Bought additional service now only being offered current value of contributions

M

Madilla

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Six years ago I paid a lump sum to my company defined benefit scheme to buy 2 additional years service which would have allowed me receive my full pension at 63. The scheme however has now suspended this early retirement option because of funding difficulties. The only option I have been given now is to transfer the current value of this amount based on their fund return to an AVC. Must I accept this?
 
I'm not an expert on the legal rules of specific Defined Benefit pension schemes, so these should be considered amateur observations.

  • It is certainly permissible for a DB scheme to suspend the option to retire early. This is happening frequently in other schemes, as early retirements can put undue pressure on the scheme as a whole if it's already in financial difficulty.
  • That said, if the documentation you received when you bought your additional two years' service made specific reference to your purchase granting you the ability to retire at age 63, you might be able to use it to force the trustees to allow it. But this would only arise if the documentation you received at the time was written in a somewhat sloppy way that you could use to your benefit.
  • If that fails or is not an option, it would strike me that the option to transfer the full value of your contribution to an AVC is one you should seriously consider. Otherwise, if the scheme is eventually wound up due to financial difficulties before you retire, you could end up taking a haircut on all your benefits, including the two years' service you bought.
A good place to ask a question on this would be the Pensions Board. They have responsibility for policing the Pensons Acts and I have always found them helpful.
 
Like Liam this is also a personal opinion....

If the retire early option is being suspended you would assume that the scheme is looking vulnerable; the option to take any money out of such a scheme might be an opportunity simply too good to miss.

To make the decision you would really need independent actuarial advice (unless you have trustees of calibre unusual in this area) and the cost of that would make obtaining it prohibitively expensive.

If it were me I'd be inclined to take the money and run unless you have contract documents showing a slam-dunk win in any dispute in your favour.
 
AVC's contributed to the scheme will have first priority over any other claim on the scheme so no big worry about that.

If early retirement is not allowed then that's it, the additional yrs your avc's were buying cannot be separated.
 
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