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Defined Benefit Pension Scheme - protected or not?

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  1. #1

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    Defined Benefit Pension Scheme - protected or not?

    Would like to understand more about how a Defined Benefit (DB) pension scheme works, particularly in the event the company you work for declares insolvency. Does a member of such a scheme still get pension paid out in full?

    If one’s pension in a DB scheme is protected (or not), would appreciate knowing why or why not.

    f there’s any risk to DB pension payout due to company’s insolvency risk, it may help decide whether or not to stick it out for a few more years or leave earlier and get pension in full.

    Thanks in advance for any insight from members knowledgeable on this.


  2. #2

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    Company is in HK, parent company has British roots, but job is in HK, HK employment contract, not sure what jurisdiction the scheme is though.. Thanks!

  3. #3

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    HK then?


  4. #4

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    I can’t speak for your situation but normally (at least for the countries I know of) pensions is held in a separate legal entity or sometimes even in a sector wide company (so not 1 employer).

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  5. #5

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    My guess is it would be set up as a trust, or legally the MPF authorities would imply a trust into the structure. Then it should be bankruptcy remote to the main company.

    However, whether the company funds the DB trust/setup is another question that is company specific. I think for my company the DB trust (which is a legacy one and closed to newly join employers) is like 110% funded but does not necessarily mean it will remain that way if asset value falls.

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  6. #6

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    Quote Originally Posted by Sith:
    I can’t speak for your situation but normally (at least for the countries I know of) pensions is held in a separate legal entity or sometimes even in a sector wide company (so not 1 employer).
    What I know is, this DB pension is a registered ORSO scheme in HK and established under trust, independent trustee. As far as I'm aware of, this was the retirement scheme for all staff in the company, as well as all staff of all companies under the same parent company, until it was no longer offered few years back due to DB pension's higher cost to companies. Existing staff were allowed to keep their DB pension scheme but new staff had to go with MPF going forward.

    Sorry if my post and replies seem a bit too general. I did not want to name names as the insolvency scenario / concern is hypothetical. Just want to be able to know if there is any risk to not receiving the DB pension in full should the company become insolvent, assuming jurisdiction is in HK..

  7. #7

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    Quote Originally Posted by freeier:
    My guess is it would be set up as a trust, or legally the MPF authorities would imply a trust into the structure. Then it should be bankruptcy remote to the main company.

    However, whether the company funds the DB trust/setup is another question that is company specific. I think for my company the DB trust (which is a legacy one and closed to newly join employers) is like 110% funded but does not necessarily mean it will remain that way if asset value falls.
    How does one go about finding out if the DB trust is fully funded? I don't fully understand how DB trusts work. The clearest info I know is the fixed formula used to compute my pension.

  8. #8

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    Thx for the advice. I did try the first approach you suggested. A few months ago, when I had questions about the scheme and the trust deed, I contacted the trustee administrators but they redirected me to speak to the HR dept within my company.

    Will have to think over paying to get a lawyer's advice.. have current budget constraints

  9. #9

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    Quote Originally Posted by hkgcat:
    Will have to think over paying to get a lawyer's advice.. have current budget constraints
    You will have bigger budget constraints if your pension doesn't pay out!
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  10. #10

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    Quote Originally Posted by hkgcat:
    How does one go about finding out if the DB trust is fully funded? I don't fully understand how DB trusts work. The clearest info I know is the fixed formula used to compute my pension.
    For structure, as mentioned by the rest, better to get professional opinions. But from how i observe my company's experience, my guess is that your HR side probably won't have anyone left from the legacy era that can explain to you what the implications are. Maybe ask them to at least guide you to the trustees so you might be able to get some meaningful conversation with the specialists.

    In terms of numbers, accountants+auditors will project the total projected payment out from the trust and discount it with a reasonable interest rate, and compare it with existing assets whether the current assets are over or under funding the liabilities. For all practical purpose the company should have an annual report done on the asset/liabilities of the trust and whether the funding is adequate.. If yours is a local listed company they might have that inside their annual reporting notes as well.
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