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A question about pension entitlements

Mark Rand

Diamond
Joined
Jul 9, 2007
Location
UK Rugby Warwickshire
Not trying to make any points, just trying to understand the concept:-

Having seen a couple of stories in the news relating to people leaving employment in Pensylvania Avenue and seen a recent comment in a thread here on PM, it seems that it's possible for an (ex) employee to lose their pension rights if they leave on sufficiently bad terms with the employer.

Is this because US company pensions are regarded as pay that comes from the employer in some way, rather than as savings that belong to the employee? or is there something else that a Brit has missed in understanding the system?
 
its enormously complicated. Very few people, aside from government employees, even have "pensions" anymore. Most, instead, have self managed savings accounts. Which, depending on who the "self" is, can lose money. All of it, in some cases. Even many government employees no longer have pensions- the teachers in my state have to contribute to their own 401K savings accounts for retirement, and the state also contributes. The total is then invested in the stock market, or in bonds, and gains or losses then determine retirement payments.

There are a few companies that still pay pensions- but they often are legally allowed to unilaterally (that is, without permission of the employees or retirees) change from a pension to simply contributing to your retirement savings account.

Only about 4% of private sector (as opposed to government) employees still are on plans that will pay an actual pension when they retire.

We do have Social Security, the government "pension" program. It too has many restrictions determining who much you get, and who gets it, and, generally, it will pay you a bit below poverty level when you retire, for most people.
 
As I understand the tradition pension is an agreement/contract for future payment by the employer or their agent as to OP alludes to, not money transferred to an account in the name of the employee during employment. As Ries said these are largely gone, mostly still existing in government. I'm relatively young but my first job actually had pension benefits (it was private not government). When I left I was vested but the pension was not worth much, so the company exercised their legal right to no longer manage that pension account because it was worth so little, and paid me out instead. It was a very unexpected thousand bucks or so after taxes, and likely the only pension benefit I'll ever see, but I had no idea of it's value during my employment like I did my 401k.
 
Is this because US company pensions are regarded as pay that comes from the employer in some way, rather than as savings that belong to the employee? or is there something else that a Brit has missed in understanding the system?

The most common retirement plan now is usually some form of IRA ("Individual Retirement Account") wherein the employee elects to have up to a certain percentage withheld, pre-tax, from his or her weekly paycheck and deposited into an account managed by a third party, usually a brokerage firm. The employer matches that amount—again, up to a certain percentage—with the total deposit being approximately double the employee's withheld amount. There are variations but that's the most common. When you take it out, which you have to start doing after a certain age, it's then taxed as income at the prevailing rate. The rules are that you can't draw the funds out before age 59-1/2 or you get slapped with a penalty of something like 20%, plus the income tax which you had previously avoided.

Obviously, if you consider your account as personal capital—which some do—it is better to have as much as possible withheld during periods of high income tax rates and take it out during periods of low tax rates. Had Clinton been elected along with a Congressional and Senate majority, you would have seen a lot of early withdrawls in anticipation of higher rates. Unfortunately, when they do raise taxes the pricks usually make it retroactive to the beginning of that tax year.
 
It's been fairly common in the US for the owners of a company to declare bankruptcy, shed their pension obligations, and buy back or sell the business free of those obligations.
 
Nothing wrong with a us style IRA.

In fact, it might be better than a traditional pension, in the us, because the us government has allowed corporate vultures and leveraged buyouts to steal the fully funded pensions from long-running us corporations.

That type of thing generally does not and cannot exist in the EU.
Big companies have had specific problems - sometimes.
Where they had specific pension funds corps and these corps were worthless all of a sudden. But that is more criminal activity, asset stripping, grand larceny.

Unfortunately the UK and EU regulators never go after the head honchos in these cases.
Nor does the tax man.
It is a crying shame.

--
Otoh, funded pensions like (some) in scandinavia, or the GM pensions for auto workers, were paid for by the workers.
Their (gm etc) pay was attached, by their agreement, to fund their pensions.

So when gm later complained about pension obligations - that was complete and utter and total fabrication - bs.
The workers had already paid for their pensions. Fully.

