully Funded DB Scheme



## 149oaks (14 Oct 2013)

I'm a deferred member of a DB scheme which is being wound up. The scheme says it's funded to 100% of the Minimum Funding Standard could this be different to it being Fully Funded?


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## JoeRoberts (15 Oct 2013)

It is fully funded...but.... that means you will get the full value of your transfer value entitlement. Although it is full value, it will not be a sufficient amount to buy your accrued pension.


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## BOXtheFOX (16 Oct 2013)

JoeRoberts said:


> Although it is full value, it will not be a sufficient amount to buy your accrued pension.



Can you explain this a little more?


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## 149oaks (16 Oct 2013)

Thanks Joe. I'm still mystified though - what %'age of my accrued Pension will fully funded buy? This may be dependent on a range of factors eg age etc but just like Box can you explain further please?


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## JoeRoberts (17 Oct 2013)

BOXtheFOX said:


> Can you explain this a little more?


 
In very broad and simple terms, the transfer value calculation will give you a value, which if invested at approx. 7% return per annum until your normal retirement age (probably 65) would give you a fund which should be sufficient to buy an annuity equal to your accrued pension.

The method is set out by the Society of Actuaries and the rate is determined by the Dept of SW (I think). Depending on your age and as you get closer to 65 there will be favourable adjustments to the 7% rate.
So, the closer to 65 you are, the less inequitable the value will be. Even if you were say 64 there could still be up to 15% shortfall.
There are a lot of other factors involved in the calculation but that's it in simple terms.

A very bad deal for deferred members. 

Why is it allowed to continue ? - if it was changed, then more schemes would fail the funding test each year.

If scheme is closing, then you should lobby Trustees to negotiate a better rate for the calculation of the transfer value.


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## punter (19 Oct 2013)

JoeRoberts said:


> In very broad and simple terms, the transfer value calculation will give you a value, which if invested at approx. 7% return per annum until your normal retirement age (probably 65) would give you a fund which should be sufficient to buy an annuity equal to your accrued pension.
> 
> The method is set out by the Society of Actuaries and the rate is determined by the Dept of SW (I think). Depending on your age and as you get closer to 65 there will be favourable adjustments to the 7% rate.
> So, the closer to 65 you are, the less inequitable the value will be. Even if you were say 64 there could still be up to 15% shortfall.
> ...



Hit. Nail. Head.

 Very few pension funds manage anything like 7% compound over 10/15/20 years. So when the calculations are done on this basis, and your chosen fund actually does 1.5% or 2.5% compound, you are guaranteed to end up with a massive funding shortfall. Unless of course you are wise enough to invest in something that outperforms the majority of "professional " fund managers by 300% or 400%. 

 I have no idea why this is allowed to continue. I was in the crazy situation where a DB scheme of which I was a deferred member of was wound up, we were given the actuarially calculated amount necessary to fund our pensions assuming 6% growth, and the large excess remaining in the scheme was returned to the employer (It was an admittedly unusual situation in that the scheme was well funded, but not actually over funded). Hopping mad I was but nothing could be done to prevent it.


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## 149oaks (21 Oct 2013)

Guys all this points to more lack off/mis information from the Financial Sector i.e. give the masses information they don't understand. And before anybody gets annoyed about this I'm generalising as I'm sure this may not always be the case.

Joe 1 point you did make " If scheme is closing, then you should lobby Trustees to negotiate a better rate for the calculation of the transfer value." 
At face value this seems sensible but with the scheme of which I'm a deferred member of I have attempted to communicate with the Trustees and I'm finding it extremely difficult to get any information out of them. For example I found out by chance the scheme was being wound up and when I queried this with them I eventually was told "we have to inform members within 12 weeks of being notified of the Company winding up the scheme". But within this 12 weeks they are negotiating! For example I also asked "what does 100% of The Minimum Funding Standard represent in terms of the scheme being fully funded and what is the Funding Ratio". The answer after repeated follow up's "In relation to your query regarding % terms of the Scheme being fully funded, this is different for each individual and is not a figure that as Trustee we have."

