Defined Benefit Scheme cutbacks

[Omega]

I'm in a DB pension scheme which, like others, is in financial difficulty. The trustees have already cut our potential benefits once and I think it may happen again. People already retited are not affected by these cutbacks. How far can they go in this regard? Can the company abandon the fund completely and leave us high and dry?

 

[asdfg]

A pension is a promise to pay a certain amount in the future.
As a result of appling the accounting standard FRS17, which I think started life as an EU directive to protect pension schemes, a lot of pension schemes are now in deficit. I came across an interesting article see here which basically says that

This issue came into focus last week, for instance, in the midst of a huge fuss in Britain when UK fund management group SEI Investments and the Cardiff Business School produced a study suggesting that the massive deficits that pension schemes are supposed to be carrying these days are not as serious as the accountancy standards would suggest they are,

The deficits are coming out of overly conservative accounting, the academics argue. If another, more sympathetic, approach were taken to the calculation (instead of the stg£37bn deficit figure that has been identified as the pensions black hole in the accounts of the companies that comprise the FTSE 100 Index), the true total is more likely to be "zero", they say

 

[Binomial]

What is FRS17

It is a new rule on how companies should draw up their accounts. FRS stands for Financial Reporting Standard. The rule, drawn up by the Accounting Standards Board, will force firms to take account of the state of their pension funds in drawing up profit and loss accounts.

This will bring the UK into line with American and international practice.

hi asdf,
FRS17 has nothing to do with the EU or any directive to protect pensions.

hi pgf,
Have you tried contacting the Irish Pensions Board or a Trade Union? I have found them very helpful in similar circumstances.
binomial

 

[kirvos]

Hi pjf5312,
My understanding of underfunded DB schemes where a firm closes ( and pension scheme wound up ) has following consequences for three classes of people.


1. Those already in receipt of pension are catered for first - top priority. All necessary funds within scheme are alotted to fully cater for pensions of retirees (those already in receipt of pension)

2. AVCS. Those who have (are paying) additional voluntary contribs have second bite of the cake - as far as the remaining funds allow after 1..

3. Staff still in employ: Anything left in scheme goes to service their rights under the scheme. May not be a lot unfortunately if recent UK experience is anything to go by e.g. staff at age 60 in firms closing, expecting £15k pension, being told there was only enough funding left within scheme for £2k a year. Fairly typical.

PS: Not sure where deferred pensioners fit into above, but suspect it's category 3. Overall, not a very happy situation for many.

As long as firms stay open, evil day is put off - pension fund shortfall does not crystalise. Many Uk firms have closed their DB schemes to new staff joining the firm, putting them in DC plan instead where the company does not give any commitment on size of eventual pension (typically 1/60th for most DB plans).

Irish companies are taking similar action given the horrendous shortfalls (€x00m) in some plcs. Pension shortfalls worsening in last two years (despite extra funds paid in by plcs) because of falling bond yields. More bonds must be bought by firms to back a pension than previously, thereby raising pension fund liabilities.

personally in plc with €60m - €80m shortfall in DB scheme with 8 years to go to normal retirement date (65). Not betting on that world cruise just yet. Hope this helps.

 

[Omega]

Hi All,
Thanks for the replies. Our DB scheme is over €80m in shortfall and I too have just over 8 years to go to normal retirement (60). Many of my colleagues here are utterly frustrated as we sit helpless while our benefits are whittled away, perhaps to nothing.
The pensioners already retired cannot be touched and have first call on everything, effectively including the contributions that we are currently making to the fund. We could end up with nothing. A rather depressing prospect after 30+ years.....Can the company, without going out of business, still wash their hand of the fund?

 

[ajapale]

Try contacting the Irish Pensions Board

The Pensions Board, Verschoyle House, 28-30 Lower Mount Street, Dublin 2
Ph: 01-6131900, Fax: 01-6318602, Lo call: 1890 656565, Email: info@pensionsboard.ie



ajapale