Company wants to change from DB to DC

[149oaks]

Recently the company I work for announced they wish to change the Pension Scheme from DB to DC. We pay 5% into it. I know it's underfunded at the moment (10-20%) in line with most schemes. The reasons given for wishing to switch are cost (but this isn't really being promoted) and "if the company is sold or bought we don't know if the new owners will honour the Scheme". But in reality it's cost I believe.
At this stage my questions are:
1. How do I go about analysing the benefit or not to me if the change goes ahead. I'm 8 years in the scheme.
2. Can a company arbitrarily do this? Contract of employment states I must join the company pension scheme and details will be given on joining. These details then clearly state it's a DB scheme.
3. If they can, can I keep the 8 years to date as DB with future years being DC.
4. If they can change it what process has to be gone through.
5. I have outstanding queries regarding the Adminstration of my contributions, can I insist that all these are resolved before any switch takes place.
5. In general am I right that DB is better for me than DC.

I realise that theres a lot of questions here, but I feel I'm only at the beginning of a saga and so I'm looking for pointers and advice.
Thanks in advance.

 

[StevieC]

I'll try and answer your questions as best I can.

1) It will be hard to compare the two arrangements as first of all the DB plan bases the benefits on your final pensionable salary at retirement/leaving service. You wont know at the moment what this figure will be in most likelihood. Secondly, the DC benefits are based on future investment performance and the annuity rate at the time the benefits are been taken. There is no way to know either of these things.
In a nutshell, for DB schemes the investment risk is put on the employer, in a DC scheme you the employee take the investment risk. Its very unlikely that a change in the plan from DB to DC will benefit you.

2) Companies can change their pension scheme arrangements. They normally do this in consultation with employee's/unions. You could try to argue with your employer over this but if they are set on doing it, there is very little you can do about it.

3) Because you have 8 years scheme service, you have vested rights and cannot be forced to move your existing benefits you do you not wish to unless the scheme is totally wound up in which case you should get the amount that would have been needed to pay for your promised benefits. Bear in mind however that if there is a scheme short fall in funding then you may not get the benefits you have been promised under the scheme rules should the company fold and the scheme remains underfunded.

4) The process varies, sometimes employers allow existing DB scheme members to stay in the scheme and only allow new employees into a DC/PRSA arrangement. Sometimes they simply close the scheme period. Usually there is some correspondence to the employee as to what route they plan to take.

5) If you have outstanding queries about your contributions, you should address them in the first instance to the scheme administrator. If you fail to get satisfaction there then contact the scheme Trustee's as they are legally responsible for making sure the scheme runs properly. If you still have problems contact the Pensions Board/Pensions Ombudsman with your complaint.

6) In my opinion DB schemes are superior to DC schemes generally, each DB scheme can have different benefit structures however and maybe 1% of DC schemes may have better benefits than a substandard DB scheme if benefits promised are particularly poor. I have a large amount of experience with DB schemes and have yet to see a superior DC one however.

Ideally you would hope that only new employees will be put into a DC scheme and you would be allowed to remain where you are. If this isnt the case then you are best off seeking professional advice from an independent broker as there are many different factors such as the DB schemes benefit structure and long term viability of the company to get the schemes funding back on track to factor into any decision you make regarding transferring benefits or leaving them deferred in the scheme.


www.CheaperLifeAssurance.ie

 

[149oaks]

Thanks for the reply. Some good feedback especially regarding the 8 years I have. As regards the outstanding queries it's almost 2 years since I started asking questions and I know investments were not made as per my requests by the adminstrators and I lost money. I think there's already an issue over this between the co and adminstrators but shoud I insist these are resolved before any changes to the scheme? thanks again Stevie.

 

[StevieC]

Typically in a DB scheme, you dont have a choice over investment type as the money is lumped together for investment purposes and not separated into individual pots per employee. This is a nature of these schemes as benefits are paid out on a kind of pay as you go basis.

If you were making AVC's however then you have every right to be upset if they were not invested the way you requested.

It sounds complicated to be honest and without knowing exactly whats going on, all I can advise is that you write to the Trustees of the scheme detailing what your issues are in a nice way but also let them know that unless you get a satisfactory response within a reasonable timeframe (1 month should be plenty) then you will have no option but to contact the Pension Ombudsman to find out the information you require to make an informed decision about your pension and ultimately your future livelyhood.


www.CheaperLifeAssurance.ie