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Are Most Defined Benefit Pension Schemes In Private Sector Closed Even To Existing Members, Ie Are Many Of Them Still Taking Any Contributions At

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Are most defined benefit pension schemes in private sector closed even to existing members, ie are many of them still taking any contributions at

Edited by Si1

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I thought it was defined benefit pensions that were closing?

Balls!

Sunday morning. My bad, got it wrong way round. Fixed. Thanks :)

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Id guess 99% of private sector DB are closed.

Companies still do DC. Mine matches my 13% contribution, so I've 26% of salary going in.

Most companies only match 5%. Most people don't put more than 10% in.

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Dunno. I thought many companies had situations where some staff were in the db from historic and new staff could only get dc.

This.. And that's my main question. Out of interest.

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Yes most are totally closed. The companies that I have worked for all closed DB and moved everyone on to DC which don't seem to be worth the paper they are written on. Still across the country the DB pension holders are assuming they are going to get a bail out of tax payers' money at some point as they all seem to be in deficit.

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AFAIK every FTSE 100 company has now closed their DB schemes to new members, i.e. if you join the company today you will get a DC pension not a DB pension.

There are still a very, very few companies that are maintaining their DB schemes for existing members. However, this is becoming exceptionally rare. I'm a trustee for a company pension fund that closed the DB scheme for existing members in 2015, and talking to the scheme actuaries we were one of a tiny group that still maintained DB pensions. For all practical purposes DB schemes are now finished.

The sad fact is that even amongst the members of DB schemes there was very little awareness of just how valuable the benefit was. Admittedly the company I worked for had a fairly young age profile, but I held several presentations to try and get across the message that a well funded, non contributory DB pension was something to be cherished, however turn out and engagement were pretty dismal.

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Yes most are totally closed. The companies that I have worked for all closed DB and moved everyone on to DC which don't seem to be worth the paper they are written on. Still across the country the DB pension holders are assuming they are going to get a bail out of tax payers' money at some point as they all seem to be in deficit.

I'd disagree with that.

DC schemes are valuable, they may not be as valuable as DB schemes but they're by no means worthless. Indeed there was a period in the 1980's when DC schemes were delivering materially greater returns than DB schemes, who knows, maybe that investment environment will return? But even if it doesn't, the benefit of a DC scheme, including the tax advantages and the company contribution component, is well worth having.

Regarding DB scheme deficits. Yes, there are horror stories like BHS, but the fact is you never hear about all the well run and reasonably well funded DB schemes that are out there. Furthermore, the actuarial standards for a scheme to be fully funded are so exceptionally high that for practical purposes I'd be pretty comfortable being a member of a scheme that's better than 75 or 80% funded provided it had a reasonably balanced age profile amongst the members.

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I've got a defined benefit pension, only average salary mind, not final salary - but still useful. It's also close to being in surplus. When I joined it was non-contributory for the employee (8 yrs ago), but after the financial crisis it went into deficit so we now have to contribute at 3%. personally I think the company missed a trick when they introduced contributions and they should have gone all the way up to the industry average of 6% over a period of a few years (e.g increased contributions by 1.2% a year for 5 years) and absolutely secured the future of the scheme.

I've also got a DC pension that's matched up to 3% of salary, to which I contribute 3%.

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What about the effects of ZIRP on annuities?

As a DC member you don't have to buy an annuity. And current annuity rates are low but they're not zero, for a reasonably healthy 65 year old a level payment annuity with a spouses/dependent's pension attached would still deliver nearly 5%. It's entirely your choice.

As a DB member ultra low interest rates may exacerbate the pension deficit, but as spy guy pointed out it doesn't directly impact the pension you'll receive.

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AFAIK every FTSE 100 company has now closed their DB schemes to new members, i.e. if you join the company today you will get a DC pension not a DB pension.

There are still a very, very few companies that are maintaining their DB schemes for existing members. However, this is becoming exceptionally rare. I'm a trustee for a company pension fund that closed the DB scheme for existing members in 2015, and talking to the scheme actuaries we were one of a tiny group that still maintained DB pensions. For all practical purposes DB schemes are now finished.

The sad fact is that even amongst the members of DB schemes there was very little awareness of just how valuable the benefit was. Admittedly the company I worked for had a fairly young age profile, but I held several presentations to try and get across the message that a well funded, non contributory DB pension was something to be cherished, however turn out and engagement were pretty dismal.

The trouble with them is the retrospective changing of the rules to remove or reduce benefits.

I've got two deferred schemes which I was explicitly told would be indexed to RPI. The one schene even sent me annual statements showing the value of my pension going up by RPI each year. Then it was retrospectively changed to CPI.

Future pension benefits are only promises. Promises that can, have been, and will be reneged upon.

From now on I want my money now, not promises of money in the future.

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The trouble with them is the retrospective changing of the rules to remove or reduce benefits.

I've got two deferred schemes which I was explicitly told would be indexed to RPI. The one schene even sent me annual statements showing the value of my pension going up by RPI each year. Then it was retrospectively changed to CPI.

Future pension benefits are only promises. Promises that can, have been, and will be reneged upon.

From now on I want my money now, not promises of money in the future.

Then you can transfer your money out and make your own alternative pension arrangements. If you're over 55 you can take your money out full stop and do with it as you wish.

