Danger of buying back years for Defined Benefit Pensions

A few weeks ago, I got a phonecall from a retired member of the DAA pension scheme. He had contributed to AVC’s for all his working life with the DAA and when he came to retirement, he decided to buy back years to boost his pension. He was phoning me because as part of the recent deal on their struggling pension scheme, he suffered a 10% reduction in his pension, even for the portion of the benefit that he paid for himself.

This is brought about  from the changes made to how funds were distributed in the case of defined benefit schemes that were insolvent or winding up.

In the past, those who had retired had their pensions secured before those who had yet to retire. In many cases, this left people nearing retirement with nothing to show for it. With the changes, those receiving their pension may face a cut in their pension to allow for deferred members to still have an entitlement.

The position for my client didn’t have a happy ending. When you buy back years, you buy back into the scheme and you suffer all of the cuts that go with it.

This is something that most defined benefit pension scheme members are not aware of, With defined benefit schemes gradually being done away with, there is a real danger of cuts in payments at some stage. Always look at what alternatives of keeping your AVC’s separate from the main scheme in retirement.

If you have any questions, please contact me directly at steven@bluewaterfp.ie