But GM spent the money on other stuff, and just ran out of money later on.
Essentially gm stole the pension funds of the workers, to some extent.

In scandinavia pensions paid for are backed by the state so everyone gets what they paid for, no matter what.
Details exist.
Likewise, the state will come after anyone who stripped pension funds, leading to zero interest in same.
The state will always have more time, money and lawyers than any normal person.
 
Not trying to make any points, just trying to understand the concept:-

Having seen a couple of stories in the news relating to people leaving employment in Pensylvania Avenue and seen a recent comment in a thread here on PM, it seems that it's possible for an (ex) employee to lose their pension rights if they leave on sufficiently bad terms with the employer.

Is this because US company pensions are regarded as pay that comes from the employer in some way, rather than as savings that belong to the employee? or is there something else that a Brit has missed in understanding the system?

It is not common, but has been applied in the UK as well. C&W Plc. formerly a Crown Corporation, even. Generally, it is risky - for retired Executives especially - to be seen to be acting to maliciously damage their former employer, etc.

Any major corp, OLD corp HR/pensions guru IN the UK who was on-deck as several changes evolved, OR their online "trade" magazines, are far the better source than PM.

UK tabloids actually don't do a half-bad job of coverage. Guess it is easier to stick to the facts when no one is interested in naked bodies by the age of most pensioners?

:)

As to the nature of the scheme and its funding? If it can be conceived, it has probably been done. Plan architectures are all over the lot. Few major firms will have any fewer than two running at the same time. Five and more can easily co-exist. Seniour staff are usually on "personalized" schemes, even in the UK and overseas UK firms.

"What might happen" to affect such staff is equally "personalized", seldom has any bearing, nor sets any precedent for anyone below a "Director of" level, if even at THAT level. Lawsuits are not unheard of, but their outcomes are also rarely of relevance as to general precedent setting.

Even in US Federal employment under our by-the-book civil service rules, there exist "supergrades" where the (mostly) political-appointee heads of bureaus and such are slotted. Those, too can have a measure of "flexibility". You did say "Pennsylvania Avenue", yah?

Do your own current diligence. Waste not a lot of time on firms as do not affect you, now, or upcoming. ONE company is a full-time job for more than one person.

Dealing with all of that was for some years a major element of "day job" for Director, Systems, Administration, and Control, Cable & Wireless Americas, Inc, both US terms staff, and UK terms staff, and in more than one of those parallel categories, before moving off to bigger boots, London HQ. I had a dedicated person in London for the UK expat staff on my US payroll. Well. Not exclusively. They COULD, and some DID qualify for both retirement schemes. Plus an IRA with company contribution. And stock options...and..

But it was a long time ago by now!

HTH

Bill
 
As someone in there mid thirties in the UK i have never been in a pension scheme yet and have not heard of anyone with much good to say about most of the current offerings. Most seam real good at explaining what you can get as tax brakes paying in, few seam to be any good at detailing expected rates of returns other than stressing how variable those returns actually are!

I know several people that have seen there real world retirement pension pots plummet in the last few years and are going to be facing some serious financial hardship if they do now retire at the ages they had originally planned too. Really would love to know what the right thing to do actually is?
 
First of all, the people in the scandal didn't lose their pensions. Here some clips from Investors Business Daily:

The outrage and self-righteous posturing over the fact that fired former FBI Deputy Director Andrew McCabe might lose his FBI pension is misplaced. What's truly outrageous is how large and lavish government benefits have become.

But the fact is, McCabe isn't getting stiffed; he's still eligible for federal retirement benefits. They just won't be as much, and he can't take them right away.

What he does lose is a special deal given to federal employees engaged in police work, fire fighting, security, intelligence or air traffic control that lets them retire early at full benefits after they reach 50 years of age with just 20 years of service.

But what really got us was that, after working at the FBI for just 22 years, McCabe's pension package was valued at a whopping $1.8 million. And even if he loses that, as someone who is covered by the Federal Employees Retirement System, he'll still get a pension. It'll just be smaller than his FBI pension, and he'll have to wait until 60 to collect it, but it will be generous nonetheless.


