Latest news with #definedbenefit
Telegraph
7 days ago
- Business
- Telegraph
‘Will pension rules block me from withdrawing £50k?'
Write to Pensions Doctor with your pension problem: pensionsdoctor@ Columns are published weekly. Dear Charlene, I've reached age 60, which is the retirement age for my Barclays pension. Part of my pension is in the old Barclays 1964 defined benefit scheme, and this will pay me an income for life. The rest is in the 'Afterwork' scheme that replaced it. The scheme is made up of a credit account and an investment account. My understanding was that Afterwork was a defined contribution scheme, and I would be able to simply transfer this part somewhere else to access drawdown, but I'm confused by the credit account element and what this means. It is referred to as a 'cash balance arrangement'. Does this mean it is also a defined benefit scheme? The reason for asking is that the credit account is worth around £50,000, and I need to know if it comes under the rules requiring independent financial advice. From reading your column, if it counts as a defined benefit, I think I am going to struggle to find anyone to give me the required advice. This risks leaving me with an annuity as my only option, which would drastically alter my plans. I really need access to drawdown to top up my income until I receive my state pension, at which point I will have enough for my needs in retirement. I am hoping I am not going to end up stuck in limbo. Kind regards, Dear Carole, The pension tax rules split pension schemes into categories based on the benefits they can provide. Cash balance pensions are classed as a type of defined contribution scheme. They differ from most other defined contribution schemes because the value of the end pot doesn't just depend on what is paid in (contributions) and investment returns. Instead, there is also usually a guaranteed sum at retirement. This could be a minimum pot value or a guaranteed amount built up each year. While a guarantee might make it sound like a defined benefit scheme – and many resources online incorrectly label cash balance schemes as defined benefit – they are treated as defined contribution or money purchase. Moving to the Barclays Afterwork scheme, the 'credit account' is the guaranteed element. According to my research, this would build up a guaranteed credit of 20pc of your pensionable salary each month if you contributed 3pc of your salary each month towards it. The scheme also applied inflation-linked increases each year to the value of the credit account up to a maximum of 5pc. The money paid into the credit account is managed by Barclays, together with the scheme trustees, to ensure you can benefit from the full guarantee at the scheme retirement age. As you've mentioned, Barclays Afterwork has a normal retirement age of 60, and it is currently closed to new entrants. You could also make additional contributions to the second section of the Afterwork scheme, known as the investment account. You picked how much extra to pay in (as a lump sum or regular contributions), and Barclays would match this up to 3pc of your pensionable salary. If you chose to pay into the investment account, you'd have chosen a fund for the cash to be invested into. This section would move up and down in value, depending only on how your chosen fund performed and how much was paid in. As you are already at the scheme's retirement age, the trustees should have set out your options and what you need to do to access your pension in the way you'd like to. Drawdown can only be paid from cash balance pensions and other money purchase schemes. That doesn't mean a scheme must offer a drawdown, but it is another difference between defined benefit schemes, which cannot offer a drawdown. If your scheme does not offer drawdown, you should be able to transfer the total account (both credit and investment sections) to a scheme that does. You can request confirmation of the transfer value from the Barclays Afterwork trustees. Now that you've reached retirement age, there should not be a difference between the total account value and transfer value. People transferring before reaching the age of 60 should take care, as an adjustment can often be applied to the credit account to reflect early retirement. When you must get advice You must get specialist financial advice to transfer, cash in, or convert a plan that contains 'safeguarded benefits' worth £30,000 or more. This includes converting these funds to provide a flexible income using drawdown. The definition of safeguarded benefits includes defined benefits (like your Barclays 1964 scheme) but also casts a wider net, including other pots with guaranteed minimum pensions and/or guaranteed annuity rates attached to them. The legal definition of safeguarded rights (which can be found in the Pension Schemes Act 2015) appears to specifically exclude cash balance arrangements. While there might not be a legal requirement to get advice, you can still engage a regulated adviser to help you find the best way to bridge your income between now and reaching state pension age. An adviser can help you understand which option is best for your individual circumstances, recommend a provider, and even recommend an investment strategy to help you support your withdrawals, should you decide to move forward with drawdown. There is plenty to double-check with the trustees of the Barclays Afterwork scheme here, but I'm really hopeful that you will not be left in limbo as you initially feared. With best wishes, - Charlene Charlene Young is a pensions and savings expert at online investment platform AJ Bell. Her columns should not be taken as advice or as a personal recommendation, but as a starting point for readers to undertake their own further research.
