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What does an insurer ‘buy out’ of a final salary pension scheme mean?

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what does an insurer buy out of a final salary pension scheme mean

I am in my early 60s and took my final salary pension when I was 55 years old in 2014.

Next January my company is winding up its pension fund and transferring all my benefits to Aviva.

Is this an opportunity for me to take my pension pot and use drawdown or will this not be allowed?

SCROLL DOWN TO FIND OUT HOW TO ASK STEVE YOUR PENSION QUESTION    

Retirement finances: My final salary pension is being moved to an insurer, so can I now invest my pot in a drawdown scheme? (Stock image)

Retirement finances: My final salary pension is being moved to an insurer, so can I now invest my pot in a drawdown scheme? (Stock image)

Steve Webb replies: Your company pension is going through a process known as a ‘buy-out’.

A buy-out doesn’t change your rights or options under the scheme, but it may be helpful if I explain what happens when your pension rights are transferred to an insurance company in this way.

Under normal circumstances, a traditional ‘final salary’ pension scheme will build up a pot of money to pay all future pensions.

Most schemes are closed to new members and growing numbers are completely closed which means that no-one is building up any new pension rights.

But the scheme still needs to make sure that it has enough money to pay pensions this year, next year and for decades to come.

Steve Webb: Find out how to ask the former Pensions Minister a question about your retirement savings in the box below

Steve Webb: Find out how to ask the former Pensions Minister a question about your retirement savings in the box below

Until the final pound of pension is paid, the employer is responsible for making sure that the scheme has enough money.

One of the challenges for employers is that ‘making sure the scheme has enough money’ isn’t as easy as it sounds.

For example, what happens if we all start living longer?

The company may have thought that it had enough money in the pension scheme to pay future pensions. But if those pensions now have to be paid for longer, it will have to put extra money in.

Or what happens if the money invested in the pension scheme under-performs?

If some of the money in the fund is invested on the stock market there is always a risk that the value of those shares goes down (or doesn’t rise as quickly as forecast) and again that would leave a shortfall.

In all of these cases, there is a risk that a ‘deficit’ arises in the pension scheme and the employer then has to find extra money to deal with the hole in the pension scheme.

This creates uncertainty for the employer who might prefer to focus on running the business.

To get rid of this uncertainty and to get the pension scheme off its books, growing numbers of firms work with their pension scheme to reach a stage known as buy-out.

This is a point where there is enough money in the pension scheme to hand over to an insurance company in return for a promise by the insurer to pay all remaining pensions. The insurer takes on any remaining risk (for example, around how long people will live).

I kept my final salary pension, but my colleagues are taking pots worth hundreds of thousands – did I make a big mistake? 

Steve Webb replies to a reader question here. 

This can also be good news for the members of the scheme, whose pensions are now guaranteed by an insurance company, rather than depending on their employer (or former employer) still being in business for years to come.

Coming back to your situation, after the buy-out you are still entitled to exactly the same pension as you were before.

But instead of getting a payment out of your company pension fund you will get a payment from an insurance company. The amount you receive should be exactly the same and the rules remain the same.

However, what you cannot do is turn your regular final salary pension into a ‘drawdown pension’.

The fact that your pension is now being paid from the funds of an insurance company rather than a company pension scheme is unfortunately irrelevant.

Once you have started drawing a final salary pension you can no longer transfer out into a ‘pot of money’ type pension, and this is not affected by the fact that your scheme is going through a buy-out process.

Ask Steve Webb a pension question

Former Pensions Minister Steve Webb is This Is Money’s Agony Uncle.

He is ready to answer your questions, whether you are still saving, in the process of stopping work, or juggling your finances in retirement.

Steve left the Department of Work and Pensions after the May 2015 election. He is now a partner at actuary and consulting firm Lane Clark & Peacock.

If you would like to ask Steve a question about pensions, please email him at pensionquestions@thisismoney.co.uk.

Steve will do his best to reply to your message in a forthcoming column, but he won’t be able to answer everyone or correspond privately with readers. Nothing in his replies constitutes regulated financial advice. Published questions are sometimes edited for brevity or other reasons.

Please include a daytime contact number with your message – this will be kept confidential and not used for marketing purposes.

If Steve is unable to answer your question, you can also contact The Pensions Advisory Service, a Government-backed organisation which gives free help to the public. TPAS can be found here and its number is 0800 011 3797.

Steve receives many questions about state pension forecasts and COPE – the Contracted Out Pension Equivalent. If you are writing to Steve on this topic, he responds to a typical reader question here. It includes links to Steve’s several earlier columns about state pension forecasts and contracting out, which might be helpful.  

This post first appeared on dailymail.co.uk

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Top shareholder backs Boohoo chiefs amid call for founder to quit

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top shareholder backs boohoo chiefs amid call for founder to quit

Boohoo’s billionaire founder has been backed by his largest independent investor.

