Sleight of Hand Tricks

Note to all – read the small print!

I guess what I’m trying to say is that it doesn’t look like there’s a lot we can do about the bad news we received about our company pensions, although we are going to try…! 🙁

Background

The company I work for suffered massively during the crash of 2008 – so badly that it had to be partially bailed out by Warren Buffet, no less. Yes, really.
 
There was the subsequent massive cost-cutting/culling exercise of people over the next couple of years (we lost over 100 people in our office alone, essentially a third of the workforce).
 
The cost cutting continued for another year or so (my job was at risk twice but I managed to escape the axe both times) and then in 2011, the defined benefit (DB) pension was withdrawn for all new starters and everyone who was on the existing DB plan had to increase contributions from 5% to 9%.
 
This caused great uproar for everyone, in particular for the people who were on the ‘golden’ non-contributory DB pensions as they were going from zero contribution to 9%.
 
The company started to recover, went back into profit and then into growth mode. After a few years of zero wage rises and non-existent recruitment, we started to enjoy both – it’s been good times for us recently.
 
And so we continued merrily until the announcement in April 2015 that our parent company planned to sell us – we definitely didn’t see that one coming!

 

Today

Anyway, fast forward 6 months and with just weeks to go before the sale date, HR drop the bombshell about the 8% per year penalty for people taking their DB pensions early and the change of normal retirement age from 60 to 65.

This came as a massive shock to everyone – most people knew that once we were sold, our pensions would be frozen but nobody knew that we would suffer such penalties.

Our lawyer and senior leadership team immediately got on the case but in vain, it appears.
The info has been in front of us all this time, or rather, in the pension details which you could download from the company website since 2011 – the same time as when they changed contributions from 5% to 9%.
While everyone was distracted by the immediate and direct change to their monthly salary, it looks like NO ONE noticed that changes had also been made simultaneously to the early retirement rule for deferred pensions (which is what ours become after the sale), ie increasing NRA from 60 to 65. This change was not highlighted by HR. There’s nothing in the blurb about 8%, only that a ‘figure’ is set by the pension trustees and HR told us recently that this was 8%…

Sleight of hand tricksters couldn’t have done a better job of misdirection! Perhaps it wasn’t intentional (ahem), but it was rather sneaky of the company to do this although legally, they have done nothing wrong, it was there for everyone to see.

There is now only really the Ombudsman or grievance route for us to take now, to challenge what we believe to be utterly unfair penalties but I’m not holding my breath. Still, better to try something than do nothing.  We are however contesting this rather passively (ie by formal letter/signed petition), compared to someone from our Spanish office who hung up a massive banner across a motorway bridge to shout out their grievance!

Morale around the office is as low as I’ve ever seen it – if I wasn’t so busy, I’d get dragged down by it all too.

Interestingly enough, there have been a flurry of recent announcements of very senior personnel taking their retirements early after ‘long and illustrious’ careers – I guess they’ve only just read the small print too in their pension agreements and realised that they’d better get out now on the full benefits while they can!

Change to my Ultimate Goal?

I had a one-to-one with the pension providers and have been advised of what my DB pension will pay out, now that I will no longer be making contributions. Since I hadn’t planned on taking my DB until age 65, I had previously thought that there wouldn’t be much impact.

I was wrong – there is a significant difference! I will need to do some more calculations on my spreadsheets as it’s obvious my original £250k FI goal is now no longer going to be sufficient. I was planning on reviewing it anyway, as there have been some changes to my investments since I originally set it, plus there were lots of things I hadn’t considered (or wasn’t aware of) but I really do need to look at the numbers properly again. Back to the drawing board…

Not long to ‘D-Day’ and there are still so many unanswered questions.

I’m just going to roll with whatever happens….

A Bit of Good News

I don’t like these doom and gloom posts and I especially don’t want to turn into a grumpy old git (or whatever the female equivalent is!) before my time, so I’m ending on a slightly happier note.

Despite what’s been going on at work, I’ve had my head down as I’ve still had deadlines to meet and projects to complete. I even did a bit of unpaid overtime to get the work done. Couldn’t let myself get distracted by what was going on, otherwise I’d lose all motivation to work, like some people have already.

The first bit of good news is that my hard work was noticed and appreciated, (not by my boss incidentally but by the project manager I was helping) and I’ve been given a small award (I had a choice between John Lewis or Amazon vouchers – I chose the latter).

One of my friends at work, upon congratulating me asked, “So what are you getting to treat yourself? Don’t tell me you’re going to use them for buying Christmas presents!?”