Globe and Mail
08-07-2025
- Business
- Globe and Mail
The real story behind pension plan membership in Canada? The gulf between public and private sectors
Last month, Statistics Canada released a report on the state of registered pension plans. It painted a reasonably positive story, stating that the number of Canadians who were active members of an RPP rose to 7.2 million in 2023, a 4.2-per-cent increase from the previous year. It went on to say that 'the proportion of all paid workers covered by an RPP was 37.7 per cent in 2023, up from 37.5 per cent in 2022.' With all due respect, this is like observing squirrels and moose in their natural habitat and concluding that the average height of forest animals is four feet. In reality, the vast gulf in pension coverage between the public sector and the private sector begs for a more detailed breakdown. The above chart shows how pension plan coverage in the public and private sectors has changed over time. It first reached 90 per cent of all public sector employees in 1992 and has hovered around that figure ever since. In 2024, the coverage rate was 87 per cent – 80 per cent covered by defined benefit plans and 7 per cent in defined contribution and hybrid plans. (DB pension plans are generally favoured since it is the employer who takes on all or most of the investment and longevity risk.) The private sector is a totally different story. Pension coverage has never been high – it peaked in 1982 at 32 per cent – and has gradually fallen over time to the current level of 20 per cent. Moreover, most of the private-sector employees who are covered by a registered pension plan are in a DC plan in which the average employer contribution rate is about 5 per cent of pay and employees bear all the risk. A DC plan is similar in its risk characteristics to an RRSP. Based on Statscan figures, 8.2 per cent of private-sector employees are covered by a DB plan – but that might be an overstatement. A significant number participate in multiemployer pension plans or target benefit plans, which both have the appearance of being DB plans but are in fact DC plans since the contribution rate is fixed. Canada's retirement income system is often likened to a three-legged stool. One leg is government sponsored programs (CPP/QPP, OAS and GIS), the second is individual responsibility (RRSPs and TFSAs) and the third is workplace pension plans. Based on the chart, it is difficult to conclude that the third leg is working well. And change is difficult when those responsible for it are covered by pension plans already – generous ones at that. A more open recognition by governments of the current state of affairs might be the first step toward reaching a more equitable solution. Frederick Vettese is former chief actuary of Morneau Shepell and author of the PERC retirement calculator (
Telegraph
17-06-2025
- Business
- Telegraph
What is pension clawback, and is your retirement at risk?
Pension clawback is an outdated feature that's still embedded in some final salary pension schemes, which could see your retirement income cut once you reach state pension age. Clawback has become controversial. Over the years it has taken people by surprise and negatively affected their retirement plans. Women have been hit particularly hard by the rules. Over the years, many final salary schemes, also known as defined benefit schemes, which guarantee a set income for life, have changed their rules or phased out pension clawback, choosing to either cap it or scrap it. But there are still some that are affected. Here, Telegraph Money explains what pension clawback is, what impact it can have, and what you can do about it. What is pension clawback? How is pension clawback calculated? What impact could pension clawback have on my savings? What can I do about pension clawback? Will the Government abolish pension clawback? What is pension clawback? Pension clawback, which can also be referred to as 'pension integration' or 'bridging pension', is an outdated feature of some defined benefit workplace schemes. It dates back to 1948, when the state pension was first introduced and linked to defined benefit schemes. Clawback aimed to prevent individuals or schemes from overpaying on pension contributions, on the assumption that the state pension would top up the retiree's income, enabling the employer to offset some National Insurance costs. The state pension and defined benefit schemes are no longer linked, and these 'National Insurance modification' rules were abolished in 1980, but some work schemes are still designed around them. Lisa Picardo, from PensionBee, said: 'When an employee reaches the state pension age, this practice allows employers to 'claw back' some of the pension contributions made.' This penalty cuts the workplace pension based on the assumption your state pension will 'top-up' the shortfall. Ms Picardo added: 'The problem is, this can result in an unexpected noticeable drop in income just as someone reaches a milestone they've been working towards their whole working lives.' How is pension clawback calculated? Pension clawback is taken as a fixed cash amount, calculated based on your years of service linked to the affected pension scheme, when you reach or have reached state pension age. This means that employees who have worked for the same number of years can have the same amount of money deducted from their pension payout, even though they did very different jobs and earned very different amounts. This is in contrast to other types of pension fees, which are often charged as a percentage of your pot. Who is affected? Anyone with a defined benefit pension that includes these rules can be affected by pension clawback. However, some will notice the effects more keenly – as pension clawback deducted from the pension is a fixed cash amount, it disproportionately affects those with smaller pension pots and lower pension incomes. Women, early retirees and lower-paid workers are often the hardest hit.
