Just how safe is my frozen company pension?

This is a question many expatriates have been asking themselves in recent months in the wake of the publicity given to some fairly high profile cases where company pension schemes have been wound up and there have been inadequate funds available to meet all the pension requirements of members.

The whole pension crisis was highlighted again last month firstly with the collapse of Rover - a massive hole in their pension fund was one of the major reasons SAIC decided to pull out of the rescue deal and then by its occurrence as a major issue in the election race.

On top of this, there were also the two cases of the steelworkers at Allied Steel & Wire and the former employees of a British company acquired by the Danish shipping giant Maersk. These are just the latest of countless companies, large and small, to announce such problems.

In both instances - and for different reasons - some scheme members face the possibility of losing 50% or more of their pension benefits.

The Government's Green Paper 'Simplicity, Security and Choice' acknowledges there are problems attached to the existing arrangements for scheme wind-ups and puts forward a number of options for discussion.

However, no firm decisions have been made and the lack of clear progress in this area is a source of frustration for the people directly involved – along with many others who are becoming increasingly worried at stories they hear about lost pension rights and the resulting distress and hardship.

Surprisingly (or not), it is not just those with frozen company pensions that need to worry. There are over 600,000 in UK civil service pension schemes; these include current and previous teachers and NHS staff, civil service, armed forces, police and fire service staff and numerous other smaller scheme members, including some for the devolved administrations.

The latest report by leading actuarial firm Watson Wyatt has revealed that the hole in the civil service pension fund could be as large as £580 Billion.

Many public sector pension schemes are unfunded, and operate on a pay-as-you-go basis. This means any liability that cannot be covered with increased contributions from members has to be paid for through general taxation.

Actuary firm Lane, Clark and Peacock recently estimated the cost of increasing life expectancy alone would add an extra £50bn over the next 30 years to public sector pension funds! It is unlikely the general public are going to be prepared to pay for this.

Likewise, it is not just in the UK that there is a 'pensions' crisis'. Just this past week, President Bush announced the nation on prime-time television to inform them that the US pensions system was heading towards bankruptcy. In the US, like the UK, Europe and Australia, people are being strongly urged to make provision for their own retirement, as they can no longer rely on the state.

So how can you protect your existing frozen pensions?

The answer is actually quite simple. Expatriates are in a privileged position in that they can transfer their current frozen pensions into an actively managed personal pension fund. Apart from getting your frozen pension(s) away from your previous employer, and therefore eliminating the possibility of the benefits being lost if the scheme is wound up, there are numerous benefits to pension transfers. These include:

• You can consolidate several smaller frozen pensions by transferring them to one personal pension provider.

• The charges on a personal pension are often lower than the employers` old-fashion highly charged group pension scheme.

• The pension fund can be actively managed to ensure you are receiving returns related to the markets rather than fixed deposit rates.

• The tax-free lump sum can be maximised

• For larger pensions, benefits can be transferred to a SIPP - which has even more benefits.

• To analyse whether it is in your interests to move your pension(s) is equally as simple and the impartial transfer analysis is free of charge, without obligation and only takes 5 minutes to request.

Candour use Scottish Life to perform the transfer analysis as they have the most competitive pension policy of all the companies who provide this service. 

We write to the current pension providers and request a current valuation and illustration of what benefits you are likely to get back at your selected retirement date. This is then passed on to Scottish Life who calculate what the retirement benefits would be if you transferred each plan to their scheme. This process is free of charge, without obligation and monitored by the UK Pensions Office for impartiality.
 
If it is then in your favour to transfer the pensions and consolidate them into one policy then it is just a case of instructing Scottish Life to request a transfer of funds from the existing pension providers. At this point, it is possible to change the selected retirement age (if desired) and maximise your tax-free lump sum.

Candour Consultancy also advise on regular contribution pension plans to enhance you existing pension arrangements.