The real scandal is government pay and benefit levels. Same article:

In 2016 the average federal employee earned $127,259 in total compensation, compared to $70,764 for the private sector. Meanwhile, federal workers enjoyed average annual benefits of $38,450, compared to average benefits in the private sector of just $11,306.
 
This is specifically UK based, for adama, and employee, rather then self employed based but:-

From my experience (60 now), put every single penny you can into a pension. Not just what you can afford easily, literally treat it like a mortgage and after a while you'll get used to living on a bit less take home. In the meantime, you'll be saving with a minimum of 25% added on by the government (correction for 20% income tax is the minimum). If the pension scheme at least keeps up with inflation, which they tend to exceed over a few years, then you can start drawing it once you're 55. At that point, you pay income tax on three quarters of it.

It's literally the best investment you can possibly make and by the time you're in your '60s you will be less eager to work 16 hour shifts than now. I got laid off at the end of 2016 at the age of 58 3/4. I'm now living on the redundancy plus a small private pension. that'll keep me going until I draw my main pension and then the state pension. At the moment, my take home pay is about £2,100 per month, compared to £2,200 when I was in a job, from a gross income that is £28,000 rather than the £43,000 it was. That's due to no national Insurance, tax breaks, not having to go to work, and no more pensions savings.

The point is, the sooner you start and the more that you put in, the earlier you can stop and the more you can take out. Some of my friends that also got laid off are on more money now than when they were at work because they were saving for ten years longer than me!
 
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As someone in there mid thirties in the UK i have never been in a pension scheme yet and have not heard of anyone with much good to say about most of the current offerings. Most seam real good at explaining what you can get as tax brakes paying in, few seam to be any good at detailing expected rates of returns other than stressing how variable those returns actually are!

I know several people that have seen there real world retirement pension pots plummet in the last few years and are going to be facing some serious financial hardship if they do now retire at the ages they had originally planned too. Really would love to know what the right thing to do actually is?

There is no loyalty nor predictability from corporate employers any longer. Gone already some years ago.

Governments, EU especially, vote solutions on paper, rescind them later when they have to admit they never did have a way to fund their promises.

The ONLY thing that I can recommend is to build your OWN wealth, and in sufficient depth to weather even serious shocks.

Sounds easy and elegant, but we are not (all) Hong Kong Chinese.

We have HUGE taxes where they do not, HUGE debt and interest being paid OUT.
They have low/no taxes, low/no debt, HUGE savings with interest coming IN,

Not a lot of joy on the Dance Card until that is improved, our side.
 
So if I've got it right, the end result of most pensions are completely separate the employer (apart from them paying in as well!). But there are a few cases, mostly in Government, where some or all of it might be classed as a sort of continuing wage. And there are a small number of cases where companies in trouble play the system to escape their commitments.

That last happened over here a few too many times and caused the government to make new rules that came in in 2005 so that the type of pension scheme likely to be ditched (those that pay a defined fraction of the final salery rather than just what the invesments can produce) have to pay into a government insurance that protects the pensioners if the scheme fails or the company goes bust, and that all of the future commitments of a pension scheme must be paid for before a company can close it voluntarily.

Thanks for the clarification folks.
 
Common now here is a matching plan.
You put part of your pre-tax pay in and the company matches it.
Now there are usually some strings to the free money part.
In my case I spent the last two years working for a very large corporation and had such a fund.
However last month I decided to start my shop back up and quit.
Since I did not have enough time as contractually required the free money half disappeared. The company took their half back.
What I put in is still there and mine to keep.
Some places you have to stay 3 years, others have a sliding scale where you get some after 2 and all after 10 years.
In my case I needed to stay one more year but I felt it worth the loss to exit.

I seem to recall there being fine print that if you were terminated for illegal activities (say stealing company secrets or padding a expense account) you would also lose your match.

