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Final thoughts

I have been told that my pension scheme accrual rate has dropped to 80ths from 60ths, my contribution is going up by 2.5 per cent to 7.5 per cent and my retirement age is being put back to 65 from 60. What should I do?

First, look at your contract of employment to make sure that these changes comply with employment law. Under pension law, they are allowed.

The scheme&#39s trustees have a responsibility to the membership and presumably negotiations between the trustees and employer have failed. Short of cancelling the arrangement, it could not be much worse.

Your higher benefits accumulated to date are protected but future benefits will fall under the new structure.

There is further bad news. The Government is increasing the normal retirement age for women from 60 to 65 over a 10-year transitional period. Your new state retirement age is 62.

The scheme is contracted out of the state second pension, formally the state earnings-related pension scheme, so this also has to be taken into account.

The actuaries for the scheme point out that if you were to retire early at 60, under the new arrangement, a further 30 per cent penalty would apply.

Everyone thinks that their retirement age is the date from which they can take benefits from their pension scheme. Your retirement age is that stated in your contract of employment. Your contract states that you can retire at 60 and it is your determined intention to retire then. So, in addition to reducing the accrual rate, asking you to pay more money and increasing the retirement age, if you retire at 60 your future benefits are going to be further reduced by 30 per cent.

Your situation is dire. Leave the pension scheme and you will lose the company&#39s contributions and death-in-service benefits. The Government and the FSA view this opting out as the wrong step. However, with such draconian changes being introduced to pension schemes such as yours, who is right?

I understand that your employer has in place a personal pension plan. It is a shame that it is not one of the lower-charge stakeholder plans. However, your employer will contribute 7.5 per cent of your earnings into that scheme with similar death benefits to your company scheme.

We need to compare the benefits that this riskier route offers you compared with the supposed guarantees of the old scheme. You have seen the dramatic changes being introduced to your scheme. There is nothing to stop further changes taking place in the future.

Opting out has always been against good advice. However, taking into account your circumstances, your commitment to retire at 60 and the draconian terms being introduced to your final-salary scheme regarding future service, you might well be the first client I would advise to take such action.

By opting out, you need to understand that you are moving into a money-purchase arrangement where you are carrying all the risk of future returns. These could be good or bad with disastrous results.

We do not know what annuity rates will be available at your retirement age. With ever increasing life expectancy, they could easily be worse than they are today.

If you were happy retiring at 65, I would recommend that you stay in the scheme, even on the expensive reduced scale. But with your commitment to retire at 60, the fact that the final-salary scheme is contracted out and with the 30 per cent penalty to retire at 60, your projected benefits are not dissimilar when we factor this all into the comparison with a money-purchase arrangement on a relatively low investment return.

The decision you are about to take is probably one of the most difficult I have recently encountered. Everything I have learnt is against opting out but I believe you should consider this option, along with stopping contracting out.

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