MPs called for Mahmud Kamani to step down as an executive director after an explosive report found illegally low pay and life-threatening conditions for workers in its Leicester clothes factories.

Shadow health minister Liz Kendall wrote to major shareholders – Jupiter, Invesco and Baillie Gifford – saying they must remove Kamani and chief executive John Lyttle.

MPs called for Boohoo's founder Mahmud Kamani to step down as an executive director after an explosive report found illegally low pay and life-threatening conditions for workers

MPs called for Boohoo's founder Mahmud Kamani to step down as an executive director after an explosive report found illegally low pay and life-threatening conditions for workers

MPs called for Boohoo’s founder Mahmud Kamani to step down as an executive director after an explosive report found illegally low pay and life-threatening conditions for workers

Jupiter, which owns a 9.6 per cent stake, rejected her call, but warned bosses to improve governance. 

In a letter seen by the Mail, Jupiter chief Nichola Pease said Jupiter expects problems to be fully addressed with ‘meaningful and permanent’ measures.

In August Kamani dismissed some of the allegations against it as ‘another lot of b******s’.

An independent probe found Kamani ‘covertly owns or controls many of the factories [in Leicester]’.

The Kamani family’s 18.6 per cent stake was worth £655million last night after the shares rose 5.5 per cent.

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Lexus on the charge: RAY MASSEY tests the new UX 300-e electric SUV

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lexus on the charge ray massey tests the new ux 300 e electric suv

The first Lexus battery-powered SUV is raring to go – with order books opening up at the start of the month.

Named the UX 300-e, the family- oriented off-roader comes in three grades: the standard UX priced from £40,900, Premium Plus Pack from £44,400 and the top-end Takumi Pack (which I tried) from £50,500.

Prices are after the Government’s £3,000 plug-in vehicle grant is taken off. One trick worth knowing is that the taxpayer-funded grant is normally capped at £50,000. 

Family friendly: The new Lexus UX 300-e - seen here in Celestial Blue - is the company's first fully electric vehicle

Family friendly: The new Lexus UX 300-e - seen here in Celestial Blue - is the company's first fully electric vehicle

Family friendly: The new Lexus UX 300-e – seen here in Celestial Blue – is the company’s first fully electric vehicle

But, as the standard UX 300-e costs less than that, customers are not penalised for adding the Takumi Pack (which bumps the gross pre-grant price up to £53,500).

So what’s it like to drive? Though technically it is a compact urban SUV, it feels roomy and high-riding. 

It’s sprightly enough and smooth, refined and well-balanced to drive. It whizzes along dual-carriageways and A-roads, and has a bit of poke thanks to its friction-free early electric acceleration. 

It’s quiet most of the time but with some road noise on uneven surfaces – maybe enhanced by the 18in wheels on my car’s trim level (17in is standard). 

Test run: Ray poses with the new Lexus which can be ordered from November 1 for deliveries in March

Test run: Ray poses with the new Lexus which can be ordered from November 1 for deliveries in March

Test run: Ray poses with the new Lexus which can be ordered from November 1 for deliveries in March

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34767314 8873267 image a 11 1603486073698

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34767310 8873267 image a 12 1603486077072

Plug in: The Lexus has two charging ports - one for a domestic wall-box, the other for a fast DC version. Charging to 80 per cent takes 50 minutes on a rapid charger or eight hours at home

Plug in: The Lexus has two charging ports - one for a domestic wall-box, the other for a fast DC version. Charging to 80 per cent takes 50 minutes on a rapid charger or eight hours at home

Plug in: The Lexus has two charging ports – one for a domestic wall-box, the other for a fast DC version. Charging to 80 per cent takes 50 minutes on a rapid charger or eight hours at home

Powered by a 150kW/204hp motor and 54.3kW battery, it goes from rest to 62mph in 7.5 seconds to a 100mph top speed. Total range is 196 miles, which is fine for commuters.

It has two charging ports – one for a domestic wall-box, the other for a fast DC commercial version. Charging to 80 per cent takes 50 minutes on a rapid charger or eight hours at home. 

People will love or hate the quirky infotainment touch-pad in the centre console, which gives a reassuring clunk when activated. 

People will love or hate the quirky infotainment touch-pad in the centre console, which gives a reassuring clunk when activated.

People will love or hate the quirky infotainment touch-pad in the centre console, which gives a reassuring clunk when activated.

People will love or hate the quirky infotainment touch-pad in the centre console, which gives a reassuring clunk when activated.

The boot is roomy enough for a small family’s luggage, with 367 litres of space before the rear seats are put down. 

Hi-tech kit includes a pre-collision system with night-time pedestrian protection.

