Final Salary Pension Stories
Final Salary Pension Stories
(OP)
I just got out of a management communication concerning our company's final salary scheme and how they (read we) are going to reduce its deficit. Simply put, our "final salary" is now going to be today's salary index linked, but with the annual increase capped. A few years of hyper-inflation above the cap and it'll all be worthless.
Anyone else got any similar stories about their final salary pension?
Anyone else got any similar stories about their final salary pension?





RE: Final Salary Pension Stories
RE: Final Salary Pension Stories
RE: Final Salary Pension Stories
"Do not worry about your problems with mathematics, I assure you mine are far greater."
Albert Einstein
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RE: Final Salary Pension Stories
RE: Final Salary Pension Stories
RE: Final Salary Pension Stories
Your value of 2/3 salary assumes that you have worked for the same company for 30 years or more. These days jobs aren't for life and you can expect to change jobs, or the company to be sold with loss of pension rights before you retire. I wouldn't bank on your pension in any event but think of it only as an investment for when you have to sell the Big Issue.
For horror stories you only have to look at what happened to the pension fund run By Robert Maxwell of the Daily Mirror and the millions he stole, or the employees of Enron who lost both their jobs and their investments. These days your pension will apparently be stolen only by the ravages of inflation. My guess is that some deserving stockbroker or investment banker will do very well out of your fund when inflation and interest rates rise again. That's not classed as theft though, stangely.
corus
RE: Final Salary Pension Stories
I was one of the employees of Enron at the time of the collapse. Our pension was always a 'money-purchase' scheme, not final salary, which I have a great deal of scepticism towards. We didn't lose our pensions in Europe, unlike the States, because of the way the pension scheme was implemented. Northern jobs weren't lost either, but the trading guys in London all went. The London employees supposedly were ransacking the place for anything saleable after their expenses and salaries were unpaid. An acquaintance was reputedly playing Quake on a £60k data server which had come into his posession.
My parents, and especially my father, were caught up in the Equitable Life debacle. His pension was being reduced on an almost continual basis in order the meet the costs of funding those members with guaranteed benefits after Equitable's financial mismanagement left them unable to meet all their commitments. Meanwhile the directors of Equitable Life are sitting pretty, having orchestrated the greatest pension mess since Robert Maxwell's efforts. I fail to see why their earthly assets can not be seized and sold to shore up the pensions of the customers whose retirement they stole. I would cheerfully see them sold into slavery.
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I don't suffer from insanity. I enjoy it...
RE: Final Salary Pension Stories
My point is that no one cares more about your "golden years" than you do, so take control the minute you can.
David
RE: Final Salary Pension Stories
My opinion is that contributing to a company pension scheme is more to the benefit of the directors than the rank and file employees. In this article from the Guardian directors are able to build up their pot twice as fast as an employee - "directors' final salary pension pots usually build up twice as fast as those of employees, meaning it takes twice as many years for staff to reach a full pension as it does directors" - htt
There's something wrong somewhere.
I have heard zdas04's advice before about taking as much of your pension as a lump sum as you can when you retire. Given the chance of high inflation (above 4%) it's probably good advice. If you're a director though, you're probably not bothered.
corus
RE: Final Salary Pension Stories
Personally, I like the portable retirement savings co-contribution option that has tended to replace the defined-benefits plan in most places. The only one screwing with your plan is the market. No worries about whether your organization remains solvent to keep paying out pensions, and no benefit to rotting away in a horrible job merely to collect on it.
RE: Final Salary Pension Stories
Since we share so much of our heritage, it really is a shame that we don't share a language.
IRA is (in government-tax-speak) is Individual Retirement Account and it is a tax-defered account for retirement. You pay the taxes on the income you remove from the account at retirement, but the money going in and the earnings on that money is tax free.
CD is Certificate of Deposit that pays a fixed return for a set period of time and I'm sure there is a similar financial instrument in the UK. They generally don't return the same rate as equities, but they carry much less market risk.
The plan that I retired under was a predecessor to the "portable retirement savings" that moltenmetal speaks of--under that plan you could either take a lifetime annuity or a lump sum upon retirement. The company saw the handwriting on the wall and set the interest rate for the annuity just a touch lower than the interest rate for the lump sum so you have to be pretty dim to opt for the annuity. The year after I left they changed the plan to eliminate the annuity altogether for new hires.