 Also there are 2 sets of Trustees to the DB Scheme 1. Individuals, who are scheme members and 2. Corporate Trustees who are out of the same business as the Scheme Adminstrators and to my mind thus have a vested interest.

Anyway I've spoken to the only individual Trustee and was told that really his role is to be as Independent as possible and this means not really discussing issues with members as it could be seen as impartial. However he has engaged Independent Advisors separate from the Corporate Trustees. 

This whole area to me is very reflective of the culture of how our country got to the position it is in today.
TELL THE MASSES AS LITTLE AS POSSIBLE AND WHAT YOU DO TELL THEM MAKE IT CONFUSING AND THEN NOBODY WILL ASK US QUESTIONS AND WE'LL CARRY ON AS WE KNOW BEST!


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## JoeRoberts (22 Oct 2013)

149oaks said:


> Guys all this points to more lack off/mis information from the Financial Sector i.e. give the masses information they don't understand. And before anybody gets annoyed about this I'm generalising as I'm sure this may not always be the case.
> 
> Joe 1 point you did make " If scheme is closing, then you should lobby Trustees to negotiate a better rate for the calculation of the transfer value."
> At face value this seems sensible but with the scheme of which I'm a deferred member of I have attempted to communicate with the Trustees and I'm finding it extremely difficult to get any information out of them. For example I found out by chance the scheme was being wound up and when I queried this with them I eventually was told "we have to inform members within 12 weeks of being notified of the Company winding up the scheme". But within this 12 weeks they are negotiating! For example I also asked "what does 100% of The Minimum Funding Standard represent in terms of the scheme being fully funded and what is the Funding Ratio". The answer after repeated follow up's "In relation to your query regarding % terms of the Scheme being fully funded, this is different for each individual and is not a figure that as Trustee we have."
> ...


 
All trustees must look after members' interests regardless of who they are. In reality, most Trustees' actions are taken after the advice of an actuary.

In a wind down of the scheme, the Trustees should have a separate actuary advising them than the actuary advising the company. Sometimes one firm will provide both actuaries with independence rules set up between them. It's not an ideal situation. But it is legal. ( Think it may now be outlawed in the UK though)

For your own situation, it depends on how much energy and time you have to gather support from other deferreds and active members to start a serious campaign to get more information from the Trustees and to negotiate a better deal. Is there a union involved ?
 If there are existing active members, they may take a case to the labour courts to oppose the windup. It won't stop it, but may well get more favourable terms.
Existing pensioners won't be bothered as they have 1st call.


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## Palerider (23 Oct 2013)

JoeRoberts said:


> Existing pensioners won't be bothered as they have 1st call.


 

Yes, pensioners are safe, first call on the pension pot but do deferred members who let's say left on a voluntary basis or changed employer rank the same or better than serving staff. I am thinking of the people of whom I am one that chose to depart on a VS scheme years back, when leaving I calculated my pension from age 60 and that was a  key number for me in my decision making, I am a long way from 60 right now and a wind up is a real possibility.

The Govt have applied a levy to that persion pot already which means it is reducing but in the event of a wind up am I as a deferred member of this DB scheme the same or better than serving staff in the final divvy out ?


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## 149oaks (24 Oct 2013)

Joe
There's no Union involved. There are less than 20 Active members now with in the region of 100 Deferred members and a handful retired. What has raised my antenna is that as well as winding up the scheme the company are also reducing the staff (from the 20) at the same time. Even though the scheme 100% meets the Minimum Funding Standard some of the Actives who are leaving are being guaranteed 90% of a fully funded pension from the same scheme. That's why I'm trying to get information on the difference between the two. The Trustees are not forthcoming with the information.
In addition can this type of "deal" take place?


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