Did I have to join my pension scheme? Preserved Members
This Quicknote is written for people who are preserved members of an employer’s pension scheme.
Defined benefit schemes
The number of defined benefits schemes in the UK is declining. In a publication released by the Pensions Regulator and the Pension Protection Fund in December 2006, 58% of defined benefit schemes surveyed were closed to new members.*
Schemes open to new members made up just 31% of the 5,800 scheme surveyed. Of the total membership surveyed, representing around 12.6 million members:
- 26% were active members
- 41% were preserved members
- 33% were pensioner members.
More and more sponsoring employers are considering completely closing their defined benefit schemes on the grounds of increased cost and risk. Where a scheme does close this way, there would be no active members; only preserved members and pensioner members would remain.
If your former employer has a defined benefit scheme that was not closed to new members when you were employed there, you will normally have been invited to join.
You would not usually have been obliged to join, but your employer may have automatically enrolled you into the pension scheme. Under these circumstances, if you didn’t want to be a member of the scheme you would have had to have ‘opted-out’. Opting out is a big decision and not one that should have been taken lightly.
Where membership of an occupational pension scheme was offered to you, your employer or scheme should have provided you with, amongst other things, full details of the benefits available under the scheme and how much you were required to contribute (only very few schemes now don’t require members to pay).
Having decided to join the defined benefit pension scheme, you will normally have had to sign an application form which would also have given your employer authority to deduct your contributions from your wages.
Having now ceased to be an active member, you are classed as a preserved member until you take your pension benefits. When you became a preserved member, you should have received a Statement of Entitlement detailing the benefits you had built up.
Money purchase schemes
Money purchase schemes are growing as an alternative to traditional defined benefits schemes.
You would not normally have been obliged to join a money purchase scheme, but your former employer may have automatically enrolled you in the pension scheme. Under these circumstances, if you didn’t want to be a member of the scheme you would have had to have ‘opted-out’. Most employees would have joined simply to get the benefit of the employer’s contribution. If membership was optional and you decided not to join, you should have considered what alternatives were available to you in respect of planning for your retirement.
Where membership of a money purchase scheme was offered to you, your employer or scheme should have provided you with, amongst other things, full details of the scheme, the investment arrangements and choice of funds available, and the minimum amount you would have had to contribute.
If you decided to join your employer’s money purchase scheme, you would normally have had to sign an application form which would also have given your employer authority to deduct your contributions from your wages.
Having now ceased to be an active member, you are classed as a preserved member until you take your pension benefits. When you became a preserved member, you should have received a Statement of Entitlement or Benefit Statement. This will have detailed amongst other things, the amount of money in your ‘pot’ at that point in time.
What is a waiting period?
You may have been required to work for your former employer for a specified period, before you were eligible to join the pension scheme (e.g. 12 months). This approach is often used by employers with defined benefit schemes where in the past there has been a high turnover of staff during the first few months of service.
For employers operating a money purchase scheme a high turnover of staff during the first few months of service leads to small investment ‘pots’ being left in the scheme and hence a waiting period is often used to avoid this.
During a waiting period, you would not usually have been eligible for any of the benefits offered by the pension scheme to its members (such as dependants’ pensions). However, you may have enjoyed death-in-service protection in the intervening period.
An employer may sometimes have waived a waiting period for a key employee.
Summary
People seldom have identical pensions and you should avoid drawing comparisons with colleagues whose circumstances may at first appear the same but could emerge as having significant differences.
This is not an authoritative document. Seek professional advice from an appropriately experienced and qualified adviser.
* Source: The Purple Book, December 2006, published by the Pensions Regulator and the Pension Protection Fund.
Did I have to join my pension scheme? v3.0 Preserved
Last updated 16/01/2007
