R
rheinie
Guest
What happens to a pension in a situation where a member of a DB scheme with 37 years service is made redundant and company says it will not offer early retirements .40 /60ths is the benifit scale.
H
Homer
Guest
Hi Rhienie
I'd say what's happening here is that early retirement is subject to company consent and the pension scheme is not currently able to meet the Funding Standard set out in the Pensions Act 1990.
Due to the fall in equity markets in recent years many pension schemes are not currently able to meet the Funding Standard (a measure of the scheme's ability to cover members' entitlements if the scheme were wound up).
Because of the way in which the funding standard works, an early retirement pension places a strain on the solvency position of a pension scheme (i.e. it increases the shortfall in assets relative to liabilities). The Pensions Act also gives priority to pensioners over active members and deferred pensioners on a wind up.
Allowing early retirement under a scheme that is unable to meet the funding standard therefore provides a double whammy to the remaining members. It both increases the shortfall and moves them further down the priority list.
For this reason, many pension funds are currently being told by their advisors that they should not allow early retirement. In a redundancy situation, this can be hard to take if you have completed 37 years with the company and have limited prospects of finding alternative employment.
Hopefully there is a redundancy payment to soften the blow, but whether this will be sufficient to tide the individual over until they reach retirement age will depend on the individuals’ circumstances. I’m not sure there’s an awful lot you can do if you find yourself in this situation, but you should ask for a copy of the formal scheme documentation (“trust deed and rules”) in order to ensure that the Trustees and Employer are within their rights in refusing early retirement.
I hope this helps.
Regards
Homer
I'd say what's happening here is that early retirement is subject to company consent and the pension scheme is not currently able to meet the Funding Standard set out in the Pensions Act 1990.
Due to the fall in equity markets in recent years many pension schemes are not currently able to meet the Funding Standard (a measure of the scheme's ability to cover members' entitlements if the scheme were wound up).
Because of the way in which the funding standard works, an early retirement pension places a strain on the solvency position of a pension scheme (i.e. it increases the shortfall in assets relative to liabilities). The Pensions Act also gives priority to pensioners over active members and deferred pensioners on a wind up.
Allowing early retirement under a scheme that is unable to meet the funding standard therefore provides a double whammy to the remaining members. It both increases the shortfall and moves them further down the priority list.
For this reason, many pension funds are currently being told by their advisors that they should not allow early retirement. In a redundancy situation, this can be hard to take if you have completed 37 years with the company and have limited prospects of finding alternative employment.
Hopefully there is a redundancy payment to soften the blow, but whether this will be sufficient to tide the individual over until they reach retirement age will depend on the individuals’ circumstances. I’m not sure there’s an awful lot you can do if you find yourself in this situation, but you should ask for a copy of the formal scheme documentation (“trust deed and rules”) in order to ensure that the Trustees and Employer are within their rights in refusing early retirement.
I hope this helps.
Regards
Homer
Brendan Burgess
Founder
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Re: what happens pension in redundancy
I came across this interesting thread which presumably is even more relevant today.
Brendan
I came across this interesting thread which presumably is even more relevant today.
Brendan