View more on these topics

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.


LIA presidents split on merger

A split has opened up between former LIA presidents following crisis talks over the planned merger with Sofa. The LIA&#39s 1994 president Andy Bedford has already posted back a yes vote for the merger but 1988 president Len Warwick remains staunchly opposed. The disgruntled former president has broken his silence on the merger and voiced […]

Waiting for a rating

Investment trusts are calling for a rating system so advisers can easily pick out good and bad funds. They believe an S&P or Forsyth-style rating system would give IFAs a guide as to which trusts perform well. The ratings would examine the performance, management and trustees of each product and could be used to back […]

Show means business

Next Tuesday will see the North&#39s biggest one-day show for financial intermediaries return to Manchester&#39s G-Mex Centre. With 40 CPD-accredited conference sessions and over 100 exhibitors, Money Marketing Live will once again give financial intermediaries the opportunity to discuss some of the key challenges they face with senior industry figures. There are nine streams of […]

Put trust in straight talking

A fter five years of distinguished service, Paul Smee is off. IFAs will be losing a very skilled operator and a well respected problem solver. Paul&#39s style could not have been more different to mine but in one way we are very similar – we both tell it straight. Not doing so all-ows ministers, civil […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm