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"Only thing I didn’t understand was my 25% tax free wasn’t 25% the quote was about 16% but was told final salary is different."
DC Pension scheme members are allowed to take the full amount in cash, as well as other drawdown options, so the 25% tax free allowance is built into the product rules and tax law. You can't cash in a DB pension, you can only transfer it to an alternative scheme, and I believe the law allows a 25% tax free lump sum, but most DB scheme rules don't allow that. I've got two DB pensions, due to start paying out later this year, as well as a DC pension that I view as surplus to requirement. I intend to put the DC Pension into Drawdown, taking the full 25% lump sum as part of the first payment, and drawdown the rest the following year, or in yearly payments. I consider myself in good health, so I don't currently anticipate taking lump sums on my DB pensions, since I'm approaching 60 and not 65, and may have a lot of fuel left in the tank lol. I'm looking at my DB pensions as a safety net, as they'll pay out irrespective of stock market performance. Either way it's a gamble, since I haven't got a crystal ball, so I'm taking the chance that I'll live a long time. Everyone's circumstances are different, so it's a game of possibilities and probabilities.
Lion, yes when I left your pension lump sum was tax free, I believe it is still the same now when you take it, as BTPS section A,B,C earned up to 2010 is final salary. After that date it became, an average of your earnings after that. There was a limit on the lump sum for the final salary but it was around 100k after that I believe there was an increase in your annual pension instead.
“Some will be near 6 figure lump sum...how much are these guys on?”
Actually, that doesn’t sound too great to me. By my reckoning the 80s started 40 years ago so they’ve paid an awful lot in and if these guys are taking 25% of their pension as a lump that means that what’s left in their pot is hardly going to pay out a king’s ransom each month.
I get that it’s going to be better than most in ‘private sector’ (I run my own business and wouldn’t be able to find rate of return like the BT guys can look forward to) but in the public sector I’m not so sure it’s ‘exceptional’.
I understand the logic of your comments, I just wonder if a relatively short term high payments situation could be seen as negatively impacting the scheme by some parties. I have to say when I left we wee given independent advice on our pension and the basic advice was to go for the largest lump sum as you could decide how to use it, unless your circumstances were such that a high monthly income was better. It is an each to there own…
GLA for Thursday…
"Yes some will be near six figures if they take the option for the largest lump sum with the lowest annual pension. There are several combinations, smaller lump and highest annual pension through part fixed pension and part increasing pension."
Say 10,000 people leave and all take lump sum payments of £100,000 The immediate impact on the pensions scheme would be:
Assets - £1 Billion
Liabilities - £1 Billion
Deficit/Surplus Unchanged
The individuals who decide to take a large lump sum, will see a big cut in their income going forward, with the spouses pension likely remaining the same, where applicable. Since the scheme will see reduced benefits payed in future years, the asset/Liability balance will likely see a bigger reduction in the deficit. I suspect BT would prefer the majority of retirees to take large lump sums.
Yes some will be near six figures if they take the option for the largest lump sum with the lowest annual pension. There are several combinations, smaller lump and highest annual pension through part fixed pension and part increasing pension. Remember this was part of the old Post office pension and some members would have been paying into that for almost 30 years then into a career average pension for the latter part of there service. People joining in the early eighties would have retired at 60 on near half pay, until the rules were changed that moved the normal retirement age for the scheme increased to 65. When the changes came in around 2010 most members would need to work an extra 2-3 years after 60 to get what they would have got originally at 60. A c3 engineer is on around £40k and these are the people that have been encouraged to leave over the last few years. Yes it is a very good pension, but it was drawn up over 40 years ago, much like the good pensions that older members of say, the police or firefighters used to be offered back then. A job for life and a good pension. But the world has moved on, and we will not see this again. I still wonder if it could have a short term impact with members taking it early and living longer than expected 10 or 20 years ago. We will see in a few years…
"Some will already be near to doing so and as they have been with BT since the early eighties will be possibly taking around a six figure lump sum."
Six figure lump sum, how much are these guys on?
It doesn't matter how much lump sum they take, as it will subtract equally from the liabilities and assets, so will have zero impact on the deficit for that year. It may even reduce liabilities, going forward, if lots of members take large lump sums.
Oils ??? Should be, Will.
Hopefully the deficit will reduce perhaps by the amounts being talked about in recent days. One thing to consider is that there will be a lot of members leaving BT in the next year of so under a scheme that allows them to set a date in the future to leave under a redundancy package. Some will already be near to doing so and as they have been with BT since the early eighties will be possibly taking around a six figure lump sum. So this may well impact on the schemes finances over the next 2-3 years as they will be drawing there lump sums sooner than expected. The BTPS pension age is 65 but many will be leaving in a short period of time before reaching 65 with only a relatively small reduction in there benefits, I believe at present it is 6% per year early so many will only be reducing there full benefits by around 10-15%. It will be interesting to see how this impacts on the deficit at the next review in 2024, oils it rise again? in 2024…
"BT’s pension deficit is forecast to come in at £7.5bn, around £2.2bn lower than the market previously anticipated"
Yet again £7.5bn mentioned, but that figure would be an inflated one decided by the Trustees, not based on IAS 19 alone imo.
