Heres a semi-hyperthetical question...
In a final salary pension scheme the amount of pension a person will
receive can be calculated by the number of years they work divided by
62. ie if Bill works for 40 years then he can expect 40/62 of the
salary at retirement.
ie if the NPA (normal pension age) is 65 and Bill earns £40000 at time
of retirement and has worked since age 25 then he can expect a pension
of £25000 pa to start when he is 65.
My question is, what if any legal protection exists against the company
raising the normal pension age (NPA) - ie in an ultra-extreme case
could they, when Bill is about 60, turn round and say, 'sorry, we have
decided to rasie the NPA to 100, nobody gets a pension until they reach
100'
ie Bills renumeration consisted of his salary which he was paid each
month and his pension which is promised to him at a certain age. - but
if this age is increased then this promised 'pot' is much less.
...ie the point im making is can a company take back money thats
already been earnt?
I can understand the fairness (in priciple) of a company saying 'You
can claim the pension you have earnt to date at 65, but any pension
earnt from now on cant be claimed until you are 100', but want to know
if it is legal for a company to claw back pension entitlement already
earnt?
Thanks
David Bevan

Heres a semi-hyperthetical question...
In a final salary pension scheme the amount of pension a person will
receive can be calculated by the number of years they work divided by
62. ie if Bill works for 40 years then he can expect 40/62 of the
salary at retirement.
Not sure I entirely agree with this. It depends on the scheme. For example I
am in USS, an 80ths scheme under which each year of service earns me 1/80 x
final salary, plus a lunp sum of 18 months pension
other schemes are 60ths schemes, so the entitlement is 1/60 for eachyearof
service, but with no lump sum.
The point surely is that his rights under the pension scheme are accrued
year by year - I have 22 years service,and therefore have an accrued
entitlement to a final pension of 22/80ths x final salary at 65.
Now I accept that the rules can be changed for new entrants, so that the NPA
becomes 100, and I probably accept that the rules canbe changes so that for
my FUTURE service pension entitlement cannot be cashed in until 100.
But I do not accept that my accrued entitlement to a pension of 22/80th at
age 65 can be taken away. I think I am entitled to that under a contract
with my employer and under the Trust Deed governing USS, and I think that a
retrospectiver change in that would be expropriation of property and would
infringe ECHR, quite apart from any domestic law remedy I would have - and
as I say I think I would have remedies in contract and in trust.
Comments received with interest.
Andrew McGee

Thanks, thats an interesting reply!
I mentioned that the question was semi-hyperthetical. The real case
scenario is that I am 32 and have worked for a company for 11 years and
so have earnt 11/62 of my final salary which I could have claimed at
62.
But my employer has decided that this NPA is now going to raise to 65.
They have introduced a sliding scale so that anyone over 50 is not
affected (ie can still retire at 62) but anyone under 40 now gets thier
pension at 65 (with those inbetween getting a retirement age inbetween)
Now I know that the numbers involved are much smaller than in the Bill
example, but the princlple is the same. ie the 11 years of pension I
was expecting to recieve from age 62 I now wont get until im 65.
I know that the scheme is still a good deal, but is this change
fair/legal? ...and if it is, then is it fair/leagal to keep raising the
age or is what i have already earnt save?
Thanks
David Bevan

It all becomes academic when your employer did what ours did.
They offered everyone 55 years or over an early retirement scheme which
gave us a 40% enhancement of "pension earned to date".
I grabbed it eagerly, aged 58, some acted upset and hurt, but came round
in the end. It was an opportunity not to be missed.
However, my point is that those who didn't volunteer were pushed the
following year.
It would have been nice to have had the *chance* to stay until 65,
bearing in mind how life expectancy has improved....

Although people may or may not have wanted to go early your company
were not taking back pension already earned. In effect they were just
closing down the pension scheme. The 40% figure is a reduction due to
early retirement.
Far fewer people die between 55 and 65 than between 65 and 75 so taking
the pension 10 years early costs a lot of money as the pension
calculation assumes (correctly) that for every year the pension age is
increased there will be fewer people who are actually alive to claim
their pension.
Presumably although the company were 'pushing' people out, you could
have reitered, but defered your pension and still taken 100% of
"pension earned to date" when you reached 65.
Enjoy your retirement!
David Bevan

wrote
Do you expect to still be working for them at age 62?
[If you are still working there at age 62, and wish to continue
working, then there wouldn't be an issue would there?]
Ask them if they intend to attempt to apply the new retirement
ages to "deferred members" as well as "active members".
[I suspect that the old retirement ages may apply for
deferred members, for service prior to the change.]
If you leave the scheme before age 62,
then you will become a deferred member....