Actually, that’s precisely what I have in mind for them, to help reduce my Christmas shopping expenses!

I had a quick browse through Amazon and ended up buying one item – a copy of ‘Millionaire Next Door’! The rest I will save for Christmas shopping.

The other news is that in November, I’ll be working 4-day weeks as all holidays have to be used up before the end of the year. Suits me fine!

Anyway on that note, have a good weekend all – I’m out on the razz for the first time in weeks for some much needed laughter and alcohol therapy! 🙂

30 thoughts on “Sleight of Hand Tricks

  1. Booo! I feared the worst when I read the earlier post I have to say. You just knew they would have covered their backs or they wouldn't be doing it. Whoever reads all the small print?!

    This is quite worrying as our pensions are just changing right now. I guess you just have to trust them as I'm not a bloody pensions lawyer?! Talk about being at the mercy of the corporation eh.

    Anyway I still cross my fingers that something may come out of it for your lot and glad that you are still knuckling down and got some vouchers for your efforts.

    Enjoy the weekend and blowing off some steam, you certainly deserve it!

  2. Weenie, I have been reading your blog and others on the subject of early retirement for a good few weeks now. I am definitely depressed on your behalf after reading this post. But reading some of your posts, you sound like a very determined person. You will get there – so hang on tight! They changed the rules to my pension last year and it's worth has been eroded somewhat. It doesn't effect me to much, (hopefully) as I intend to be 'semi retired' at least in about three years when I'm sixty. The whole pension and retirement thing is a bombshell waiting to happen. I think my generation is riding on the cusp of the last wave of any kind of descent retirement. I talk to people 10 years and younger then me and many are to busy trying pay the rent, rather then worrying about a pension. The only thing that the state pension will be good for is paying the rent itself. Not much point though, if when your seventy and you cant heat the house you rent or afford to eat.

    Keith.

  3. Hi Weenie, this doesn't seem good. As you indicate, the more information you have, the more calculations you can make, the better decisions you might be able to take. On the other hand, it all begins to seem incredibly complicated too – what does the future hold? The simple advice would be to just keep saving and investing as much as you are comfortable with, spread the risk and you've an immeasurably better chance than most of protecting yourself financially in the future.
    P.S. Just watch what you post. I know from experience that companies do NOT like their affairs being discussed on the web in any way, shape or form. Be careful out there.

  4. Oh man! That stinks!!!! I'm feeling much better about our government run pension scheme now! We had one policy with FidelityLife that we have stopped contributions to so we can fund the government scheme (KiwiSaver) that has employer and government contributions. I hope your fun weekend takes the edge off the frustration 🙂

  5. Hi Weenie. Thanks for update. Before I "start", as a fellow DB Pension recipient, we are fortunate enough to receive pensions which the generations behind us never will, so I'm eternally grateful for whatever remains of mine over the next 10-20 years. However, when you've got 6 numbers and the bonus ball and someone says "Sorry, we've just changed the rules", it makes financial planning double hard. I'm working on your scenario with my own private sector DB pension, before it's actually happened, because it will.

    Because you've paid into a DB pension for 20(?) years, our current governments "small print" is you'll face deductions from your State Pension (1 35th for every year of not paying full NI). So that's another set back a lot of people face. I've written off the State Pension completely, as I think it will be even more heavily means tested when we finally get there. The opportunity for a golden retirement from the magic money tree is for the generation above us.

    However, good news (!) in FI world we're not sleepwalking into anything. Knowledge is power etc, You're a determined FI'er, we all are, so I'm sure you're armed with some new spreadsheets and re-writing figures to get where you need to be on target. I don't believe it's for the government or our employer to dictate when we retire, or have us at their mercy, we decide that ourselves. Fight the power! 😉

  6. Are they really saying that the NRA of contributions pre-2011 is retrospectively hiked to 65 from 60?

    Else you have to make the computation separately for accrual pre-2011 and accrual post-2011

    Sadly the actuarial reduction can be whatever they decide, but changing the NRA for accrual before the 2011 change doesn't sound right to me

  7. Hi weenie,

    I'm sorry that it seems that your worst fears regarding your pension look as if they are going to be realised. So much for being able to rely on employers doing the "right" thing. You all worked hard and pulled the company out of the doldrums and this is how they reward you. They deserve all the detrimental effects of poor employee morale that they'll no doubt get!

    I agree with all the other comments though – you've got determination and "can do" knowledge on your side so this is just a small setback. Onwards and upwards. 🙂

  8. Hi Tawcan, yes I think I need to crunch out the numbers again – I have a lot more info and at least have a year's worth of savings/investments with which to adjust my plans, which I had previously done from scratch and may not have been the most accurate!

