In January 2012 Shell announced it would be closing its final salary pension scheme to new members in 2013. Whilst this is sour news for any new employees who would have joined the scheme, where does it leave you if you are an existing Shell pension scheme member and not yet retired?
The good news is that Shell will continue to contribute to your pension for as long as you remain a member. However, the bad news is that for as long as you remain a member you could be putting you and your family’s wealth at risk from other factors, to which you may or may not be aware.
These risks are amplified considerably if you are a high earner with an expected pension in excess of £30,000 per annum.
What are the Risks with the Shell Final Salary Pension Scheme?
If any of the following things happen to you either before or after retirement, the money you and your family receive in retirement will be affected:
- The Shell pension scheme is wound up
- Taken over by the Pension Protection Fund (PPF)
- You die
- Your spouse dies
Many people do not conceive the first two items are possible. However, BP spent $9 billion to clean up the 2010 Gulf of Mexico oil spill and has set aside a further $20 billion for potential claims. Similar catastrophes could pose a significant risk to the scheme.
If the Shell pension scheme were to be taken over by the PPF what you may receive is capped at a maximum of £29,897 per year if you are 65. Bad news if you are a high earner or years away from 65.
The last two items are unavoidable and will happen sooner or later. Final salary schemes invariably provide a lot less for a spouse than you received when you were alive. Once your children are over 18 and out of education then they don’t benefit at all either. Therefore the legacy you could leave is taken away.
What Are Your Options?
There are alternatives, some of them can be ideal for high earning scheme members within 20 years of their expected retirement date. You have the right to take a transfer of the lump sum of money that is being reserved to fund your share of the Shell final salary pension. The transfer goes to a pension plan where you can control the investments, legacy to your spouse and children, and income you wish to take. If your health deteriorates you can use the money when it matters most to you.
What’s more, when you die this ‘pot of money’ is left untouched. This means a surviving spouse’s entitlements remain unaffected. Plus, when your spouse dies the pot can be left to your children.
Why Haven’t I Heard of Transferring Out Before?
The laws, procedures and knowledge needed to safely navigate through pensions are extremely complex. Financial regulations are not for the feint hearted either. Consequently, most advisers will avoid the subject or suggest the simple option of “doing nothing” or staying where you are without even investigating.
How many times have you heard of someone go to their GP with an ailment to be told it’s nothing life threatening, but the problem persists and then after seeing a specialist then to be told it’s something quite the opposite? This could be you and your pension.
At Trentham Invest you can talk with a final salary pension’s expert who even provides advice to pension trustees on the subject. Your issues are carefully considered so you can clearly see your benefits, your risks, and more importantly your options – translated into plain English.
If you are a member of the Shell final salary pension scheme and expect your pension to be in the region of £30,000 per annum or more, you can have a free confidential telephone discussion to understand whether transferring out could be suitable for you. To arrange a telephone appointment please call Trentham Invest on 01306 881999 or email email@example.com.
Your pension could easily be worth the same, two or three times more than the value of your house. Being armed with the right information will help you make the best decision for you and your family.