But 140% of what? More is less.
Given that it's a years-of-service scheme, what's on offer is,
I understand, a choice between
140% of S*X/62 and 100% of T*(X+7)/62,
where X is the number of years of pensionable service he has now,
S is his salary now, and T is his projected salary at 65, no?
If his anticipated salary inflation is 7%pa, T will be 161% of S.
If he expects to have 40 years of service at 65, then X3 and
(X+7)/X is 121%.
So in effect the 100% deal is worth 95% more than the 140% deal.
This is Mephistophelian offer. You get let off 7 years of your
hard labour sentence and get to go to the land of milk and honey
immediately, on condition that you agree to reduced rations of
milk and honey for life, relative to what they would be if
you carried on serving your full sentence. But the reduction
is almost half.
Not an easy choice, but I think I'd go for it - there's more to
life than milk and honey, which aren't really my cup of tea anyway.

"Ronald Raygun" wrote
NO! What's on offer is a choice between:
(1) A pension, starting at 140% of S*X/62 at age 58,
and probably increasing at RPI and payable for life;
-OR-
(2) A further 7 years of hard graft while receiving NIL pension,
then (hopefully, if the person hasn't died in the meantime)
a pension starting at 100% of T*(X+7)/62 at age 65, etc.
"Ronald Raygun" wrote
That's not until age 65, though, and the "140% of S*X/62"
would have been paid at age 58. By the time he got to age
65, the "early retirement pension" would have grown, using
(say) 5%pa increases (about 2%pa less than your assumed
salary increases), to 140.7% of "140% of S*X/62".
"Ronald Raygun" wrote
OK, so 140% of S*X/62 would be about 75% of
S at age 58, growing to about 105% of S at age 65.
[140% x 33 / 62 x S = 74.5% of S; 74.5% x 1.05^7 = 104.9%.]
Alternatively, waiting until age 65 to retire, the
pension would start at less than 104% of S, and
he'd 've had to work an extra 7 years to get it!
[100% x 40 / 62 x (161% of S) = 103.6% of S.]
"Ronald Raygun" wrote
Hardly! Retiring early, he get's an extra 7 years of
pension, *plus* a little more each year after age 65.
You have been looking at the pension payable
in one year for each, and 7 years apart - at age
58 in the first case and at age 65 in the second.
Suppose you looked at age 60 in the first case and age 62 in the
second -- would you say that "the 140% deal is worth an infinite
multiple of the 100% deal"? [The 100% deal being zero for that year!]
No, of course you wouldn't. You need to consider the value
of all payments, each & every year that they will be paid....

That's what I said.
So what? He either takes the offer of option 1 and retires now,
at 58, or he carries on working until 65. In the latter case,
he gets a bigger pension from 65, and meanwhile rakes in a full
salary to boot. With option 1, there is no more salary, and he
has to adjust his lifestyle, from 58 until death, to fit the budget
commensurate with a half-rate pension, whereas with option 2, he's
rolling in lolly for 7 fat years, and collects a full pension
thereafter.
But getting paid handsomely for it.
Yes, I didn't make allowances for the pension to be index linked.
That makes it much better.
How is the 100% deal worth zero at 62?

I was expecting to retire at 62 by which time I would have 40/62 (which
I think is the max allowed)
...under the new rules if I still want to leave at 62 then I will have
to fund my own pension for 3 years.
This is fair enough for my future pension entitlement, but I already
have 11/62 so surely it would be fairer for me to be able to claim
11/62 from age 62 and then have the remaining 29/62 cut in at 65? - or
am I missing something?
Take two possible situations...,
1) I resign the day before these rules take effect and so would have
earnt 11/62 payable at 62.
2) I resign the day after these rules take effect and so would have
earnt 11/62 payable at 65.
...which hardly sounds fair, but if in case 1 the age would have to be
65 then this is also unfair (illegal?) since its devaluing my pension
already earnt?
The question I need answered is can a company take back part of a
pension that has already been earnt?
Thanks
David Bevan

wrote
You are more likely to have the choice of:
(a) Taking the entire pension from age 62, but with the
"11/62" part paid in full and the "29/62" part reduced
for early payment (aka "early retirement reduction"); or
(b) Taking the entire pension from age 65, but
with the "11/62" part increased for late payment
and the "29/62" part being paid normally.
wrote
I don't think this latter case would happen, which is why I
suggested you ask them whether they'll try to apply the new
rules to deferred members (for service prior to the change).
wrote
I don't believe they can, but I'm not 100% sure of the law on this.
But if you are still working for them past age 62, they might
have a rule in the "Trust Deed & Rules" of the scheme which
says you cannot take the pension while still working there.
Which is why the situation is awkward for people working past age 62...