    Yep, looking forward to the 4-day weeks, in fact, I have one next week too! 🙂

  9. Hi Clare
    I have included government state pension in my calculations but have been very conservative as I don't know really what will be paid out (eg might even be means tested etc) by the time I reach normal pension age.

    Thanks for stopping by and yes, I've had a fun weekend, just getting over my hangover now!

  10. Hi Jim
    My original FI plan was really basic and included a lot of assumptions. I suppose now is as good a time as any to review it, since I have savings/investments data to work with and also know a bit more about what I need to be doing.

    I don't want to slag off the company I work for and I hope I haven't come across as bitter, since I've enjoyed mostly good years working for them, including some great years too. I'll not be saying any more of this in detail, aside from whether anything comes from our letter/petition or not.

  11. Hi Keith

    Thanks for your kind comments. I'm a little down on this right now but I won't be for long as I know I will get over it and move on – I just need to review my plan, which also includes amending my investment strategy slightly.

    Good luck to you being semi-retired in 3 years. I think there is more to come regarding pensions – who's to say that the recent changes won't change massively again in a few years time?

    Thanks for stopping by and reading – much appreciated!

  12. Hey Starla

    Yes, I know that I am extremely lucky to have been on a DB scheme, hence I will get over this disappointment and move on, especially once I find out what New Co's DC pension scheme is so I can factor that into my plans.

    I didn't know about the reduction re state pension for DB pension holders. I've included the state pension in my plans as around £5k per annum max, which I can get at age 67.

    The change to my DB pension does mess up my plans but you're right, I will just go back to my spreadsheets and work out how I can include this change in my plans. I need to just accept that my plan needs to be flexible to take into account such 'set-backs', adapt and move on!

    Thanks for your kind words and support!

  13. Thanks Cerridwen – definitely onwards and upwards! I did say previously that I wasn't as upset as some others at work because at least I have a plan, many obviously do not – their DB pension was their be all and end all. Let's see what happens if anything comes from the letter/petition but I'm not really holding out for anything.

  14. Hi Ermine

    Yes, that is what they are saying. I agree, it doesn't sound right but it looks like once we get into 'deferred pension' status, this change applies. It doesn't apply to the people who stay as 'active pension' members – their NRA stays at 60.

  15. When companies we have shares in raise margins and cut costs we applaud their management for looking after us shareholders

    This is an example of exactly how companies cut costs and improve efficiency

    Its pretty difficult to actually argue its unfair as every employee taken on after 2011 was getting maybe 25-33% of the company pension contribution that people in the final salary scheme enjoyed for doing the same roles

  16. Hi Weenie,

    Sorry to hear that news, they really did try and make sure people would focus on the obvious and not read the small print – not good news! Hopefully they DB pension will still provide at least a good level of income, and on the plus side if you assumed that you wouldnt touch it until 65 that will help!
    Good luck on the number crunching, and hope it doesn't impact things too heavily for you! For what its worth – I factor in zero state pension to my calculations full stop, so if when I retire I get anything, itll pay for holidays 🙂
    London Rob

  17. Hi Weenie,
    Yet another example of how being sold by your parent company can be de-moralising. At least you know that you have been sold to a competitor. This will not prevent job losses but it is a better prospect that being sold to a 'Private Equity' asset stripper who rips the company apart.
    I try to work all my figures excluding my pension and work my FI without them. I assume that with their age related access limitations, they will be difficult to access as they keep being pushed back and have assumed I cannot access anything to at least my NRA. If I can get to them sooner, then they will be a bonus.
    Keep up the number crunching and the hard work, you are a determined FI seeker. Good luck!

  18. I hate this open "actuarial reduction" fee. They can charge whatever they want and there is no way you can complain and say it is unreasonable! The pension system with these 'unknown' charging structures is wrong. The charges should be clear and any changes made should be notified – as per bank savings and other accounts…

  19. This is the gap that everyone seems to fall into if the company you work for is sold off by the parent. You are OK if you are working in the bit that remains the parent. But if you are in the bit that is sold off, you become deferred or as I was – kicked out of the pension scheme as I hadn't been in the scheme long enough to retain the account – so ended up with just a proportion of its value back (or if I had done nothing, my contributions only!).
    Any they wonder why people are skeptical about pensions ….because they can change the rules without any real come back.

