Can I top up my DB scheme with a lump sum when leaving my company?

Discussion in 'Pensions' started by Odea, Dec 1, 2016.

  1. Odea

    Odea Frequent Poster

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    I left my Defined Benefits pension scheme 16 years ago on a deferred pension.

    I had completed 16 years of a possible 32 years with the company.

    When leaving on a redundancy, I asked my employer to top up my pension with about €30k from my redundancy. I thought that I would be able to buy some more "years" and add to my pension pot.

    Now here we are 16 years later and I find that the €30k was never put into my Defined Benefit Pension but rather it was put in a Defined Contribution Plan after "sitting" in the DB plan for some time.

    The Defined Contribution Plan has not performed very well.

    Do Defined Benefit plan's allow for people to top up their pensions with lump sums to buy back years. In my case I thought that I would have the equivalent of about 24 pension years in my DB plan plus a larger sum of money.
     
  2. Laramie

    Laramie Frequent Poster

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    I suppose if there was only a DB scheme in your company your instructions to top this up would have been normal. Why was it transferred to a DC scheme and were you notified?
     
  3. Conan

    Conan Frequent Poster

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    If you simply asked your Employer to "top up your pension" with €30k I would have assumed that the €30k would have gone into a DC scheme. It is unusual for such a lump sum to be used to "buy added years", though I have seem it on a few occasions. Using a fixed amount such as €30k to buy added years still means that the Employer is taking the funding risk as it is only when you get to retirement that the real cost emerges (the annuity cost). So it would not have been possible for your Employer to know for certain how many years the €30k would buy. Thus it was invested into a DC.
    Most lump sum investments into DB schemes are invested into a DC structure. But clearly you should have been told what was happening. The Civil Service pension structure does have a facility to "buy added years" but it is very expensive. In the private sector such a facility is relatively unusual now (but might have been a little more likely 16 years ago).
    In any event you should have received some information over the last 16 years as to how the DC element was performing, what it was invested in etc.
     
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  4. Odea

    Odea Frequent Poster

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    Thanks Conan. Mercer manage the pension. When I contacted them about this they said I was a deferred member and as such would not have been entitled to receive information unless I asked specifically.

    As I had only a DB scheme at the time I was not aware that a DC scheme even existed within our company pension scheme.

    My pension pot would have been far bigger if the funds have gone to the DB pension and all the calculations stemming from that figure would be different. (Is that statement correct?) There was already a scheme in place where I was buying back years so I could bring my pension back to 40/60 because if I had stayed working to retirement I would only have ended up with 30/60. Both myself and my employer were contributing extra payments to this buyback. So it was natural for me to assume that this lump sum would be put in place to continue doing this.

    Incidentally I still cannot get any information from Mercer as to how many units my €30k purchased nor when they were purchased.

    Any thoughts as to how I should proceed from here would be appreciated.
     
  5. Bronco Lane

    Bronco Lane Frequent Poster

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    Can you clarify the above? Would the €30k not be treated just like a normal DB contribution made by the employee. The company would not be making any additional contributions to match this.
     
  6. Conan

    Conan Frequent Poster

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    Bronco,
    Let's take an example. Say you were made redundant at age 50 and you asked for say €30K of your severance pay be used to buy 5 years service. It's only when you get to age 65 will the real cost of the additional 5 years become clear, only then will the annuity costs be finalised. So the Employer might agree at age 50 to give an extra 5 years service but it is only at retirement that the cost becomes clear. In a sense the Employer is signing a blank cheque and won't know until age 65 whether the €30k was sufficient or not.
     
  7. Bronco Lane

    Bronco Lane Frequent Poster

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    Would the employer not have the same risks with the main DB plan?
     
  8. Odea

    Odea Frequent Poster

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    On further investigation I am now being told that my €30k was put in to my company DB plan but as a DC contribution. Is it possible for a company plan to be both a DB plan and a DC plan at the same time? Units in the fund were never actually purchased for me.

    Nine years after being in the above DB plan, supposedly as a DC plan, units in a fund were eventually purchased for me.

    Does this seem strange?
     
  9. Conan

    Conan Frequent Poster

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    Bronco
    Yes. But why would an Employer add to that risk for an employee leaving service? Perhaps some would, but if an employee wanted to use part of the severance to fund additional pension I would expect that most such arrangements would be DC as with the original poster.
    The problem for DB schemes now is that any "unfunded liability" has to appear on the Company Balance Sheet, any that has been a major factor in prompting many Companies to close down their DB scheme.
     
  10. JoeRoberts

    JoeRoberts Frequent Poster

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    So as I understand it you have 2 problems:

    a) You thought the 30k was buying you guaranteed extra years
    b) Even if it wasn't meant to buy guaranteed years, it got lost for 9 years and you have lost out on the potential return for that first 9 year period.

    What documentation do you have in your possession from the scheme, an old booklet, your leaving statement, some document for the 30k ?
    I'd find out from Mercer who the Trustees are and formally request a copy of the Internal Dispute Resolution Procedure. Then follow that procedure for both complaints and let them tell you what the basis for the 30k was. My guess is that the 30k was the estimate at that time for the cost of the extra years but that it was not on a guaranteed basis. This may not have been explained too well to you. You say you were already buying years with the employer - have you checked if these are credited to you ?