Out of Sight, Out of Your Mind

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I know many who, once they leave an employer, file any details regarding that employer’s pension scheme in a box not to be reviewed again until they reach age 65. This is probably even truer for expatriates; out of sight out of mind and all that.

However two stories caught my attention in the past couple of weeks that illustrate perfectly what a flawed strategy this may be.

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Out of Sight, Out of Your Mind

  1. 1. Out of Sight, Out of Your Mind Thursday 1st August 2013 I know many who, once they leave an employer, file any details regarding that employer’s pension scheme in a box not to be reviewed again until they reach age 65. This is probably even truer for expatriates; out of sight out of mind and all that. However two stories caught my attention in the past couple of weeks that illustrate perfectly what a flawed strategy this may be. Firstly, more than 3,000 former miners will see their pension entitlement slashed by 10% as part of a rescue deal for UK Coal. Last year’s restructuring was supposed to have put the miner back on track. However, as a result of a major fire at one of its biggest pits, UK Coal will instead enter administration. This has meant the UK’s pension safety net, the Pension Protection Fund, taking control of the company’s pension scheme, including its GBP543 million liability and has led to the haircut for pensioners. The second story concerns the transfer of music company EMI’s GBP1.5 billion final salary pension scheme from Citigroup to Pension Insurance Corporation. Citigroup acquired the pension fund at the same time as they seized EMI from Terra Firma, a private equity firm whose takeover of EMI they had backed.
  2. 2. Citigroup subsequently sold on EMI’s operating business but, for fairly obvious reasons, the new acquirer didn’t want to be saddled with the pension liability for 20,000 current and past EMI employees. Hence the deal, where Citibank will pay the insurance company to take on the burden of making future pension payments in return for being absolved of further obligations. In this case, it is not necessarily a bad deal for members of the EMI scheme. As a result of it, they will now be covered by the Financial Services Compensation Scheme which guarantees 90% of all benefits should Pension Insurance Corporation go bust, which is a handy safety net. However, what both it and the UK Coal story illustrate is that simply forgetting about frozen pensions with ex-employers until you are 65 is not a prudent strategy, given the dramatic changes that can affect your scheme between now and then. Action Point: If you have a pension sitting with an ex-employer, go dig out the documents. Then, contact a financial adviser to discuss whether or not leaving it where it is actually the best option for you. Image credits: Image courtesy of Stuart Miles / FreeDigitalPhotos.net Image courtesy of dan / FreeDigitalPhotos.net Image courtesy of kibsri / FreeDigitalPhotos.net

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