Barclays Final Salary pension GMP/Excess revaluation & Anti-franking

MikeFloutier · 2 October 2013 at 11:51AM

Fair comment Xylophone and this is exactly what TW have now promised to send me, at some indeterminate time.

I'm just putting the finishing touches to my submission to TPAS (following this recent phone call) so that we should be in a good position to field whatever comes back from TW.

Then, at that stage, it will be clear whether or not IDRP is necessary.

xylophone · 2 October 2013 at 12:01PM

Then, at that stage, it will be clear whether or not IDRP is necessary.

I'll continue watching this space!:)

SnowMan · 2 October 2013 at 12:06PM

The trustees of the scheme delegated the matter to Linklaters in the Biggs case submission mentioned earlier, the Pensions Ombudsman disagreed with their submission.

And that was a result of the new administators Watson Wyatt fundamentally changing the way benefits were calculated when they took over in terms of the minimum benefits test. Google tells me Watson Wyatt merged with Towers Perrin in 2010 to form Towers Watson.

So we are in potentially a very similar situation here and the solution in that case wasn't the trustees (who relied on Linklaters and their 'unusual' interpretations) but the Pensions Ombudsman.

Xylophone makes a good point about the trustees being an option though.

A third option is Unite given that any 'unusual' interpretation of the anti-franking legislation, or any mal-administration by the scheme administrators could have a significant effect on their members pension benefits. I'm not suggesting it is a good option though.

I think TPAS is the way forward.

MikeFloutier · 10 October 2013 at 1:55PM

Today I received an email from TW that, on the face of it, appears to be what we are looking for.

It's a fairly long email re-covering several points we already agree upon.

However the following extracts are new and useful:

"I would like to apologise if the previous information supplied has not fully addressed all of your queries."

"Please find attached a copy of the consolidated Scheme Trust Deed and Rules...along with the subsequent amendment Trust Deed and Rules."

"At your GMP payment age of 65, your normal retirement pension should receive a step up which will bring this pension to a level higher than the corresponding early retirement pension that would be payable at this date. This is contradictory to the information you have already received, and I would like to apologise...."

"I have recreated the example on page 10 of the booklet you have referred to, using the figures applicable to your normal retirement calculation."

"All the above information is based on current pension legislation and the current Trust Deed and Rules of the Scheme. These can change at any point in the future and this is why we are unable to confirm for definite that your pension will receive a ‘step up’ at GMP payment age and the amount."

I have tried to tailor their example so that it displays well on this page:

Mr Floutier’s pension at date of leaving membership of the Scheme
Annual Pension
Designated GMP portion………………………………………£1,802.84
Non-GMP portion…………………………………………………£5,476.71
Total deferred pension……………………………………… £7,279.55

Mr Floutier’s estimated pension at Normal Retirement Age (age 60)

Designated GMP portion…………………………………… £1,802.84
Non-GMP potion (including annual pension increases since leaving active membership)………………………………………….......................... £9,496.61
Total pension in payment from age 60 from Scheme
..............................................................£11,299.45

Mr Floutier’s estimated total pension on the day before his 65th birthday (2 February 2019)

This assumes that Mr Floutier’s total pension has been increased
by 2.5% since his Normal Retirement Age (ie 4 years, 8 months – the first pension increase would be pro-rated for 8 months.)
…………………….............................................£12,679.50#

Mr Floutier’s estimated pension at GMP payment date (3 February 2019)

GMP portion (£1,802.84 revalued by 7% for each complete tax year since
Mr Floutier left active membership………………....£8,546.20
Non-GMP portion*……………………………………………… £9,496.61
Estimated total pension in payment from age 65 from the Scheme
................................................................£18,042.81

*Increases to Mr Floutier’s pension since Normal Retirement Date are offset against his GMP revaluation; therefore, Mr Floutier’s non-GMP portion reverts to the value at age 60. This is also known as a’ step up’ and for this purpose the amount of ‘step up’ is this example is £5,363.31.

Comparing this with my original doctoring of their Example, the figures are almost identical. The significant difference is due the fact that they are now ignoring the State Pension Deduction. The remaining minor difference is down to the RPI calculation and the fact that my (calculation) period from Retirement to GMP date is 4 years 8 months whereas their Example period was 5 years.

My view is that they are now clearly saying that the only variables that would affect their Example calculations are, a) pension law, and b) Scheme Rules.

I think it's probably ok now to accept their NRD offer. What do you think?

PS I had a quick look through the Scheme Rules. Obviously what I was looking for was the treatment of Franking of GMP revaluation.

The Scheme rules seem to be based on a pre-1993 view as the following extract implies:

"Except as provided in sections 37A and 41A-41E of the 1975 act, no part of a Member's...pension under the Scheme may be used to frank an increase in the Member's...GMP"

Clearly, in the Example above, the GMP revaluation is openly Franked to the extent of the (predicted) RPI increases between Retirement and GMP date.

Part of this Franking is totally reasonable in that, if it were not for SOME of this Franking, THEN the already quite large GMP portion would benefit from BOTH 7% AND RPI increases.

xylophone · 10 October 2013 at 4:00PM

I think it's probably ok now to accept their NRD offer.