"Ronald Raygun" wrote
No, you compared '140% of S*X/62' (the pension payable in just the
single year from age 58, if he retires then) with '100% of T*(X+7)/62'
(the pension payable in just the single year from age 65, if he retires
then).
That's comparing a single year's payments of '74.5% of S'
against another single year's payments of '103.6% of S'.
I compared a complete cashflow (for each & every year) against
the other complete cashflow - you ignored all years after age 59
in the first case (and all years after age 66 in the second case).
"Ronald Raygun" wrote
No he doesn't! As I showed earlier, if he retires early
(option 1) then his pension at age 65 (after already
receiving seven years of payments) is 104.9% of S.
But if he waits and retires at age 65 (option 2),
then his pension at age 65 (ie in the same year for
proper valid comparison) is only 103.6% of S.
I do believe that 103.6% of S is *NOT* bigger than 104.9% of S!!
"Ronald Raygun" wrote
For which he has to work (perhaps very hard)!
"Ronald Raygun" wrote
Not necessarily. Just because he retires from the original
job, doesn't mean that he can't take another job. He could
"semi-retire", taking his pension plus a part-time wage (which
might in total be equivalent to the original job's full-time
salary) and only have to work half of the hours to get it!
"Ronald Raygun" wrote
Agreed, but he has to work much harder during those 7 years to get it!
"Ronald Raygun" wrote
Well, as I've shown, his pension from age 65 would
actually be slightly *lower* than the amount the pension
would have grown to by that age, had he retired early.
"Ronald Raygun" wrote
Not so (see other comments).
"Ronald Raygun" wrote
Indeed. But even if it weren't, the actual
**value of the entire cashflow from the pension
earned during the first 33 years' service**
would still be higher if he took it early -- unless his salary
increased *much* faster even than general investment
returns in the following seven years (usually very unlikely).
"Ronald Raygun" wrote
In your comparison, you only looked at the pension
paid in just a single year-of-life (age 58 for the early
retirement case and age 65 for the later retirement
case). I just picked two other particular "years-of-life"...
[In the "later retirement" case, he receives no pension until age
65 and so for the year at age 62 the pension received is zero.]
Of course, this is not a valid comparison (either
mine at ages 60/62, or yours at ages 58/65).
I was just trying to point out that you actually need to
add up the total values of *all* years of pension, not
just the amount paid during the first year of receiving it.
[In fact, the early retirement pension will be received for
upto seven years longer than the later retirement one.]

As I understand it is usual for these things to be phased in, ie the revised
terms apply from a specific future date, so the contributions already made
retain their original value in terms of years. Future contributions would
only buy say 1/45 rather than say 1/40 of final salary for each year of
service. However I guess it depends on the terms of the scheme (and the
financial health of the company/body running it).
Heres a semi-hyperthetical question...
In a final salary pension scheme the amount of pension a person will
receive can be calculated by the number of years they work divided by
62. ie if Bill works for 40 years then he can expect 40/62 of the
salary at retirement.
ie if the NPA (normal pension age) is 65 and Bill earns 40000 at time
of retirement and has worked since age 25 then he can expect a pension
of 25000 pa to start when he is 65.
My question is, what if any legal protection exists against the company
raising the normal pension age (NPA) - ie in an ultra-extreme case
could they, when Bill is about 60, turn round and say, 'sorry, we have
decided to rasie the NPA to 100, nobody gets a pension until they reach
100'
ie Bills renumeration consisted of his salary which he was paid each
month and his pension which is promised to him at a certain age. - but
if this age is increased then this promised 'pot' is much less.
...ie the point im making is can a company take back money thats
already been earnt?
I can understand the fairness (in priciple) of a company saying 'You
can claim the pension you have earnt to date at 65, but any pension
earnt from now on cant be claimed until you are 100', but want to know
if it is legal for a company to claw back pension entitlement already
earnt?
Thanks
David Bevan

"Tim" wrote
"Tim" wrote
"Tim" wrote
"Tim" wrote
"Tim" wrote
"Tim" wrote
"Tim" wrote
"Tim" wrote
Ronald, would you care to attempt approximately
valuing the two different cashflows (for early or later
retirement), with and without indexation of pension?
Let us know what you get!

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