The Lemon Fool

I have a friend who's employer wants her to accept movement of her pension to a new scheme with a later retirement date. They say that if she does not sign they will move her anyway and make smaller contributions into her new scheme than they otherwise would. The whole thing sounds very fishy to me. If the employer has the power to do this, why are they asking her to agree and threatening her if she does not sign?

She has tried Citizens Advice and got nowhere. What are her options here?

I am going to look into this in more detail, but was curious to know if anyone has come across this sort of thing and whether there is much an employee can do about it.

Is she the only employee at that company bring asked this? Or is everyone being asked this?

I recall an old employer of mine tried to persuade us all to agree to a longer working week, from 32.5 hours a week to 35. Since this was a change to our employment contract they could not just do it. So they asked each of us to sign something to agree.

About 75% did sign, amazingly. I did not and the 25% that did not was considered a high enough rejection rate that the plan was cancelled.

AIUI this particular pension plan covers a handfull of employees. Most if not all the others have caved in, even though it sounds as though they will be made materially worse off.

Is this a DB or DC pension? I would assume the former since DC pensions don't have a "retirement date" other than the statutory one related to the tax treatment for taking cash out of it. For a DB pension scheme it must have trustees and the employer would need to reach agreement with them for any changes to the scheme rules. What do they say? (they should have consulted the scheme members).

Unfortunately there are rump schemes where successive takeovers have ended up with DB schemes that simply aren't viable any longer on previous benefit levels. If this is genuinely the situation here then your friend probably doesn't have much choice in the matter - although if she could get another job then she would become a deferred pensioner and would keep her current scheme benefits whilst probably getting a higher salary... (hint: if the employer was paying the market rate when including the pension benefits, reducing the latter means that they are no longer offering a competitive salary)

This use to be common in defined benefit schemes.

I knew someone who retired early to spend the last few years with his dying wife who couldn't claim his pension until scheme date, despite the scheme allowing early retirement, with the companies agreement. They didn't.

You do need significantly more information though. Most schemes today are defined contribution, and the retirement date has little meaning (except for planning purposes).

We are certainly getting a confused story. The employer can chose what scheme that they wish to pay into. They CAN'T require an employee to be a member of a specific scheme so they can't "move her anyway". It's possible that the new scheme is a "salary sacrifice" scheme. If so then contributing to a different none salary sacrifice scheme could be a poorer financial choice. That could be misunderstood as the employer contributing less, though it would be due to tax effects upon the same contributions. That might be the case if she has an existing DC scheme and the employer is willing to make the payments to that through payroll, but can't do so using salary sacrifice. But that's not what you claim she says as no move would happen or reduced payment. Finally, as said, they can chose what scheme they are willing to make employer contributions to. If you opt out, you opt out of those contributions.

One simple solution, is to make multiple plans. I have a defined benefit scheme that won't pay until 65, two DC schemes that I could access today and ISA investments that I intend accessing first, having retired a couple of weeks ago. When I was employed I contributed to the employers DC scheme AND my own SIPP.

Sadly, one consequence of pension freedoms is that we all now need to learn more about pensions.

Very interesting comments thanks. I will get more details tomorrow, but this does not involve salary sacrifice. The employer wants to close one scheme and move those involved to a new scheme with retirement age in line with state pension age instead of age 60.

For clarification am I right in saying that if my friend resigns then they will have to honour the existing pension? She is not far off 60 and had left her job once only to be tempted back so I am sure that would be an option.

hiriskpaul wrote:She has tried Citizens Advice and got nowhere. What are her options here?

Could try https://moneyandpensionsservice.org.uk/. Scroll down a bit and it gives an 0800 number. Following the Find out more link takes you to https://www.moneyhelper.org.uk/en which gives a different 0800 number. Clicking the Talk to us live tab gives phone, online form, and web chat options, with phone and web chat being Mon – Fri:9.00am – 5.00pm for phone and - 6.00pm for web chat.

(Note, this is not the same as booking a Pension Wise appointment, which is also available via the site.)

hiriskpaul wrote:For clarification am I right in saying that if my friend resigns then they will have to honour the existing pension?

Absolutely. It's a contract and the pension scheme must honour it as per the scheme rules (she should have them already but in any case can get them from the scheme administrator).

hiriskpaul wrote:I have a friend who's employer wants her to accept movement of her pension to a new scheme with a later retirement date.

hiriskpaul wrote:The employer wants to close one scheme and move those involved to a new scheme with retirement age in line with state pension age instead of age 60.

For clarification am I right in saying that if my friend resigns then they will have to honour the existing pension? She is not far off 60 and had left her job once only to be tempted back so I am sure that would be an option.

Your friend needs to check on what happens to the existing pension if the change is made. When such changes are made it is normal that the pension accrued up to the point of change remains on the existing terms and it is only that accrued after the change is on the new terms - i.e. she would end up with two pensions, one she could take at 60 and then the second at the state pension age. Changing what has already been accrued is probably not impossible, but is likely to be incredibly difficult.