"All the above information is based on current pension legislation and the current Trust Deed and Rules of the Scheme. These can change at any point in the future and this is why we are unable to confirm for definite that your pension will receive a ‘step up’ at GMP payment age and the amount."

So it is a question of the "bird in the hand or the bird in the bush"....:D albeit that the bird probably will be around when you reach 65?

And you need to remember the GMP increase rules on your scheme pension when you actually reach SPA, ie that the scheme will not pay inflation increases on your pre 88 GMP or more than 3% on your post 88 GMP and that your State Pension comes under the new dispensation. https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/210299/single-tier-valuation-contracting-out.pdf

SeekTruth · 10 October 2013 at 4:46PM

MikeFloutier wrote: »

Mr Floutier’s pension at date of leaving membership of the Scheme
Annual Pension
Designated GMP portion………………………………………£1,802.84
Non-GMP portion…………………………………………………£5,476.71
Total deferred pension……………………………………… £7,279.55

Mr Floutier’s estimated pension at Normal Retirement Age (age 60)

Designated GMP portion…………………………………… £1,802.84
Non-GMP potion (including annual pension increases since leaving active membership)………………………………………….......................... £9,496.61
Total pension in payment from age 60 from Scheme
..............................................................£11,299.45

Mr Floutier’s estimated total pension on the day before his 65th birthday (2 February 2019)

This assumes that Mr Floutier’s total pension has been increased
by 2.5% since his Normal Retirement Age (ie 4 years, 8 months – the first pension increase would be pro-rated for 8 months.)
…………………….............................................£12,679.50#

Mr Floutier’s estimated pension at GMP payment date (3 February 2019)

GMP portion (£1,802.84 revalued by 7% for each complete tax year since
Mr Floutier left active membership………………....£8,546.20
Non-GMP portion*……………………………………………… £9,496.61
Estimated total pension in payment from age 65 from the Scheme
................................................................£18,042.81

*Increases to Mr Floutier’s pension since Normal Retirement Date are offset against his GMP revaluation; therefore, Mr Floutier’s non-GMP portion reverts to the value at age 60. This is also known as a’ step up’ and for this purpose the amount of ‘step up’ is this example is £5,363.31.
...

I have been trying to understand this thread for some time, but it has grown faster than my understanding! Apologies, therefore, if my question here has already been addressed.

Why is the scheme permitted to offset (Frank) increases to the excess over GMP between NRD and GMP payment date against GMP revaluation? It seems to me that the pension at GMP Payment date should comprise GMP (£8,546.20) plus the non-GMP portion (£10,657ish: calculated as excess at NRD, £9,496.61, revalued at, say, 2.5% pa for 4yrs 8 mths); giving a total of approximately £19,203.

xylophone · 10 October 2013 at 5:03PM

Why is the scheme permitted to offset (Frank) increases to the excess over GMP between NRD and GMP payment date against GMP revaluation? It seems to me that the pension at GMP Payment date should comprise GMP (£8,546.20) plus the non-GMP portion (£10,657ish: calculated as excess at NRD, £9,496.61, revalued at, say, 2.5% pa for 4yrs 8 mths); giving a total of approximately £19,203.

See post 132

SeekTruth · 10 October 2013 at 5:22PM

xylophone wrote: »

See post 132

Thanks. I had actually previously read the Skandia link, but had remembered it as saying what I thought it ought to say rather than what it actually did say!

MikeFloutier · 10 October 2013 at 5:56PM

Thanks Xylophone,

I'm going to start thinking seriously about the Pension Commencement Lump Sum situation over the next few weeks and this business about how much will I get by way of increases to my pension, and how does taking the PCLS affect the increase schedule (i.e.. which part of the pot is the Lump Sum taken from?) is something I will need to factor in; along with the other variables.

PS. By the way, before you ask, while the iron is hot, I've already asked TW to let me have a couple more of their new Examples based on taking the full PCLS and also a reduced Lump Sum.

SnowMan · 10 October 2013 at 7:25PM

It's the answer from TW that we were expecting, albeit it has taken them longer than expected to give a sensible answer.

i.e. that they would have to step up at 65 to the excess revalued to 60 plus the GMP revalued to age 65 (to comply with anti-franking legislation)

We weren't sure initially, but we had subsequently worked out from the anti-franking legislation that increases in payment between 60 and 65 were not on top of this amount.

Not quite sure from looking quickly where they get their excess at age 60 of £9,496.61, we had come up with a slightly lower statutory figure, and the previous scheme estimate was £9,222.

MikeFloutier wrote: »

which part of the pot is the Lump Sum taken from?

From the excess, however it is highly likely that the spouse's pension won't be reduced i.e. the commutation is of single life excess pension (depending on scheme rules).

See also

https://www.moneyadviceservice.org.uk/en/articles/should-you-take-a-pension-tax-free-cash-lump-sum

Be aware that the commutation factors used in many defined-benefit schemes offer very poor value for money in terms of how much pension income you must give up in return for your lump sum payment

Have to agree with that in general, although individual circumstances need to be looked at of course.

Barclays Final Salary pension GMP/Excess revaluation & Anti-franking

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