Daily Mail
09-06-2025
- Business
- Daily Mail
Is YOUR pension safe? Concerns over new law letting companies take 'surpluses' from schemes relied on by nine million Brits
Concerns have been raised over plans to let firms take profits from pension funds used by around nine million Brits. Proposed changes to 'defined benefit' schemes would mean that 'surplus' cash can be extracted for profit or re-investment. The government argues the move will free up £11.2billion over the next decade that would be partly shared with members. It would also provide a £.28billion windfall for the Treasury, as the drawdown would be taxable. However, the impact assessment for the Pensions Bill acknowledged that the overhaul removes a 'cushion' and might make it more likely schemes will 'struggle'. DB pensions - such as final salary and career average arrangements - have diminished in the private sector since the 1980s. They have been replaced largely by 'defined contribution' schemes, where the individual and employer pays into a specific 'pot' to fund retirement. The Pensions Bill impact assessment said: 'If schemes choose to modify their rules to enable surplus extraction, this adds an indirect cost to members in terms of the increased likelihood of members not receiving their pension benefits in full. 'A scheme surplus can act as a financial cushion for members, to absorb unexpected costs or investment losses for the scheme. 'Without this cushion, the scheme may be more likely to struggle to meet its obligations to members, especially in times of financial stress or economic shocks.' The document stressed that schemes would be required to meet conditions to extract a surplus, in order to 'protect members'. As a result the risk of members not receiving benefits in full was seen as 'very low'. 'For employers with a weak covenant, accessing a surplus may improve the employer financial position but may risk the pension scheme becoming underfunded,' the assessment said. 'If sponsoring employers of underfunded schemes were to also become insolvent, these schemes may then transfer into the PPF, increasing its liabilities and may mean members potentially losing out. 'Overall, it is assumed this increased likelihood of members not receiving their benefits in full to be very low given the important role trustees will play in overseeing any decision.' The Pension Security Alliance (PSA), which includes campaigning group Silver Voices, told the Telegraph: 'It's shocking to learn that civil servants have told ministers that if these plans go ahead, some pension schemes could struggle to meet their obligations to pay pensions.' Steve Webb, partner at pension consultants LCP, said: 'There really is a lot of 'surplus' money locked up in these schemes, over and above what is needed to comfortably pay the pensions. 'If done responsibly, some of this money can be used to boost the pensions of people in these schemes (eg give them better inflation protection) and boost the position of British business (who have paid in the lion's share of the money). 'Note that companies cannot simply dip in to the fund - this all has to be agreed with the trustees who are there to look after the interests of members.'
Telegraph
05-06-2025
- Business
- Telegraph
Teachers' gold-plated pensions are about to be exposed as a Ponzi scheme
The Teachers' Pension Scheme is the second-largest of the 'unfunded' public sector pension schemes, behind the NHS. Like all the gold-plated public sector pensions, it offers a guaranteed, fully index-linked 'defined benefit' pension. Like all the other unfunded schemes, there is no pot of money funding it – the money contributed towards these pensions over the years has been spent, not saved. Spent, by the way, on anything the Government of the day fancied at the time. In essence, there is a raid every year on these funds – just like Robert Maxwell did when he illegally plundered the Mirror Group's staff pension fund. But when the Government does it, it's entirely legal because it makes the rules. You might imagine that, seeing as there is no fund, the Government would not bother to calculate what they should have put in it. But there is a whole industry devoted to just this – charging public sector employees and employers for the fund-that-never-was. All paid for ultimately by the Government itself, which means you and me. Except in the case of the Teachers' Pension Scheme, taxpayers aren't the only ones funding it. Private schools are also eligible to enrol their teachers on the state-backed scheme.
