Guaranteed Minimum Pension/early retirement

shinycarol

I have recently taken my state pension at 60, which as a woman I can, and found that although I never thought that I had opted out of SERPS my pension is a) less than forecast and b) considerably less than my friend, who reaches 60 this year. I have a teachers' pension which I took 3 years ago under special class agreement as I was transferred into it from the NHS when nurse teachers entered universities. As the teachers' pension is a set format based on final salary I have no increase if I had been opted out into it. I find this very confusing and the pension service has been less than helpful. Can anyone explain why my state pension is only two thirds that of my friend? (in plain english, please.)

wild_swan_2

I have some questions about GMP’s and deferred pensions and I wonder if somebody could help with the answers. Apologies if they seem long and drawn out!
I have a deferred pension created on leaving an occupational scheme in 1990 and this comprises a GMP element and a non-GMP element (“the excess”). The GMP is guaranteed to be revalued between leaving date and age 65 at 7 ½% pa compound and the excess is revalued at the change in RPI over that period.
The issue is that I wish to take the pension earlier – I am age 61 and I would like to understand how the early pension elements would be calculated and furthermore what happens to the GMP portion when I reach age 65.
My questions are:
1. Would the GMP portion of my early pension be GMP at date of leaving revalued by 7 ½ % pa compound for each complete tax year between date of leaving and date of early retirement or would it be revalued GMP at age 65 discounted back by some actuarial reduction to date of early retirement?
2. How would the excess be revalued at early retirement – would it be change in RPI to date of retirement applied to the non-GMP portion of my deferred pension at date of leaving or would it be non-GMP revalued by current RPI extrapolated to age 65 and then some actuarial reduction applied?
3. Does anybody have any idea of what scale of actuarial reductions are currently being applied to GMP and non-GMP elements?
4. Pension increases kick in when pensions are in payment even if taken earlier – the GMP is guaranteed to increase at 3% pa and the excess at 5% pa although the administrator is trying to suggest that the GMP increases only come into effect when I reach age 65 – is this correct?
5. If I took the early pension and the 3% and 5% increases were applied then at age 65 the GMP element of the total pension payable would be less than the GMP at date of leaving revalued by 7 ½% pa compound to age 65 because of the actuarial reduction applied for early retirement and because the 3% increase is less than the 7 ½% fixed revaluation – what happens at age 65? Does the GMP element (and therefore my total pension) suddenly increase to what it should have been at age 65 or does the principal apply that as long as my total pension exceeds the revalued GMP at age 65 no further increase is given. Thus meaning that effectively my non-GMP element reduces at age 65.
6. I also have a couple of tiny personal pensions that each have a GMP (“protected rights”) element and obviously the value of these fluctuates with the market. What happens at retirement if the market value of the plan is insufficient to cover the GMP?
I do hope somebody can help with these questions. Thanks in advance.

annie_tanks

These pensions are called hybrid pensions and I am in the same boat.My trustees have now closed ALL early retirements last year,owing to the vast amount of people being made redundant in their 50's...and told no-one.I am fighting the misleading/no information regards my hybrid pension by their internal precedure but I dont give much hope.I cannot have my pension until I am 60 next year.
One thing missing from the very very good advise so far given is..and I may be wrong..the GMP bit if you are married will reduce the pension to accomodate a another ..so no single max pension..and at the end of the day an annuity for an income will have to be sought..

MikeJones_2

Hi wild swan,

An excellent set of questions you ask, but I'm afraid you need to pose these directly to the scheme administators as only they will be able to give you the definitive answers.

No two pension schemes are the same and given the importance of establishing the correct responses, you ought to simply get the answers in writing from the administrators. As you point out you need to establish:

(a) exactly how your early payment pension is calculated,
(b) what happens to it between early payment,
(c) what happens to it at State Pension Age, and
(d) what happens to it after SPA.

In terms of your specific questions though, here are my answers:

1 and 2 - depends upon the scheme rules.

3 - can vary dramatically from scheme to scheme - 3% pa for each year taken early is not uncommon, as is 5% pa. Be careful about simple and compound interest. Usually simple, but I have come across compound although the scheme then usually publish specific factors for each year taken early.

4 - check with the scheme particularly the 3% and 5% as it would be common to have 'RPI up to 5%' for example, on the excess.

5 - at State Pension Age (SPA) you must receive at least the revalued Guaranteed Minimum Pension. This would be your GMP at date of leaving pensionable service revalued by, in your case, 7.5% p.a. for each complete tax year up to State Pension Age. So, if the pension you are paid early, including any increases between when you take the pension and when your reach SPA means your pension is lower than your 'Revalued GMP at SPA', the scheme must 'step up' your pension to the 'Revalued GMP at SPA'.

6 - You may be confusing the issue here and I can't tell definitively from what you've posted. You might have a hybrid arrangement - in your case a money purchase pension with a GMP underpin. However, you may be confusing Protected Rights which are the substitute for GMP (but which doesn't provide a fixed pension at SPA in the same was as a GMP would in a contracted-out defined benefit scheme): it depends upon how the scheme contracted-out.

There are some simple explanations in these factsheets:

- Early Payment (Preserved Members of a Defined Benefit scheme)

Sorry, I couldn't be more specific. Hope that helps a little though?

