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Wednesday, 12 February, 2003, 19:00 GMT
The lowdown on final salary pension schemes
Pensions can be perplexing
Pensions are complicated, but you can get help
By BBC News Online's personal finance reporter Sarah Toyne

About 8.5 million people have a final salary pension scheme. But if you pay into one each month, where is your money going, and more importantly is your future wealth safeguarded?

Final salary schemes, also known as defined benefit schemes, can be very generous.

They pay staff a set percentage of their final salary depending on their length of service.

But there is a general concern about pensions in general, following the Equitable Life debacle and pensions mis-selling in the 1980s and early 1990s.

More recently, reports have highlighted concerns over the funding of final salary schemes, with a number of FTSE 100 companies now thought to be facing a cash shortfall.

So if you do have a final salary scheme, what questions should you be asking your employer and what information can you glean from your pension provider?

How solvent is the fund?

Each year a report is produced by the trustees of your pension scheme and every three years there is a valuation by actuaries, who analyse financial risk.

Since 1986, scheme members have been entitled to obtain this information from their pension fund's trustees.

You must write to the trustees of your pension scheme and receive it within two months of applying.

"Information from the actuary can be complicated and the full valuation is anything up to fifty pages long and is not an easy read," says Joe Robertson, regulatory director at the Occupational Pensions Regulatory Authority (Opra).

But if you can not understand the figures and jargon, and your company's pension manager is unwilling to help, there is an organisation that can.

The Pensions Advisory Service (OPAS) is for people who need help with their occupational scheme and can be contacted on 020 7233 8080 or via its website (see links on right).

How much is my pension worth?

If you are paying into a final salary pension scheme, the amount of money you receive when you retire will depend on your final salary and how long you have worked for the firm.

The trustees are not obliged to send you an annual statement automatically (though some do). If you do want it, you can request this in writing.

Ask for an "annual benefits statement", which will give you an indication of the level of benefits you are entitled to under the scheme.

It must be sent to you within two months.

You could also ask for your fund's "transfer value" which will give you an idea about how much your fund would be worth if you wanted to transfer it elsewhere.

Write to the trustees or your pension fund manager. This information must be provided within three months.

Can I have my pension cut?

The trustees of your pension fund can not retrospectively cut your accrued benefits without your consent.

But they can normally adjust the level of future benefits.

This is a common way of making up any deficits within the pension fund.

However, this may contravene employment law if it contradicts the terms of your original contract.

How solvent is my employer?

"You should look at how financially stable your employer is," says Tom McPhail, a pension expert from independent financial adviser Torquil Clark.

If your employer goes bust, it can not touch your pension fund but you may not get as much as you had originally thought.

If there is not enough money to fund everyone's scheme, then you may be required to buy a deferred annuity.

The insurance company will then estimate your pension on an assumption of what your final salary pension scheme is at the moment.

As the insurance company will now be guaranteeing your pension fund, you may get less than you had expected.

The Pensions Advisory Service says: "If the company winds-up, it is not the responsibility of the employer to meet the full pension liability - only the transfer value."

Have I spread the risk of my investments?

Tom McPhail, a pensions expert at Torquil Clark, says it is imperative for people to spread the risk of any investments.

"We have had so many people saying that they have had everything with Equitable Life in recent months."

If you are investing in a pension, make sure that you spread the risk across different fund management companies, so that if one company goes bust - you will not lose all your money.

Further information:

Contact the Pensions Advisory Service (OPAS) for general pensions information or if you are in dispute with your company's pension scheme.

Contact OPAS help line on 0845 6012923.

If you have a dispute that you can not resolve with your employer or Opas you have the legal right to refer your complaint to The Pension Ombudsman deals with serious complaints. Write to Pension Ombudsman, 11 Belgrave Road, London SW1V 1RB.

The Occupational Pensions Regulatory Authority (Opra) deals with complaints about occupational schemes. Contact 01273 627600.

The BBC's Rory Cellan Jones
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