In the 70s,80s,90s a company owned profit sharing or pension plan was the norm and that is what we had.
For us typically a 10% "bonus" of your yearly pay would go into this account and it was invested in stocks and bonds.
So all company money, nothing coming out of your paycheck.
These plans were easy for unscrupulous people to rob since it was basically just another checkbook that often the owner had access to.
( I have stories here both good and very bad )

In the old days money did not come out of your weekly paycheck. It was 100% funded by your employer. It was a benefit.
IRAs and 401ks and the concept of "co-pay" or company match changed all that.
Now the money is much safer, yours is for the most part 100% secure, the other side if you live to the contract terms is also.
There are still old style plans out there. These subject to economic conditions.
Bob
 
Yes, here in the US many companies are electing to do what is called an "enhanced 401K" for their employees. The traditional way of a retirement plan cost the companies a lot of cash to administer. Whether you contributed and the company contributed still resulted in a lot of admin fees for the company. The 401k got rid of all the admin fees for the company. They give you a matching amount (usually 3-6%) on the funds that you put tax free in a 401k. You pick the plan or mutual fund (Fidelity is one) that is right for you. Could be very aggressive or very conservative or somewhere in between. As you age towards retirement generally you move to the conservative side of investing. The company has no say what you do with your money. You are limited to I believe $18,000.00 per year for an individual and even has a catch up after 55 years old. Takes you to near $23,000.00 tax free for the year. You are limited with a 401K what your choices are vs an IRA. More investment options with an IRA. There are gold, silver, real estate, stocks, etc based IRA's. I was lucky and retired with both a pension and a healthy 401K. Even if the company I worked for goes tits up my pension will go on until I die and then my wife gets it until she dies. Beneficiaries get the rest. When I retired the Social Security office provided me with my earnings and contributions to SS from me and my employer. When I die a $255.00 death benefit and all payments stop. No beneficiaries for Social Security. If you can afford it save as much as you can but enjoy your life. Tax free here in US is good what they have in UK I don't no. Even if you work for yourself and can bury a nest egg it will not grow. But knowing you have buckets of cash out in the yard can be a stress free life. Here in the US if you or your loved one has to go into a nursing home they will clean you out and even take your house if you cannot pay for care on your own. A nursing home can be more than $8000.00 per month!!! That is why if you do retire with a full 401K you need to get that into cash within a few years after retirement. Don't wait. You have to launder that to your kids, or girlfriend before you end up in a home.
 
Generally the Employee Retirement Income Security Act requires private pensions be fully vested after 5 years of employment.

The government exempts itself from nearly all the laws it passes, in this case the ERISA, so these golden government pension plans can have clauses in them eliminating the golden parts for certain acts of chicanery.
 
For unfathomable reasons the USA seems to thrive on systems that only seem to benefit few.

If something benefits many then it must be "socialistic" and that can't be good.

Meanwhile the rest of the world moves on.

It'd be funny if it wasn't tragic.

Pension in Denmark
 
Starting earlier was not a option for me, on the plus side any month now i will own this shit hole of a house, but it can not be stressed enough, when your mortgage accounts for like 70% of your income, retirement is not problem number one, council tax and food are more significant! thankfully i have kicked that one as soon as i drill deep enough into some knee caps to get a few stubborn customers to pay! hence next year i really need to sort pension - make the decisions on that one.

Now that said, coming to end of mortgage does mean i can pay more and its not going to hurt the same. Equally owning were i live even if less than 5 car garage 300 amp three phase studio flat of my dreams does mean living costs relatively fall through the floor.

At my age its looking like im probably not going to see a government pension till im circa 70, the current government pension assuming it keeps track would give me a better std of living than i have had for most of the last few years though with no mortgage to pay. Most of my immediate family have all made it into there 80's so theres a good chance genetically i should be able to do the same. My problem is im pretty dang certain im not physically going to be able to work at this rate in my 60's, hence yeah, i need to do something similar to what you have mark. The fact that despite halving your pre tax income makes little difference to real income is sure a useful factor to know too.

There does seam to be a formula on line that you take your age and half it and thats how many percent of income you should be approximately paying in, that would be less than half the mortgage payment, so in the scheme of things pretty dang affordable. Now its a question of finding out were to put it into.
 








 
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