Santander Pension Query

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  • meantime
    meantime Posts: 59 Forumite
    Well it's been more than a few days, but here are my figures...

    Statement of deferred benefits issued on leaving service in 1995

    Normal Retirement Date: 13th May 2014 (oddly enough the day before my 60th birthday)

    GMP at date of leaving: £1699.88

    Revalued GMP: £8058.96

    Deferred pension at date of leaving (including GMP of £1699.88): £4639.55

    Deferred lump sum at date of leaving: £13918.65 (= 3 x pension)

    Notes:

    - GMP will be increased by 7% for each complete tax year between date of leaving and State Pension Age

    - excess over initial GMP, and the deferred lump sump will be increased in line with the cumulative rise in RPI from date of leaving to normal retirement date


    60th Birthday quotation (2014)

    max pension £6,688.21 with sump sum of £20,064.63
    min pension £5,673.45 with lump sum of £37,822.99

    estimated increase at 65: £2,384.99

    (so max pension at 65 = £6,688.21 + £2,384.99 =£9,073.20,
    min pension at 65 = £5,673.45 + £2,384.99 =£8,058.44)


    estimated pre-88 GMP £4,493.84
    estimated post-88 GMP £3,564.60

    "these figures will be confirmed to the Scheme by HMRC shortly before your 65th birthday and are therefore not guaranteed"


    62nd Birthday quotation (2016)

    max pension £7,565.28 with lump sum of £26,051.26
    min pension £6,595.32 with lump sum of £43,968.17

    estimated increase at 65: £4,923.11

    (so max pension at 65 = £7,565.28 + £4,923.11 =£12,488.39,
    min pension at 65 = £6,595.32 + £4,923.11 =£11,518.43)


    estimated pre-88 and post-88 GMP same as at 60th birthday quotation

    Note: "In order to meet the GMP requirements, the maximum tax-free lump sum quoted has been restricted" (this note didn't appear in the 60th birthday quotation, but that was set out in a different format)


    My musings

    - why do GMP "estimates" need to be confirmed by HMRC at age 65 if the scheme uses fixed revaluation?

    - minimum pension at 65, retiring at 60 = estimated GMP. The excess completely disappears. Isn't this (illegal) franking?

    - since the change in Santander's GMP revaluation practice in 2014, GMP is not revalued in deferment. GMP at age 60 therefore = GMP on leaving service = £1699.88. Excess at age 60 therefore = (maximum pension at 60 - £1699.88) = (£6,688.21 - £1699.88) = £4,988.33. Increase in excess from 60 -> 65 may be franked, so maximum pension at 65, retiring at 60, should be (Excess at 60 + GMP at 65) = (£4,988.33 + £8058.96) = £13,046.77? Not the £9,073.20 in the 2014 quotation?

    - minimum pension at 65, retiring at 60, should be (£13,046.77 - maximum commutable) = (£13,046.77 - (£6,688.21 - £5,673.45)) = £12,032.01? Not the £8,058.44 in the 2014 quotation?

    - max pension at 62 = unrevalued GMP + excess at 60 + RPI increase in excess + late retirement increase in excess?

    - max pension at retirement increases by about 13% between the two quotations, but max pension at 65 increases by about 38%. Why is the post-65 increase so much higher?
  • xylophone
    xylophone Posts: 44,139
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    - why do GMP "estimates" need to be confirmed by HMRC at age 65 if the scheme uses fixed revaluation?

    This was HMRC practice - the pensioner too received a letter from HMRC confirming the amount in question.

    However, this has been overtaken by events - see

    https://www.barnett-waddingham.co.uk/media/filer_public/6b/af/6baf547b-4772-4680-bf3a-ce77808e2455/gmp_reconciliation_briefing_note.pdf

    If you type JLT GMP Reconciliation into Google you will be able to pick up the JLT memo about this.

    Re franking etc see https://ompensions.co.uk/media/255935/kb-franking.pdf



    and did you have a look at this (post 165)?

    http://forums.moneysavingexpert.com/showthread.php?t=4736856&highlight=cod+gmp&page=9

    Remember that from GMP age (65 for a man), the Scheme is not obliged to pay any inflation linked increases on your pre 88 GMP or anything above 3% on post 88 GMP.

    The excess will be inflation linked according to scheme rules.
    Note: "In order to meet the GMP requirements, the maximum tax-free lump sum quoted has been restricted"

    See https://www.barnett-waddingham.co.uk/comment-insight/blog/2014/08/06/what-is-commutation/
    but max pension at 65 increases by about 38%. Why is the post-65 increase so much higher?