Mike Jones

I work in the field of Pension Education and Pension Guidance in the UK. I am a 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.

wild_swan_2

Thanks Mike

I am trying to get definitive answers from the administrators but they can be a bit evasive!
What I originally thought was that as the GMP has to be guaranteed to a certain revalued level then that would be payable from 65 - so if I had taken early retirement with a discounted pension I expected the discounted GMP element to suddenly jump up at age 65 and hence my total pension would increase. But what I suspect is that as long as the total pension payable by age 65 covers the revalued GMP then nothing would change - in effect my non-GMP element of my total pension would reduce.
I shall have a look at the factsheets you recommended but in the meantime thank you for your help.
Wild Swan

DavidRKW

I am trying to work out if I can retire early from BT, I am a deferred pension member. I am worried about the GMP restrictions.
I want to check if I have understood the explanation made in this thread. To retire early your reduced pension at 65 (or normal retirement age?) must be greater than the revalued GMP will be at state retirement age. Have I got that right?
So to calculate this, you must work out your GMP. If you know your earning for each year and the upper and lower earning limit, how do you work out the GMP?
I used an online calculator. It was only interested in earnings prior to and including 1996/97. Even though I was over the UEL for the entire contracted out period, it only said my GMP was 1361 pounds, does this sound right?
It used a fixed revaluation until 65 and came up with a figure of 6199 pounds.
Using these figures I worked out that if I retire at 51, take a 43.4% cut in my pension, it's value (given rises of 1.5%) will exceed the GMP calculation of 6199 by age 65. Am I doing any of this right?

RichandJ

DavidRKW

Firstly, GMP stopped accruing on 5 April 1997, hence why the calculator only required Middle Band Earnings (earnings between the LEL & UEL) up to 96/97.

To be able to check you have the right GMP at leaving we'd need to know:

1 your DOB;
2 your exact dates of membership of the scheme;
3 your actual Contracted Out Earnings from joining to 96/97, and;
4 if the scheme does use Fixed Rate revaluation.

GMP Payment Age (GPA), may now be different from your State Pension Age (SPA) as, for occupational pension scheme purposes GPA is still female 60, male 65. So, if you take early retirement the reduced pension at the early retirement date plus any increases, either assumed or guaranteed, must be at least your revalued GMP at GPA.

Do you have a protected retirement age in this scheme ? If not, it is not possible, other than on ill health grounds, to take the pension before age 55.

DavidRKW

RichandJ wrote: »

DavidRKW

Firstly, GMP stopped accruing on 5 April 1997, hence why the calculator only required Middle Band Earnings (earnings between the LEL & UEL) up to 96/97.

To be able to check you have the right GMP at leaving we'd need to know:

1 your DOB;
2 your exact dates of membership of the scheme;
3 your actual Contracted Out Earnings from joining to 96/97, and;
4 if the scheme does use Fixed Rate revaluation.

GMP Payment Age (GPA), may now be different from your State Pension Age (SPA) as, for occupational pension scheme purposes GPA is still female 60, male 65. So, if you take early retirement the reduced pension at the early retirement date plus any increases, either assumed or guaranteed, must be at least your revalued GMP at GPA.

Do you have a protected retirement age in this scheme ? If not, it is not possible, other than on ill health grounds, to take the pension before age 55.

Thank you for your reply
I have applied for the exact information, although, in the mean time.
(1) Dob : 07/06/1962
(2) Approx dates in company scheme Jan 87 to Mar 02
(3) Just Below the UEL in all years
(4) Fixed revalualtion (6.5%?)
(5) I have a protected early retirement of 50.

You see the program, that is available to all online, seemed to be telling me the maximum GMP possible and I was using that to predict a possible early retirement date.

I took the GMP it gave me and added compound interest of 6.5% until age 65. I then compared this figure to the actuarly reduced pension on the date I wished to retire. If the pension is higher than the revalued GMP then I can take it, does this sound right?

xylophone

shinycarol wrote: »

I have recently taken my state pension at 60, which as a woman I can, and found that although I never thought that I had opted out of SERPS my pension is a) less than forecast and b) considerably less than my friend, who reaches 60 this year. I have a teachers' pension which I took 3 years ago under special class agreement as I was transferred into it from the NHS when nurse teachers entered universities. As the teachers' pension is a set format based on final salary I have no increase if I had been opted out into it. I find this very confusing and the pension service has been less than helpful. Can anyone explain why my state pension is only two thirds that of my friend? (in plain english, please.)

You will recently have received a statement of benefits from the Pensions Service.

What is shown for Basic State Pension
Pre 97 Additional State Pension
Contracted Out Deduction
Post 97 Additional State Pension
Graduated Retirement benefit.

RichandJ

If your COEs are below the UEL I'd need to know exact figures I'm afraid before I could calculate.

The Fixed Rate reval figure was 6.25% for leavers between 6/4/97 and 5/4/2002 so that might be throwing your calcs out slightly if you're using 6.5%.

Once you know actual GMP at leaving it's revalued by 6.25% pa compound for each complete tax year between date of leaving and GPA, so 25 tax years in your case between Mar 02 and your GPA of June 2027.

Tip, to reval GMP first divide it by 52 to get a weekly figure then apply the compounding then scale back up to an annual figure. This will get closer to the actual figure HMRC will calculate rather than just applying the compounding to the annual amount.

I don't know your scheme rules, but normally IME the element of your pension earned before 6/4/97 has to be greater at early retirement (or be projected to be higher at GPA) than the revalued GMP at GPA, so even if your Pre & Post 97 elements put together covered it, retirement may still be disallowed if the Pre 97 didn't cover GMP on its own. As I say, you'd need to check with BT as to how they'd proceed in that situation.