First orders on November 1 will be delivered in March. By 2025, Lexus will have electric versions of all of its models.

Ex Morgan man’s one to watch 

There’s long been a close relationship between motor cars and watches.

Now car designer-turned- watchmaker Matthew Humphries – former chief designer at British sports car firm Morgan – is setting the pace with a new limited-edition £745 MHD Type 1 wristwatch, inspired by a 1920s Bugatti.

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34760968 8873267 image a 2 1603471778922

Classic lines: The £745 MHD Type 1 wristwatch is inspired by a 1920s Bugatti racing car

Classic lines: The £745 MHD Type 1 wristwatch is inspired by a 1920s Bugatti racing car

Classic lines: The £745 MHD Type 1 wristwatch is inspired by a 1920s Bugatti racing car

Former Morgan designer Matthew Humphries

Former Morgan designer Matthew Humphries

Former Morgan designer Matthew Humphries

Humphries became a designer for Morgan aged 21 and his credits include the AeroMax and Supersport cars.

He got into timepieces almost by accident when a Swiss firm asked him to design a watch. 

He enjoyed it so much he set up his own business in 2014.

Cars such as the Bugatti, three-litre Bentley and Zagato-bodied Alfa Romeo 8C have all been influences. 

He says: ‘I take my sketch pad with me everywhere, because you never know when something will inspire you.’

That includes often using seatbelt material for watch straps.

Veterans’ Brighton run cancelled

Unfortunately, the Royal Automobile Club has had to cancel the annual London to Brighton Veteran Car Run on Sunday, November 1, because of Covid-19. 

Chug-a-bug rally: The Royal Automobile Club has had to cancel the annual London to Brighton Veteran Car Run on Sunday, November 1

Chug-a-bug rally: The Royal Automobile Club has had to cancel the annual London to Brighton Veteran Car Run on Sunday, November 1

Chug-a-bug rally: The Royal Automobile Club has had to cancel the annual London to Brighton Veteran Car Run on Sunday, November 1

The event has run, uninterrupted, since 1947.

A little bit of me hopes that, in the never-give-up spirit of Genevieve, the 1953 film of the run, the club secretly sends a car out early – when no one’s awake – to maintain the unbroken thread.

Skoda sweeps the board 

Plaudits: Skoda's Octavia clinched best compact family car and best estate in the annual Auto Express Awards

Plaudits: Skoda's Octavia clinched best compact family car and best estate in the annual Auto Express Awards

Plaudits: Skoda’s Octavia clinched best compact family car and best estate in the annual Auto Express Awards

Skoda’s Octavia has been crowned Car of the Year in the annual motor industry ‘Oscars’. 

It also clinched best compact family car and best estate in the annual Auto Express Awards.

The Skoda Octavia Estate was also named Best Family Car in the rival Autocar awards.

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London Stock Exchange’s £20bn merger with Refinitiv delayed to 2021

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london stock exchanges 20bn merger with refinitiv delayed to 2021

The London Stock Exchange has admitted that its long-anticipated deal with Refinitiv will be delayed into the new year.

It had hoped to complete the £20billion merger this year, as soon as it got the green light from European competition regulators.

But in a third-quarter update, the LSE said it was now expecting approvals to be delayed until the first quarter of next year.

Delayed: The London Stock Exchange had hoped to complete its £20bn merger with Refinitiv this year, as soon as it got the green light from European competition regulators

Delayed: The London Stock Exchange had hoped to complete its £20bn merger with Refinitiv this year, as soon as it got the green light from European competition regulators

Delayed: The London Stock Exchange had hoped to complete its £20bn merger with Refinitiv this year, as soon as it got the green light from European competition regulators

It comes just weeks after the LSE agreed to sell Italian stock exchange, Borsa Italiana, to its rival Euronext for £3.9billion, to appease regulators at the European Commission. 

They are worried that a merger of the LSE and Refinitiv will reduce competition and push up prices of the critical data used by global markets.

LSE chief executive David Schwimmer said: ‘We continue to engage constructively with the European Commission and believe the potential divestment of the Borsa Italiana group will contribute significantly to addressing the EU’s competition concerns.’

LSE reported strong numbers for the third quarter. Income rose 2 per cent to £600million, and so far this year is up 6 per cent to £1.8billion.

It has benefited from market volatility as the pandemic has boosted trading activity.

Russell Quelch, an analyst at Redburn, said: ‘LSE has some large client contracts up for renewal before the year-end and it will be important that it is able to continue to show underlying business can grow revenues in advance of the Refinitiv transaction.’

The acquisition of Refinitiv would boost LSE’s position as one of the world’s most influential financial institutions, expanding its reach into data provision. 

Shares in LSE slipped 0.9 per cent, or 78p, to 8438p.

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