It probably will be £7.5bn, since the Telegraph seem to have an uncanny knack of getting these figures right, but i repeat it should ne lower than that in my unprofessional opinion. The Telegraph probably have contacts giving them a heads up on these things, we'll find out on Thursday.
https://www.telegraph.co.uk/business/2021/05/10/bt-pensions-hole-narrow-extra-cash-full-fibre-rollout/
There’s a couple of graphs in there too.
Cont.......
Amid the dawning realisation that defined benefit pension schemes were becoming too expensive for many companies to control, BT took action to rein in the costs.
The scheme was closed to new members in 2001 and to future accrual seventeen years later.
As ultra-low interest rates have become a mainstay of the economic landscape, the pension scheme’s deficit has ballooned from £4.1bn in 2011 to £11.3bn in 2017.
The liabilities now stand at more than £54bn – nearly four times BT’s market value of £16bn – with the company agreeing to make annual top-up payments of around £900m a year until 2030.
With the prospect of even higher payments down the line, BT opened talks last year over offering the scheme a stake in its network Openreach.
Such a move would prevent a further drain on its cash and stop it from taking on more debt at a time when it needs the financial firepower to invest in upgrading broadband.
But now the pension deficit is poised to be smaller than expected, such steps may no longer be needed.
Speaking at an event hosted by the investment bank Jefferies in March, pensions consultant John Ralfe said pledging a stake in Openreach may not work, or even be necessary. “The idea of asset-backed contributions, structuring Openreach to put into the pension scheme directly in some way, just seems to me, a red herring, and I can’t see it working.”
But how much flexibility could the pension scheme offer Jansen? Without the need to pump even more money in soon, he can afford to be more canny with BT’s cash.
Carl Murdock-Smith, the Berenberg analyst, said: “When it comes to the pension deficit, if you put in money now you get a 19pc tax shield, but if you put in money from 2023 onwards you get a 25pc tax shield because the corporate tax rate is going up.
“I would want to minimise how much I am paying into that pension deficit right now because if I put that money into networks instead I get a tax boost from the super deduction.”
With greater certainty over the direction of the pension scheme, the telecoms operator can concentrate more fully on its full-fibre challenge.
If Thursday brings a bolder broadband push and a settled pension picture, then BT may start to write the kind of compelling investment story that even Curtis would be proud of.
Richard Curtis was waxing lyrical. When the UK's biggest corporate pension scheme unveiled a carbon-busting plan last October, the screenwriter behind Love Actually and Notting Hill was gushing with praise.
The BT Pension Scheme controlling £57bn worth of assets was pledging to reach net-zero carbon emissions within 15 years as it focused on green investments. Curtis – the co-founder of ethical pension investment group Make My Money Matter – described the move as “extraordinary”.
“The savings of 300,000 people … are now committed to net zero by 2035,” he added. “This is 15 years earlier than some of the most ambitious pension plans we’ve seen so far.”
The pension scheme’s powerful influence is not lost on BT boss Philip Jansen. With about £2.5bn paid out to about 200,000 retired workers each year, huge financial commitments are needed from BT to keep the fund in check. Such payments do not sit comfortably when the telecoms operator is struggling for growth and facing pressure from ministers to upgrade the nation’s broadband network.
Yet BT is in line for some relief.
Come Thursday pressure from the fund is expected to ease when the outcome of the new triennial review is announced alongside full-year results.
BT’s pension deficit is forecast to come in at £7.5bn, around £2.2bn lower than the market previously anticipated. It is welcome news for Jansen, who is preparing to accelerate BT’s investment beyond a target of 20m homes and businesses by the mid-to-late 2020s.
The Telegraph understands BT is now expected to publish more ambitious targets for its broadband rollout this week, including for the most remote parts of the country,
After securing certainty over broadband pricing and preparing the sale of BT Sport, Jansen is now bringing the pension fund to heel.
Controlling the colossal fund has certainly proven a thorny issue.
The scheme dates back to 1969 when telecoms services were provided by the Post Office, with the foundations of the fund coming 14 years later when the staff superannuation scheme was created.
Ministers agreed to hand the pension scheme a crown guarantee by the time BT was privatised in 1984, meaning ongoing contribution obligations would be met by the Government if BT went bust.
Such was the confidence in the 1990s that the company stopped making contributions altogether.
BT could ill-afford such a lackadaisical attitude in recent years.