    I cannot see the answer to this - you can ask JLT or try a PM to Snowman who is very knowledgeable about GMP.

    http://forums.moneysavingexpert.com/member.php?u=647217
  • SnowMan
    SnowMan Posts: 3,350
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    edited 5 June 2016 at 11:35AM
    xylophone wrote: »
    I cannot see the answer to this - you can ask JLT or try a PM to Snowman who is very knowledgeable about GMP.
    Not very clear to me but my best stab is (I'm working off statutory minima rather than higher amounts paid under scheme rules):

    If the NRA is definitely 60, and the scheme separately revalues excess and GMP in deferment, even though they provide a separtae lump sum, then statutory increases in deferment would give

    Pension from age 60:

    1699.88 (unrevalued GMP)
    + 2,939.67 (excess at leaving) x 1.628

    = 1,699.88 + 4,785.80
    = 6,485.70

    (where the statutory revaluation % of 62.8% is obtained from here and I've assumed it is the 18 year figure of 62.8%, that is assuming leaving date in 1995 is after 15th May)

    And lump sum from age 60 of

    4639.55 (pension at leaving) x 3 x 1.628 = 22,660

    So £6,485.70pa pension + £22,660 LS, which is equivalent to £6,634pa pension and 20,064 lump sum (allowing for the £17.50 per £1 of pension conversion rate used in the min/max figures)

    So we are comparing the actual (max) quote of £6,688pa + £20,064 with our estimate of £6,634pa + £20,064.

    So fairly close.

    Under anti-franking legislation then the pension at GMP age (65) would have to be increased to £8,058 (revalued GMP) + £4,988 (their figure for statutory excess at 60) = £13,046pa.

    So their figure for pension from age 65 looks wrong in the age 60 quote as they don't allow for anti-franking, and that looks like the most confusing part of their figures, although everything is far from clear.


    Age 62 quote

    It is more complicated on late retirement at age 62 (relative to NRA 60) but before GMP age of 65. I am not sure what anti-franking test would then apply at age 65.

    You would expect the pension to be at least £13,046pa from before at age 60 (assuming lump sum of £20,064 taken). But as the age 62 (max) quote shows a lump sum of £26,051.26 is taken, then this would mean, allowing for a £26,051.26 lump sum (using rate of £18.4718 per £1 used in age 62 quote) a minimum anti-franked pension of about £12,722pa (= 13046 - ((26051.26 - 20064.63)/18.4718)) which compares with their age 65 figure of £12,488pa.
    I came, I saw, I melted
  • meantime
    meantime Posts: 59 Forumite
    edited 10 March 2017 at 11:25PM
    Revisiting this after some months...
    xylophone wrote: »

    Which says "At present it is not possible to commute GMP except on the grounds of triviality. Therefore only pension in excess of GMP can be commuted and if there is insufficient excess pension to provide the full GMP then the lump sum may need to be restricted accordingly."

    But if the max lump sum has been restricted to protect the GMP, shouldn't the minimum pension at 65 equal the GMP? (whereas in my age 62 quote, which says that the max lump sum has been restricted, the minimum pension from 65 is £3460 above my GMP)

    Edit: I've now discovered that my max lump sum meets the simple check that (residual pension * 20) = (max lump sum * 3) to within a few pence, so despite what my statement says, the lump sum hasn't been restricted.
  • meantime
    meantime Posts: 59 Forumite
    Revisiting this while psyching myself up for a difficult conversation with JLT....
    SnowMan wrote: »
    Age 62 quote

    It is more complicated on late retirement at age 62 (relative to NRA 60) but before GMP age of 65. I am not sure what anti-franking test would then apply at age 65.

    You would expect the pension to be at least £13,046pa from before at age 60 (assuming lump sum of £20,064 taken). But as the age 62 (max) quote shows a lump sum of £26,051.26 is taken, then this would mean, allowing for a £26,051.26 lump sum (using rate of £18.4718 per £1 used in age 62 quote) a minimum anti-franked pension of about £12,722pa (= 13046 - ((26051.26 - 20064.63)/18.4718)) which compares with their age 65 figure of £12,488pa.

    Do you have any idea why the minimum LS at age 62 should be higher than the scheme minimum of 3 x max pension? Plugging in 3 x (age 62 pension, £7,565.28) = £22,695.84 in place of 20064.63 in your calculation increases the min anti-franked pension to £12,864, diverging slightly further from their figure.

    Is it reasonable to expect that pension at 65 having retired at 62 would be higher than at 65 having retired at 60 (therefore higher than what should have been £13,046)?
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