Defined Benefit Scheme risks

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Eldritch

Guest
Hi all,

I've recently moved from my old employer to a new business venture, after 14 years in the old place.

I'm entitled to a pension or a transfer value from the old Defined Benefits pension scheme, and I also have some money accumulated from making AVCs in the same scheme.

A few questions: -

(1) I don't want to touch the Defined Benefit scheme money, because it's giving me a guarantee of pension, but I wouldn't mind moving my AVCs into my new (Defined Contribution) scheme of my current employment. Can I separate them, given that the AVCs and the Defined Benefits were from the same employment?

(2) It will be around 30 years until I reach retirement age. Is there any risk that the benefits promised to me under the Defined Benefits scheme might not get paid? What if my old employer goes bust? gets taken over? tries to wiggle out of it?

(3) If the Defined Benefits Scheme starts losing money (and I think many of them have of recent years?) can they dip into my AVC fund (a Managed Fund) to bail it out?

I've tried to get this information out of the scheme consultants, but I'd have better chance of getting blood from a turnip.

Thanks in advance,


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Homer

Guest
Hi Eldritch

1) I don't want to touch the Defined Benefit scheme money, because it's giving me a guarantee of pension, but I wouldn't mind moving my AVCs into my new (Defined Contribution) scheme of my current employment. Can I separate them, given that the AVCs and the Defined Benefits were from the same employment?
No, they can not be separated. Other than in very limited circumstances, the Revenue will not permit 'split benefits' in respect of the same employment. You therefore can not transfer the AVCs unless you are also transferring your defined benefit entitlement.

(2) It will be around 30 years until I reach retirement age. Is there any risk that the benefits promised to me under the Defined Benefits scheme might not get paid? What if my old employer goes bust? gets taken over? tries to wiggle out of it?
Yes, there is a risk that you may not receive the benefits promised to you. If the scheme becomes insolvent and/or the employer decides to wind it up, you may find that you only receive a transfer payment instead of your defined benefit entitlement. In extreme cases of insolvency, you might not even receive a transfer payment, due to the fact that AVCs and pensioners take priority over other liabilities. You need to make a judgement call based on your assessment of the strength and attitude of the company and the current and likely future financial position of the scheme.

(3) If the Defined Benefits Scheme starts losing money (and I think many of them have of recent years?) can they dip into my AVC fund (a Managed Fund) to bail it out?
No, your AVC fund is not in danger. While the scheme remains a going concern, the assets are effectively ring-fenced. On a wind-up, AVCs take priority over all other liabilities (excluding expenses of wind-up) so there should be no real danger of any of your AVC assets being used for other purposes.

Hope this helps.

Regards
Homer
 
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Eldritch

Guest
Hmmm...

Homer - Many thanks for your very useful reply. I'm now stuck in a dilemma. The transfer value of the Defined Benefits section looks very poor, when compared with the guaranteed benefits it will (hopefully) provide. My former employer is a fairly large multinational that I believe to be in a strong financial position, although I was nowhere near board level, so really I'm only party to the same knowledge of the company as the general public. Hard to decide whether to leave my Defined Benefits where they are and hope this scheme continues to operate, or take a transfer now while I can get it. I know the company has ceased offering entry to this scheme to new employees, who get a Defined Contribution plan instead. I don't know if this is a good or bad thing as regards the solvency of the old scheme.

On the AVCs, can I take up the offered option of "Personal Retirement Bond" without touching my Defined Benefits?

Again, Thanks.


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Homer

Guest
Re: Hmmm...

Hi Eldritch

Do you know if the transfer currently being offered has been reduced to reflect a funding shortfall? This is currently the case with many pension schemes and the statement you got from the trustees should tell you whether this is the case.

For the reasons outlined in my earlier response, you can not transfer your AVCs (to a personal retirement bond or anything else for that matter) unless you are also transferring your DB entitlement.

Regards
Homer
 
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