Deferred Pension

trev_marsh

Hi,

I am 51 years old, and have a deferred pension with British Coal.

This is a final salary scheme.

Will the fall in the stock market mean that I will receive a lower pension? Or is a final salary scheme not linked to the stock market?

Thanks

dunstonh

Will the fall in the stock market mean that I will receive a lower pension? Or is a final salary scheme not linked to the stock market?

It will have no direct impact on you.

MikeJones_2

Hi trev_marsh,

trev_marsh wrote: »

I am 51 years old, and have a deferred pension with British Coal. This is a final salary scheme. Will the fall in the stock market mean that I will receive a lower pension? Or is a final salary scheme not linked to the stock market?

British Coal is one of around 20 former state-owned employers where there is some form of Crown Guarantee protecting pension benefits for scheme members.

Here are a couple of informative, short articles you might want to read:

- Coal Pensions: The Former British Coal Pension Schemes - The Guarantee Arrangements

- Government facing demands to reveal pension guarantees

Whilst nothing is ever guaranteed (except 'death and taxes') I hope this helps to allay any fears you have about the current stock market turbulence and your pension scheme.

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.

bunny999

Public sector final salary schemes are as safe as it gets. Good for you.

trev_marsh

So, if I took my pension this year, as opposed to last year? Would I receive less?

Thanks

MrChips

No, it will be higher. My guess is about 7-8% higher.

KathysBoy

MrChips wrote: »

No, it will be higher. My guess is about 7-8% higher.

It depends upon the rules of the scheme, and how they treat early payment. Normally there is a deduction for each year you take it early. Typically this is 4/5%. It will of course also be adjusted each year for inflation (I assume at the lower of RPI or 5%). This means that from last year it will have increased by inflation (RPI was 5% in September) then it will be deflated by date of Normal Retirement (NRD) less date now times early paments factor (eg. 4%pa)

So an approx (about right ) calculation would be (assuming NRD of 60)

60-51=9 X 4%, so this year it would be the amount that would be payable at NRD less 36%.

Last year it would have been amount payable at NRD (probably 5% less than this year) less 40%.

Next year it will be plus next years inflation less 32%.

Hope this makes sense, but think carefully before you draw it this early (if you´re not sure seek professional advice), You can normally get a precise quote from your pension admin.

MrChips

As I said, 7-8%

5% for inflation, 2-3% for the smaller early retirement factor (generally 4-5% pa near NRA but at younger ages near 50 it is generally 2-3% pa if the factors are truly cost neutral).

Pez

When a pension is reduced for early payment, say you had 20 years in a pension scheme and another 2 years before normal retirement date, would an estimate of benefits be based on the 20 years and reduced by the early retirement factor or based on the normal retirement date (22 years) and then reduced by early retirement factor? Am confused. Thanks.

MikeJones_2

Hi Pez,

It depends upon the Scheme Rules and will vary from scheme to scheme.

The two most common methods used (particularly for members that are applying for early payment but who have already left the scheme and therefore have preserved benefits) are:

1. Take the preserved pension at the date of leaving service and revalue it up to the date of early retirement (e.g. age 58). Then apply the early retirement penalty.

2. Take the preserved pension at the date of leaving service and revalue it up to Normal Retirement Date (e.g. 65). Then apply the early retirement penalty.

With point 2 above, what is important to find out is what are the assumptions used for future inceases between now and your Normal Retirement Date. If the scheme revalues your pension to your NRD before it applies an early retirement penalty it will have to make an assuption for what it believes future inflation will be.

Hope that helps.

Mike

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.

Pez

Thanks Mike,

That's interesting - I thought there was a standard way of calculating. I think mine must have been revalued the first way, but I'll check. The second way would end up more generous I think.

Another thing I'm struggling with - the Early Retirement factor reduction is used, as I've read and according to pension schemes booklet, because if you retire early, the benefit you get is paid for longer. Yet having spoken to a financial adviser I was told that I would be, in real terms, better off to wait until Normal Retirement Age. It feels that both can't be true, but maybe this means that the cost to the pension scheme is the same over a longer period.