Statement of Deferred Benefits - what does it mean?

genie_g

Hello

I have a final salary pension from an ex-employer. Can someone help me with an explanation of what this means from the Statement of Deferred Benefits I received when I left their employment in 1994? NRD presumably stands for normal retirement date?

Member's Pension Payable from NRD
Pension accrued at the date of leaving: £695.83 pa

Pension from NRD: £3121.73 pa

Thanks

G

JoeCrystal

Yes... I think it is Normal Retirement Date after all. I think it basically say that you will get a pension of £3,121.73 per year once you reached NRD.

Cheers

Joe

RichandJ

The pension at NRD figure is highly likely to be an estimate & probably uses 5% pa inflation as the estimate basis. In my experience your actual NRD benefits could be widely different to that you quote.

Best idea is to contact the admin & ask what the figure would be as if you had attained NRD this year.

genie_g

RichandJ wrote: »

Best idea is to contact the admin & ask what the figure would be as if you had attained NRD this year.

Say they said £3000, could I assume that my pension would have the equivalent buying power of £3000 at my NRD in Feb 2026?

jamesd

No. Increase in pension value can be different, probably less than, inflation. You could usefully ask them how the scheme is currently handling inflation-related payment increases.

genie_g

So a 'defined benefit' pension does not even give a defined benefit?

I'm really struggling at the moment to understand how I am meant to have an idea of what income our pensions are likely to produce.

Is it the case that we just need to save as much as we can afford to in various investment vehicles and hope that's enough in 15-20 years?

There are so many variables for DC schemes - growth, inflation, annuity rates, charges (and probably other things I know nothing about!) I was hoping for some degree of certainty from our DB pensions.

Zelazny

genie_g wrote: »

So a 'defined benefit' pension does not even give a defined benefit?

The benefit is "defined" at your date of leaving. Between that date and your retirement it increases as dictated by the scheme rules, which for non-GMP benefits is usually in line with either RPI or CPI, capped at either 5% or 2.5%.

If any part of the benefit is GMP and subject to fixed rate increases, then it will increase at a fixed rate dictated by your date of leaving. For example, if you left between 6 April 1993 and 5 April 1997, it would increase at a fixed 7% per year (although it does not increase in the final year before GMP payment age). For leavers after 5 April 2007, the rate is 4% per year.

Best bet to work out what you'll have at retirement is to ask the scheme administrators what the revaluation rules are for the scheme.

RichandJ

As Zelazny says, we'd need to know if there was any GMP within the deferred pension at leaving and also the actual date of leaving and your actual NRD date, e.g. 15/02/2026.

I had a brief look at your figures earlier today & they almost equate to 5% pa for 31 complete years between late 1994 & Feb 2026.

As he also says, the defined benefit is defined only whilst you are in the scheme, as you left it was worked out on a defined basis, e.g. service x salary ÷ 60. The defined benefit at leaving is then increased until your NRD but at least part of the pension will be increased by inflation, which is obviously unknowable for future years.

jamesd

genie_g wrote: »

Is it the case that we just need to save as much as we can afford to in various investment vehicles and hope that's enough in 15-20 years?

Yes. Regular monitoring needed and regular adjusting appropriate based on what you see. The defined benefit ones have somewhat lower uncertainty in some ways but have their own different issues. A mixture is good.

genie_g

RichandJ wrote: »

As Zelazny says, we'd need to know if there was any GMP within the deferred pension at leaving and also the actual date of leaving and your actual NRD date, e.g. 15/02/2026.

OK thanks - can't see any reference to there being any GMP in the paperwork I have. But I now know to ask the question.

RichandJ wrote: »

I had a brief look at your figures earlier today & they almost equate to 5% pa for 31 complete years between late 1994 & Feb 2026.

As he also says, the defined benefit is defined only whilst you are in the scheme, as you left it was worked out on a defined basis, e.g. service x salary ÷ 60. The defined benefit at leaving is then increased until your NRD but at least part of the pension will be increased by inflation, which is obviously unknowable for future years.

So, it sounds like, if I'm understanding things properly, that the approx. £600 figure is the pension I'd 'earned' at date of leaving in 1994 and the approx. £3000 figure is what they calculated in 1994 the £600 would have increased to by 2026.

So, in terms of understanding the value of the pension then a rough and ready estimate would be the equivalent buying power to £600 in 1994 (allowing for not knowing the exact way that increases are calculated).