One of the biggest hot topics in boardrooms (and even in parliament) is the subject of pensions. They appear to be ever changing the rules of who can apply for a state pension and at what age retirement is suggested. In response, there are plenty of pension schemes out there to help you protect your investment. Here’s some advice on how to choose the best one.
A range of schemes
You can’t tell everything about a scheme by looking at its liabilities and deficits.
The health of the employer is important, as is how well the scheme is funded and what steps the company is taking to plug any deficit.
While active members of defined benefit schemes get annual updates addressing these points, deferred members (those who have left the company but are yet to retire) usually do not. However, this information can be found in the report of the chairman of the pension, found in the company’s annual report, which FTSE 100 companies publish on their websites.
Active members of a scheme can contact the trustees, who are nominated by the members rather than the employer, to ask how well funded the scheme is.
The former pensions minister Sir Steve Webb, now a director at insurer Royal London, said: “It can be hard to make sense of the reams of statistics in pension fund reports, but the role of the trustees is to look after the interests of members, and they will have access to expert advice. If you have concerns about whether [the scheme] is properly funded, contact the trustees and ask them to set out in plain English how they plan to make sure there will be enough money to pay your pension. If you are not satisfied, you may wish to take advice about the pros and cons of transferring out of the scheme.”
What happens if my scheme is wound up?
Initially, it will be assessed by the PPF. If there are enough assets to pay pensions at above the PPF cap, the liquidators will do so. Otherwise, the PPF will take over administration of the payments.
If you reached the scheme’s pension age before it was wound up, you will receive 100% of your pension— although the annual increases may be less than was originally promised. If you have not yet reached the pension age, you will get 90% of what you were promised, capped at £38,500 a year.
What are my options?
Once your workplace pension has been transferred to the PPF for assessment, you can no longer transfer out. In the case of Tata Steel and some other schemes, members may choose to join a new version of the scheme, with reduced benefits, or stay with the fund as it transfers to the PPF, which will pay their annual pension instead.
A third option, available only to those whose employers have not gone bust but are merely separating from their schemes — or to those who strongly believe a company is likely to fail — is to transfer out of the scheme altogether.
It seems the most important thing is not feel trapped or pressured by your pension. Always be aware that there are many options available and they will each work for you in different ways. The only wrong choice is to not have a pension at all.