However having those two pensions can cause issues for the employer (and the employee) - What happens when the employee reaches 60 and takes their first pension? Does the DB scheme (as is quite common) have a rule about how much is paid if they are still in employment (such schemes normally don't want a situation where someone gets their DB pension and carries on earning full time with the same employer). Does the employer allow the employee to go part time until state pension age whilst taking their first DB pension in full. How motivated is a part time employee that doesn't want to be there and is taking home more than they were previously (more because no NI on the DB pension).

As for the change to the employment contract itself, then I would suggest looking at the ACAS site to start with - https://www.acas.org.uk/changing-an-emp ... sibilities

"They say that if she does not sign they will move her anyway "

Oh well, in that case I definitely wouldn't sign! Why even bother to ask her then? If she does it will be argued she had agreed.

Not enough information to be sure, but as far as I'm aware accrued pension benefits are usually retained as is when an employer closes a pension plan. In effect the accrued pension is in fact deferred salary that has already been earned. Common practice would be to retain existing benefits as is and start again from scratch with the new pension plan.

BullDog wrote:Not enough information to be sure, but as far as I'm aware accrued pension benefits are usually retained as is when an employer closes a pension plan. In effect the accrued pension is in fact deferred salary that has already been earned. Common practice would be to retain existing benefits as is and start again from scratch with the new pension plan.

Agreed.

monabri wrote:"They say that if she does not sign they will move her anyway "

Oh well, in that case I definitely wouldn't sign! Why even bother to ask her then? If she does it will be argued she had agreed.

"They say that if she does not sign they will move her anyway and make smaller contributions into her new scheme than they otherwise would."

XFool wrote:"They say that if she does not sign they will move her anyway and make smaller contributions into her new scheme than they otherwise would."

I suspect what that means is they would freeze the existing pension and then start a new pension on the new terms.

"smaller contributions" is probably BS, but the payout from the second DC pension that she will likely be in for just a few years would be small, so thats probably what they mean.

When it comes to pensions, 'do nothing' is often the safest choice, if it turns out you have been disadvantaged in some way, someone will sue for discrimination and there will be a settlement.
If you voluntarily choose an option which turns out to be bad, then you are generally on your own.

We met up today and I know have a much better understanding of the situation.

The employer wants to close the DB scheme. All accrued rights will be maintained. The new scheme is DC and employees agreeing to the change will receive a 20% employer contribution. Those not agreeing will get the statutory minimum, which I think is 5%.

The DB scheme provides an option for retirement at 60 on full pension. However, this option is only available for those still contributing. Anyone leaving employment cannot retire at 60 without actuarial reduction. As the employer is stopping contributions to the scheme, this option will be lost.

What I have advised so far is she carefully checks her contract of employment to see whether this change is permitted. She thinks that it is permitted provided correct procedures (consultation, etc.) are followed. What I still don't get though is why the employer has taken a carrot and stick approach if they have the right to impose the change anyway. That makes me suspicious that the employer may think the situation is not clear cut, perhaps they might lose at a tribunal for example.

hiriskpaul wrote:The DB scheme provides an option for retirement at 60 on full pension. However, this option is only available for those still contributing. Anyone leaving employment cannot retire at 60 without actuarial reduction. As the employer is stopping contributions to the scheme, this option will be lost.

Really?

Did the current DB scheme have it written into it that the age which you could take your pensions is state pension age (or some other age?) but if you are still working for us at age 60 then you can take it without any actuarial reduction, but if you aren't then you have to wait until state pension age to get it in full.

That would be very unusual if that was the case.

AF62 wrote:

hiriskpaul wrote:The DB scheme provides an option for retirement at 60 on full pension. However, this option is only available for those still contributing. Anyone leaving employment cannot retire at 60 without actuarial reduction. As the employer is stopping contributions to the scheme, this option will be lost.

Really?

Did the current DB scheme have it written into it that the age which you could take your pensions is state pension age (or some other age?) but if you are still working for us at age 60 then you can take it without any actuarial reduction, but if you aren't then you have to wait until state pension age to get it in full.

That would be very unusual if that was the case.

Quite. I have never heard of a situation where a retirement age of 60 was lost when a DB scheme was closed. I am not saying it cannot happen but I think it's very unusual indeed for it to be the case. I have experience of a few cases in the family (including myself and Mrs BD) and such a benefit was never withdrawn on DB scheme closure.

She is going to get a copy of the scheme rules. So I will check when I see them.

hiriskpaul wrote:She is going to get a copy of the scheme rules. So I will check when I see them.

Best way forward. I have a feeling the company proposals are not being explained clearly enough. I hope the already accrued DB scheme benefits are not being diluted, that is extremely unfair and certainly not how DB scheme closures generally work IME.

The cards are all in the employers hands and fighting would cost money.

Plus

20% is a generous contribution.

I'd check all the angles of course but signing would probably be the optimal choice.

Pretty sure they have to have a 60 day consultation period for this change:

https://www.squirepattonboggs.com/-/med ... e%20change.