Pension Query

philgreen

Looking for some advise on a very small pension of my wife,
she left an employer on 27/7/1981, the pension was calculated at £316.43p p.a. to be paid at age 60 (26/11/2012) the amount of G.M.P. was £91.00p p.a. to be revalued at 8.5% compound for each complete tax year before normal retirement date.
She has just heard from them stating the G.M.P.is estimated to be £1051.96p from 6/7/2015, they have offered her early retirement from 1/10/2008 at the rate of £225.36p p.a. and because of G.M.P. this would increase to £1051.96p on her 60th birthday.
Question,
Am i right in thinking, although the amount of £225.36p p.a. is very small, by taking early retirement she will still finish with the same amount of pension at 60 and she would have received the small pension for 4 years as a bonus?

MikeJones_2

Hi Phil,

It's difficult to know exactly what the scheme is offering in terms of early payment but I THINK this might be the answer - but you need to check with the scheme administrators BEFORE your wife decides upon what to do.

I’m assuming her Normal Retirement Date is her 60th birthday, by the way.

By the looks of it your wife’s total preserved benefit of £316.43 p.a. at her date of leaving service (DOLS) is made up two slices:

A GMP at DOLS of £91.00 p.a. and
A non-GMP at DOLS of £225.43

Pension increases granted to a preserved pension from DOLS until Normal Retirement Date are referred to as revaluation.

So, as you have pointed out your wife’s GMP revalues by each complete tax year until age 60 by 8.5% p.a. There are 30 complete tax years between her DOLS and her NRD (6/4/1982 to 5/4/2012). Hence, £91 x 8.5% p.a. compound x 30 years gives a Revalued GMP of £1,051.80 p.a. which she is entitled to receive at age 60.

Prior to 01/01/1986 someone who left a defined benefit scheme was not entitled to revaluation on non-GMP benefits – it was up to the Scheme Rules. So, in theory anyway, your wife’s non-GMP might receive no revaluation in the period between when she left service and her Normal Retirement Date (NRD). Assuming it does not receive any revaluation then her non-GMP at age 60 would be the same it was at her DOLS, i.e. £225.43 p.a.

Therefore, I would expect her pension at her NRD (60) to be:
£1,051.80 + £225.43
= £1,277.23 p.a.

Can you confirm this from any of the paperwork that you have?

As the figure they have quoted her of a pension of £225.36p.a. on 01/10/2008 is striking similar to the entire non-GMP at DOLS of £225.43 p.a., I’d ask the scheme administrators to explain EXACTLY how the early payment pension has been calculated (we’re looking or any early payment penalties, although there may be none, if for example she was allowed to take her pension up to ‘x’ years early without penalty as some schemes permit).

The reference to ‘…the G.M.P.is estimated to be £1051.96p from 6/7/2015’ might have confused you. State Pension Age is being equalised at age 65 for men and women. The change is being phased-in over a 10-year period from 6th April 2010. After this date, State Pension Age for women will increase.

- Women born before 6th April 1950 are not affected by the change.
- Women born between 6th April 1950 and 5th April 1955 will have a State Pension Age which gradually rises from 60 to 65.
- Women born after 5th April 1955 now have a State Pension Age of 65.

As your wife was born (presumably) on 26/11/1952 her State Pension Age will be 6/7/2015.

So, to answer you query, YES it does appear from the limited information you have given us that you wife will be no worse off now if she takes it early, than if she waits until age 60 for the full pension – BUT ask the scheme administrators the same question you have asked us here (and put it in writing) and get it explained to your (wife's) satisfaction.

Sorry about the long answer, but I hope it helps.

Mike Jones

I work in the field of Pension Education and Pension Guidance in the UK. I am a current member of the Specialist Pensions Forum as well as being a Voluntary Adviser for The Pensions Advisory Service. I work with scheme members, employers, trustees, scheme administrators and advisers on most things to do with employer sponsored pension schemes. The views expressed by me in this thread are my personal opinions. You should seek professional advice from an appropriately experienced and qualified adviser. I am not an IFA.

philgreen

Thanks Mike,
my wife is awaiting a further letter with a projected figure of payment if she waits to take the pension at 60. So hopefully will will be able to see if they have imposed a penalty for early retirement.

jonathon_hart

GMP is Guaranteed Minimum pension. Therefore as the pension at Date of Leaving (£316.43) is going to be less than her GMP I would expect her pension at age 60 to be the GMP - you do not revalue the GMP and then add the excess.

Therefore her pension at Normal Retirement Date will be £1051.96. I'm surprised that they are letting her retire early this is often not allowed if the revalued GMP benefit is in excess of the scheme pension.

As Mike said this situation is quite common with people who left schemes back in the early 80s.

MikeJones_2

Hi Jonathon,

The method I have used above is statutory revaluation. It is the absolute minimum I would expect her to receive based upon the information in the original post.

Therefore, I would expect her pension at her NRD (60) to be:
£1,051.80 (revalued GMP at age 60) + £225.43 (non-GMP at DOLS - assumed does not revalue)

= £1,277.23 p.a. at age 60

I'd be very interested to know why, if it was less than this.

In terms of early payment - the scheme can do pretty much as it likes, so long as it is with reference to the Scheme Rules and does not exceed HMRC rules. You are absolutely right though in terms of the fact that many contracted-out defined benefit schemes do not allow early payment where the early payment pension is below the revalued guaranteed minimum pension. (There are at least two methods commonly used by schemes to test this but it is a bit complicated and outside of the scope of this thread).

Mike Jones

I work in the field of Pension Education and Pension Guidance in the UK. I am a current member of the Specialist Pensions Forum as well as being a Voluntary Adviser for The Pensions Advisory Service. I work with scheme members, employers, trustees, scheme administrators and advisers on most things to do with employer sponsored pension schemes. The views expressed by me in this thread are my personal opinions. You should seek professional advice from an appropriately experienced and qualified adviser. I am not an IFA.

philgreen

Mike & Johnathon,
thanks very much, i will update you when the letter arrives with age 60 rates.
Seems strange, we contacted them (Smiths Pensions Limited) for a projected figure due on age 60, it was them who suggested early retirement. It then arrived without the 60th figure!
thanks,
phil