  20. Hi sparklebee
    That's terrible that you were just kicked out of your pension scheme! Yes, at work, as we still mingle with colleagues who are staying with the parent, it's almost become a 'them' and 'us' situation, with 'them' obviously being very quiet as they are still in with all their benefits.

    I agree that the charges should be clear and that changes should have been highlighted and notified, not hidden in a load of blurb. This was one of the things which we flagged in our letter/petition but well, we'll see what happens, eh?

  21. Hi London Rob
    Yes, I have to say that for all my moaning, the DB pension should provide me with a good level of income, certainly a lot bigger than any annuity I would have gotten on my own. And yes, I'm glad I was mistaken and hadn't planned on taking it at 65 anyway!

    I've done some initial number crunching and it doesn't look as bad as I initially thought. I hear what you're saying with the zero state pension and that is a great idea! However if I don't factor in some state pension, with the time frame I'm working with, it'll be virtually impossible for me to accumulate enough wealth in that time. However, I will continue to review and flex my plans. Not counting on state pension would be great though! Thanks for stopping by.

  22. Hi Neverland
    Thanks for pointing that out – I hadn't thought of it in that way, and of course, if I were a shareholder, I too would be applauding such great cost cutting and efficiency.

    As Starla and Sparklebee have pointed out, I am very lucky to have been on such a pension scheme in the first place and yes, things are unfair for those who joined after 2011. We have a very low turnover of staff however, over 60% are in the DB scheme.

    Thanks for stopping by.

  23. Hi Sparklebee

    You are right – being sold to a competitor is not a bad thing, especially as their customer book is slightly different from ours so we have some expertise which they don't have. We've been told it's all going as a 'going concern'. In the back of my mind, I'm actually a little excited that there will be change. It's just little things regarding stuff like holidays, benefits and pensions which no one knows anything about and this is what is getting people a bit restless.

    I hear what you're saying re having your figures excluding your pension – I've now come to the conclusion that I will be putting the bulk of my money in my ISA and other non-pension related investments so that I can get to them if age criteria shifts again.

    As I mentioned to London Rob, I've started some number crunching and it doesn't look as bad as I thought, in fact, I can perhaps turn this into something a little more positive!

    Thanks very much for stopping by and for your support.

  24. Hi Weenie,

    Glad to hear that after a bit of number crunching it isnt looking too bad (always a worry!). Good luck continuing the push for the fund target! I admit i have a few years (although then it wont really be that early retirement!) to build up the savings, but I am naturally pessimistic so hence I assume no state pension – it forces me to save harder now 🙂

  25. I've been sceptical of how long our company would continue it's DB pension, too many older colleagues getting made redundant and handed their full pension in their low 50s. From then being at the start of my working life I knew this was a factor of working life that I wouldn't benefit from 30-40 years later, plus I'm in an industry where yearly restructures are common place (amazed I've lasted so long), this was the trigger to taking the FI road. Leading upto them locking down the DB pension a few years ago and us being added to DC they did the common changes to the DB pension like closing to new starters, for existing age 60 to 65, final salary to career average, rpi increases to cpi. Main frustration I had was DB for easy to understand and future plan against, with my DC I've no idea what ballpark the final pot could be in my mid 60s, at the moment it's below the amount of contributions added (early days though).

    I'm on same line as sparklebeeblog, I separate any DB/DC/State pensions from my FI tracking, mainly as I don't plan to take them till their due dates through my 60s and I'm not expecting DC/state elements to add that much to the pot. I want to track against what I have the most control with and that I feel can be more realistically projected forward on.

  26. Agree and agree Sparklebee. However, I do think us Generation X'ers have got a rough deal in terms of promises not meeting expectations. If you're walking out of Uni now you know you're getting a limited/£0 state pension and no DB pension, grim as it is, you can plan from the off. If you're the Boomers above us, you've got paid out nicely (usual exceptions to the rule acknowledged). Our generation is slap in the middle, with goalposts moving all over the place. So agreeing again, with your comment down page from here, pensions need to be parked until their NRA and other income streams we have more control over put in their place :/

  27. Hi Anon

    I agree that the beauty of the DB was that it was so easy to understand but even now, I'm starting to doubt the numbers as 'guaranteed'.

    As mentioned before, I consider myself very lucky to have been on a DB scheme at all and whilst a DC scheme is not as good, it's better than nothing and I intend to invest in the scheme provided by our new owners.

    In my FI calculations, I've taken into account my DB pension only from when I was due to start taking it, ie at 65. I'm not intending to factor anything in for my DC pension, although I think I'll include it in my net worth calculation.

    Thanks for stopping by and good luck with your own FI journey!

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