XFool wrote:What puzzles me is nobody seems to be explaining why such high multiples are ever offered? Who decides the multiple, are there rules? Could it be the pension scheme itself? If so, why would they offer "over generous" multiples and risk future harm to their own pension fund? Anybody here able to throw any light on this apparent mystery?
TIA
Well it's an opinion thing.
Pensions, especially DB pensions, are the ultimate in crystal ball bets. Who knows if the money set aside will cover the liabilities? In the dim and distant past employers could both over fund AND use pension pots to reduce their risk. Those of a certain age may remember a time when GEC had a pension war chest and General Motors could be described as a pension fund that happened to build cars!
Well the government got involved, with all too many good intentions. First there was the aspect that these pension funds were "distorting" the economy. The UK governmant (Thatcher government if anyone wants to date it), dictated that either extra benefits were provieded to use up scheme surplus or "pension holidays" taken. Then we had Maxwell!
OK so now we are in a stuation that companies both can't overfund pension schemes and also can't benefit from having a DB scheme in surplus. WORSE, they are STILL required to meet any short fall in an uncertain world. Why wouldn't they offer a good deal to reduce their liabilities? HMRC assumes that a pension is worth 20 times the income when calculating the life time allowence, but does that reflect the liabilities? It's gone a bit off the boil (as the crystal ball shows new things), but some companies were willing to offer 30 or more times the income as a lump sum.
Now to the opinion part. OF COURSE ADULTS CITIZENS CAN NOT BE TRUSTED TO BE ADULT. We need to protect them against deciding to converting their DB pension into a DC scheme and then buying a fast car. CLEARLY ADULTS ARE ACTUALLY CHILDREN! They certainly can not be allowed to judge risks just like children we must prevent them crossing the Rubicon, that's just too dangerous for them.
Sorry for shouting, especially at my fellow Fools. However I can't help but shout. Not that it makes a difference. You can't convince anyone that you and your age group should be treated as adult by shouting.
I'm 55, and I suspect that many/most who hold DB schemes left childhood quite a while ago. Oh and I doubt that I'll convert my frozen DB scheme, it's worth more to me as bonded income. It diversifies the risks that I take with my DC scheme, that may have both greater upside and downside.
If I were cynical I would suspect that the concern is that those with little pension provision and that have the mathematical aptitude to recognise that cashing the pension in then living off benefits would not affect their old age one jot, but cost HMRC quite a bit.