David
RE: Final Salary Pension Stories
Similarly my comments that "401K" was a much more understandable term than the silly British equivalent of "pension".
Anyway, to cut to the chase...
My view is that the company I work for is hoping that hyper-inflation will solve its deficit problem. We've been told over and over again that the biggest problem is increasing longevity. And reading between the lines, that means us younger members, not current pensioners.
RE: Final Salary Pension Stories
David
RE: Final Salary Pension Stories
If you analyse all the 'advice' given from the financial experts over the past 20~30 years, it all seems to change, in 6~8 year cycles.
Take Endowment Mortgages: The people who were selling you these 'fantastic' plans that will 'guarantee' a comfortable income all seemed to be chastised in the public eye for doing something wrong. They then started saying, after most average folk had handed over large sums of their hard-earned income, that the predictions are that the guarantees are now not guaranteed and actually may be worthless. You'd better sell them. In fact. you'd better be quick and sell them otherwise you might get nothing. So, the wind has changed direction, Mars is in line with Venus and suddenly our precious investment is worthless.
So why is it the people who sold us these investment plans are the same people 'willing' to take them off our hands for next to nothing?
but hey, what do we know, we're only engineers...
RE: Final Salary Pension Stories
RE: Final Salary Pension Stories
RE: Final Salary Pension Stories
That description sounds more appropriate for the occupying forces in Iraq.
The IRA are terrorist scum, just like al Quaeda are terrorist scum. Don't glamourise either of those organisations by comparing them to soldiers.
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I don't suffer from insanity. I enjoy it...
RE: Final Salary Pension Stories
RE: Final Salary Pension Stories
If you're looking for concrete examples, my employer's plan contributes $0.35 for every $1.00 I contribute to the plan, up to 5% of my annual compensation. Anything I contribute above and beyond the 5% would not be matched. In my case, it's best to contribute up to the set amount of cash matched by my employer and then contribute the rest that I have available to a Roth IRA (up to what I think is now $4K annually...at least for this youngster).
RE: Final Salary Pension Stories
Most UK schemes have a two year period during which if the employee leaves they get their contributions returned, less tax, and the employer keeps their contributions.
I'm paying in 12% at present. It's heavy going with a big mortgage, but hopefully will pay off long term.
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I don't suffer from insanity. I enjoy it...
RE: Final Salary Pension Stories
RE: Final Salary Pension Stories
RE: Final Salary Pension Stories
There's something wrong somewhere.
corus
RE: Final Salary Pension Stories
RE: Final Salary Pension Stories
RE: Final Salary Pension Stories
On this site http://news.bbc.co.uk/1/hi/uk/4810030.stm :
Q: Should companies have been allowed to take "pension holidays"? Has this been a factor in this crisis?
Jel, Cardiff
It certainly has. Horror stories have emerged of companies that took complete pension contribution holidays in the 1990s and into this century.
Often that was because their actuaries told them they had a notional surplus which they could afford to run down and the employers seized on this with glee to cut their costs and boost their profits and dividends.
In their defence they claim they were obeying Inland Revenue rules which put a limit on how big these surpluses could get before losing their tax exempt status.
But quite why some of them waited until they had plunged head-long into a deficit of hundreds of millions of pounds or even, in some cases, billions of pounds, I can't answer, other than to say it now looks like an astonishing level of negligence or stupidity somewhere along the line.
Now that deficits have arisen it has given some employers a good excuse to close their schemes to new members and bring in new versions which are much cheaper to run.
corus
RE: Final Salary Pension Stories
The program is popular with small companies because it wastes little money on overhead. It's also popular with employees, especially those whose families have been screwed out of pensions earned by themselves or their parents at companies that are now insolvent.
RE: Final Salary Pension Stories
http://www.pensionprotectionfund.org.uk/index.htm
In the IMechE's monthly rag recently. A kind of safety net.
RE: Final Salary Pension Stories
That sounds like a remarkably good scheme. Once again I am in envy of the Canadians.
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I don't suffer from insanity. I enjoy it...