Here's an interesting one

A bit of a debate between myself and someone who's professionally in the pensions field:

Company has a pension scheme. It's in deficit and the company has agreed to pay X Pounds into it for Y years to make up the deficit. The company meanwhile pays in A% per annum of employee salaries.

Recently the way the stats are reported was changed by the company. It rolled up the X Pounds per annum and instead presented it in terms of percentage of aggregate salaries of fund members. Thus rather than report it pays A% of salaries plus X Pounds per annum to the pension fund, it reports that it pays B% per annum of salaries, where B is greater than A and includes the X Pounds.

Perhaps that doesn't much matter one way or the other except that some employees now have the opportunity to change to a different pension scheme. The comparison between the schemes mentions the contribution rate of C% to the new scheme and compares it with the B% for the current scheme. As it happens C is less than B but is greater than A.

In the end they're final salary schemes and so it doesn't make a lot of difference (both schemes are in deficit). I however would contend that the comparison form is misleading and that A% should be compared with C%. The professional insists that the correct and only thing to do is to compare B% with C%.

I can believe that I'm wrong in some technical accounting sense but morally I feel that when employees unversed in these things have a short time to make a decision on such an important issue, this is misleading.

Have I got it wrong? Opinions?

FoFP

Reply to
M Holmes
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Perhaps I'm missing something here. The A%, B%, and C% are employ*ER* contributions, so why compare them at all? All the employee needs to know, given that both schemes are final-salary, is what percentage of salary he will get at the end of the day, and what the D% and E% employ*EE* contributions (to be deducted from salary) will be. This assumes, of course, that the nominal salary of which the various percentages are to be taken will be the same, which they may well not be -- an employer paying less into a pension fund may be able to afford to pay higher salaries.

Reply to
Ronald Raygun

Indeed. More relevant would have been comparable actuarial findings on the relative deficits in each fund. However, as those stats are there, and most employees don't understand pensions, I believe including this comparison to be misleading.

They're quoted too.

There are some wrinkles but arguably these are very similar.

FoFP

Reply to
M Holmes

B%, and C% are employ*ER*

What people really need to know is how solvent the each scheme really is. E.g. it is not enough to say it meets the 'minimum funding guarantee'.. BTW it has no money and you won't get zip for a pension.

There is nothing to stop schemes increasing the employees % contritbutions and changing the amount they will pay out.

Reply to
whitely525

wrote

How could it possibly meet minimum funding *if* "it has no money" (unless it has no liabilities to pay)?

Reply to
Tim

Well I heard some people got zip having being previously advised by trustees that their pension was safe because it meet the governments minimum funding requirements.

I am also puzzled how so many professionals and government apparently missed these giant black holes. I am sure it can't be that difficult.

Reply to
whitely525

wrote

The scheme obviously *didn't* "have no money". Those "some people" - were they active members, deferred members or pensioners?

wrote

What "black holes" do you think were "missed"? AIUI, most *were* spotted when they appeared...

Reply to
Tim

Hmmmm. I can certainly remember posting to say that the "pension holidays" companies were taking in the boom, often with government encouragement, would come back to bite the pensioners and would-be pensioners in the bust.

Gordon Brown of course added considerably to the trouble by removing 5 billion per annum in tax advantages from pension funds.

FoFP

Reply to
M Holmes

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