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Author: blokenextdoor Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 60690  
Subject: Safety of Final Salary Scheme if Ford goes bust? Date: 10/10/2008 21:41
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I worked for Ford a number of years ago. I contributed to a Final Salary Scheme for about 7 years. When I resigned, I left the pension where it was.

I have some concerns about the future financial state of Ford. As such, I am keen to figure out if my pension is safe with them.

There are 2 issues:
1)Would my pension be held in a separate trust outside of Ford Motor Company Ltd? I think it is?

2) If the answer to the above is yes, then presumably if Ford go bust my pension would be safe, however being a final salary scheme with a deficit which is likely to widen, without Ford still trading and pumping money into it, presumably my pension is still at risk?

If I decide that I am not comfortable in leaving it there, how easy is it to "cash it in" and what is the financial downside of doing so? Will I lose the tax relief that I've already benefitted from? Will the "cash-in" value be low due to current stock-market performance?

I appreciate that I haven't provided any detailed information on the numbers themselves, but I'm just looking for a steer before I start doing a detailed investigation.

Thanks in advance.
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Author: supremetwo Big funky green star, 20000 posts Top Favorite Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50168 of 60690
Subject: Re: Safety of Final Salary Scheme if Ford goes b Date: 10/10/2008 21:48
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http://www.pensionprotectionfund.org.uk/

The Pension Protection Fund was established to pay compensation to members of eligible defined benefit pension schemes, when there is a qualifying insolvency event in relation to the employer and where there are insufficient assets in the pension scheme to cover Pension Protection Fund levels of compensation.

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Author: nuages0 Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50169 of 60690
Subject: Re: Safety of Final Salary Scheme if Ford goes b Date: 11/10/2008 09:44
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The PPF is financied by a levy of pension funds themselves, so it is only viable if a small minority of them fall into it.

The question is, what might happen if the financial crisis gets worse, and lots of big schemes go insolvent? The government could support the PPF, but would it have any money to spare? It could, however, quite easily lower the compensation limits.

A more frightening possibility is that the law could be changed to allow schemes to reduce benefits. Note, employers have in effect being doing this already by closing DB schemes and introducing inferior DC ones.

Additionally, the rules of many schemes and the law permit benefits to be reduced if members vote to allow it. Offhand, I seem to remember that a 75% majority would be required. Would members vote for such a change if the alternative was loss of both job & pension? Or would many employers be tempted to try scaremongering?

Have an enjoyable weekend!

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Author: binalurkin Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50170 of 60690
Subject: Re: Safety of Final Salary Scheme if Ford goes b Date: 11/10/2008 09:59
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"the rules of many schemes and the law permit benefits to be reduced if members vote to allow it. Offhand, I seem to remember that a 75% majority would be required. Would members vote for such a change if the alternative was loss of both job & pension?"

There will be many schemes around now with more Pensioners and Deferreds than current contributing employed members, would all get a vote ?

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Author: ColinTownsend Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50172 of 60690
Subject: Re: Safety of Final Salary Scheme if Ford goes b Date: 11/10/2008 18:16
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blokenextdoor:

If I decide that I am not comfortable in leaving it there, how easy is it to "cash it in" and what is the financial downside of doing so? Will I lose the tax relief that I've already benefitted from? Will the "cash-in" value be low due to current stock-market performance?

Hello blokenextdoor. There is basically no provision for ‘cashing-in’ a pension fund even with repayment of tax relief – the only exception AFAIK being when you join an occupational scheme then cease to be a member ( i.e. leave the employment ) within a short period – 2 years I think.

It’s HMG rules which dictate this, nothing to do with your scheme, and the restriction is one reason why quite a few Fools dislike all forms of ‘pension’ saving.

The nearest you will get to cashing in is to transfer your pension to another ‘approved’ scheme, this could be another occupational scheme or a personal pension. If, as you say, the Ford scheme is in deficit then your transfer value may be reduced to reflect this, however in your favour they probably don’t review the adjustment factors very often so it is quite unlikely to include the falls resulting from recent market mayhem.

To investigate this you would need to write to your scheme administrators and request a transfer quote. When you have this you can think about your options. Fools may well be able to help.

Good Luck

Colin

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Author: nuages0 Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50173 of 60690
Subject: Re: Safety of Final Salary Scheme if Ford goes b Date: 11/10/2008 20:10
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"There will be many schemes around now with more Pensioners and Deferreds than current contributing employed members, would all get a vote ?"

Yes, all members must be included in such a vote. It's a difficult communication exercise, and I don't know whether it has ever been attempted for a significantly sized scheme. Different categories of member would have differing viewpoints: actives might vote in favour of cuts if their jobs were at risk, but pensioners would generally vote against any reduction, since they would regard the PPF terms as an underpin. So, it might not be worth trying with a mature scheme where pensioners are in a majority.

Interestingly (to me anyway), mature schemes should be less vulnerable if the trustees have invested properly, since they should be predominantly holding government bonds as matching assets to the liabilities.

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Author: tjh290633 Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50174 of 60690
Subject: Re: Safety of Final Salary Scheme if Ford goes b Date: 11/10/2008 21:20
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Author: nuages0 | Date: 11/10/2008 20:10:44 | Number: 50173

Yes, all members must be included in such a vote. It's a difficult communication exercise, and I don't know whether it has ever been attempted for a significantly sized scheme. Different categories of member would have differing viewpoints: actives might vote in favour of cuts if their jobs were at risk, but pensioners would generally vote against any reduction, since they would regard the PPF terms as an underpin. So, it might not be worth trying with a mature scheme where pensioners are in a majority.

The scheme, of which I am a pensioner, came out with an idea of offering a one-off rise in pension received, in exchange for foregoing any future increases. All my acquaintances did the calculations and concluded that they had not contemplated adequate life expectances. One in his eighties thought that it might be worthwhile, but very marginally.

My impression is that very few members, either active or retired, would vote in favour of a reduction in benefits.

According to the last report, our scheme had about 400 active members out of a total of some 10,000, split one-third deferred and two-thirds pensioners. Definitely mature.

TJH

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Author: parallellines Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50178 of 60690
Subject: Re: Safety of Final Salary Scheme if Ford goes b Date: 12/10/2008 11:15
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Additionally, the rules of many schemes and the law permit benefits to be reduced if members vote to allow it.


I'm sure there are such rules, but the law will override them and the law is very clear. Your accrued pension rights cannot be reduced in value unless you (individually) consent to it.

http://www.pensionsadvisoryservice.org.uk/occupational_pensi...

Deferred and pensioner members are unlikely to consent.

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Author: blokenextdoor Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50180 of 60690
Subject: Re: Safety of Final Salary Scheme if Ford goes b Date: 12/10/2008 20:43
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Thanks for all your replies. Despite the protection fund I am uncomfortable since I'm not convinced it will be able to cope with a deluge of claims which in this market is a possibility.

I'll request a transfer value and will investgate whether I can transfer the money into my current scheme where my money would be much safer.

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