Pensioners with Defined Benefit scheme

[dewdrop]

I am having difficulty in grasping how any changes that may be introduced re order of priority in event of a winding up may affect existing pensioners. Am i right in thinking that a reduction in pension would only arise in the case of a winding up and if the envisaged changes are implemented. In the case of a scheme being reorganised (like Irish Indo) are existing pensioners safe from cuts as is the case in the Irish Indo. Finally i was under impression that when a person retired a sum of money was taken from the fund to buy an annuity to pay the pension. Sorry if this appears confusing.

 

[JoeRoberts]

On your last point the Trustees will decide whether or not to buy annuities or pay the pensions from the fund. There is no obligation to buy annuities while the fund is still live. In fact, many Trustees may be postponing buying annuities in the hope of a fairer distribution if the change in priority comes in. Annuities are very expensive.

On your first query I believe it would only come into effect on a windup.

 

[dewdrop]

Thanks JoeRoberts. We constantly read that many DB Pension schemes have large deficits. What are the principal factors that give rise to a winding up bearing in mind that most companies cannot afford any additional input of funds into the scheme and the prospects of an increase in value of the pension assets are not great. Does the Pension Board step in or are the Trustees advised that they should wind up.

 

[LDFerguson]

Schemes have a deadline by which they need to come up with a proposal as to how they will bring their scheme back to the Minimum Funding Standard. This often prompts the trustees to decide that the cost of doing so is more than they can bear so they wind up.