I guess the key issue is this. There are only three stakeholders who could realistically take responsibility for someone's pension; an employer, the state, or the individuals themselves. Historically employers shouldered most of the risk and responsibility, but they're moving decisively away from that position. The state is saying they'll provide a minimal safety net but no more, and with demographics changing so there are fewer younger people supporting more older people there's not much else the state can do.

So that leaves the individual increasingly needing to take responsibility for securing their own retirement provision.

I fully accept there are justifiable pension grievances, as well as the change from RPI to CPI you mentioned I'd add pension fees (although I'd also say that as a pension trustee I successfully pushed back against a company proposal to adopt the CPI measure).

But things are as they are, so people are faced with a choice. Either they defer spending today in order to save for a future pension, and there's plenty of assistance to do that in the shape of company contributions and tax breaks, or they should expect to be an Uber driver or working the night shift in a petrol station when they're in their 70's and 80's.

There really aren't any other options.

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I think a big part of the reason private pensions are in such a parlous state is that they havent been properly valued/appreciated by the public

Most people if considering two potential job offers:

  • Job A - decent salary + DB pension worth 15%
  • Job B - 5% higher salary + crappy pension worth 3%

will unhesitatingly choose job B, so its no surprise that is what employers have all moved to.

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I think a big part of the reason private pensions are in such a parlous state is that they havent been properly valued/appreciated by the public

Most people if considering two potential job offers:

  • Job A - decent salary + DB pension worth 15%
  • Job B - 5% higher salary + crappy pension worth 3%

will unhesitatingly choose job B, so its no surprise that is what employers have all moved to.

...instant gratification innit.

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I think a big part of the reason private pensions are in such a parlous state is that they havent been properly valued/appreciated by the public

Most people if considering two potential job offers:

  • Job A - decent salary + DB pension worth 15%
  • Job B - 5% higher salary + crappy pension worth 3%

will unhesitatingly choose job B, so its no surprise that is what employers have all moved to.

I couldn't agree more, it's something I've seen first hand. Some time ago I took over as the MD of a company with an astonishingly generous pension scheme. I set up several presentations and took people through the benefit both collectively and individually. The general response was one giant yawn, if something's not paying out right now then it might as well not exist, the future is just a different planet for most people.

The only thing I'd add to your list is the performance of pension fund trustees back in the golden era of the 80's and early 90's. That was a time when DC schemes were actually outperforming DB schemes, and investment returns were so high many companies requested a holiday from paying in pension contributions. I'm a pension trustee now, but when I look back to some of the negotiations that my predecessors made during that time I realise what astute and far sighted negotiators they were. They agreed to contribution holidays, but in return they negotiated additional powers to actually set contributions in the future. That simple principle of demanding something in return has placed my scheme in a superb position, we've been first in the queue during any good years expecting our share of the bounty. When I talk to scheme actuaries they agree that many more company pension schemes could have negotiated better deals, but failed to do so in a period when they held all the cards.

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What about the effects of ZIRP on annuities?

That's the problem with defined contribution schemes - annuity rates and the risk of a stock market collapse when you want to retire.

DB provided certainty in a way DC never can.

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That, and the time value of money :)

My time value is looking ok even in the ZIRP times we now live. Since 2007, so including the GFC, I've managed a real (after inflation) investment return of 3.8%. So by deferring consumption I'm ahead of those spending it all today and I'm well ahead of those borrowing for consumption today.

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That's the problem with defined contribution schemes - annuity rates and the risk of a stock market collapse when you want to retire.

DB provided certainty in a way DC never can.

Nobody is forced to buy an annuity. How about starting in drawdown and then if that starts to go a bit wrong later in life buy 'annuity security' in your dotage.

Single life, RPI, 5 year guarantee is circa 4.5% at age 75. It will be even better at age 80.

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My time value is looking ok even in the ZIRP times we now live. Since 2007, so including the GFC, I've managed a real (after inflation) investment return of 3.8%. So by deferring consumption I'm ahead of those spending it all today and I'm well ahead of those borrowing for consumption today.

That's not what I mean. The time value of money is not about spending it today rather than tomorrow. It's about receiving it today rather than accepting a promise of it in the future

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The DB scheme I was in at a previous company stopped new entrants in about 2010 and then ceased accruing benefits for paying in members in 2014 I think.

A bit race to the bottom, as the company I worked for was hugely profitable and could "afford" it. Maybe there is a risk of that changing but if noone else is offering DB you can't really moan or take your labour elsewhere in protest.

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The DB scheme I was in at a previous company stopped new entrants in about 2010 and then ceased accruing benefits for paying in members in 2014 I think.

A bit race to the bottom, as the company I worked for was hugely profitable and could "afford" it. Maybe there is a risk of that changing but if noone else is offering DB you can't really moan or take your labour elsewhere in protest.

Looks like no one is offering DB to new members then.

There are other combinations too. Some employees allow existing members to accrue benefits but have capped the salary increases. So pay awards are not pensionable and the employee needs to pay those into DC scheme.

DB offered security. But with the goalpost changing by employers then if that security is coming under threat I can see more taking a transfer value rather than the pension and moving to a SIPP at 55. Then using draw down.

Wonder how the DB schemes will hold up as more transfer out?

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