Deferred pension calculation

homeperson

Has any one managed to find the definitive calculation rules for deferred pensions, or even taken the deferred their deferred pension and can therefore indicate how it was calculated?
I have followed a thread that ended in 2010 where there was a lot of useful suggestions but no one seemed able to pin down the answer.

RichandJ

Are you talking about taking a deferred pension and how it is revalued between leaving and commencement ? If so, the answer will depend on quite a few variables, such as dates of service, whether the scheme was contracted out or not, GMP revaluation method if it was contracted out and whether revaluation switched to CPI from 2010 onwards. This isn't an exhaustive list either.

There is no definitive answer I'm afraid, both legislation and individual scheme rules have seen to that.

homeperson

Thanks for your prompt reply Richard.
I am referring to the basic state pension which I have now deferred for nearly 3 years now. I am about to be made redundant and am trying to work out how much money I can expect when I start drawing the pension from the state.
I qualify for full basic state pension plus a little bit of additional pension and graduated benefit.
When I reached retirement age in Aug 2010 it would have paid out £137 per week ( 97.65 basic plus additional pension and graduated benefit.)
I am trying to calculate what this will be given
a) interest accrued by deferring and
b) rise in basic state pension

Bigmoney2

As above it will depend on the scheme rules.

Are you talking about a defined benefit scheme (final salary) if so
was it with a large employer, as there may be pensions website for the scheme (my pension scheme has one).

In my experience of final salary schemes (so may not be applicable to you) the defered pension is calculated using pensionable salary and service at the date you left, this is then increased at the same rate as pensions in payment until normal retirement age for the scheme.

If you wish to take it early the reductions applied by the scheme rules would apply.

This is a simple explanation, but other rules either in the scheme rules or applied by law may apply.

It is probably worth contacting the pension scheme administrators or trustees to ask for a forecast.

homeperson

Hi Bigmoney2
As per my post which I think must have crossed with yours, this is just a small fry state pension.

RichandJ

Ah, state pension, can't help with that but I'm sure someone else will be able to.

RichandJ

Bigmoney2 wrote: »

As above it will depend on the scheme rules.

Are you talking about a defined benefit scheme (final salary) if so
was it with a large employer, as there may be pensions website for the scheme (my pension scheme has one).

In my experience of final salary schemes (so may not be applicable to you) the defered pension is calculated using pensionable salary and service at the date you left, this is then increased at the same rate as pensions in payment until normal retirement age for the scheme.

If you wish to take it early the reductions applied by the scheme rules would apply.

This is a simple explanation, but other rules either in the scheme rules or applied by law may apply.

It is probably worth contacting the pension scheme administrators or trustees to ask for a forecast.

The bolded bit really isn't the case BM2, especially if there is GMP involved. Revaluation of deferred pensions and indexation of pensions in payment are two separate things.

hugheskevi

State Pension was £97.65 per week, increased to £102.15 in April 2011 and to £107.45 from April 2012.

Your Additional Pension was £39.35 per week [£137 less £97.65], increased to £40.57 in April 2011 [increased by 3.1%, which was September 2010 CPI] and to £42.68 in April 2012 [5.2%,. September 2011 CPI].

When you end your deferral, you choose either a lump sum or a higher weekly pension.

If you take the higher pension, it will be 10.4 percentage points higher for each year deferred. So if you took it in August 2012, it would be 20.8% higher [no need to end deferral exactly 2 years after starting, you would get pro-rata increase, just using that date for convenience of calculation]. Your current amount of State Pension is £107.45+£42.68=£150.13. So if you choose the higher pension, you would get an extra £31.23 per week. That £31.23 would be increased by CPI in future years [under current policy, it can change].

Alternatively, you could take the lump sum. That works as though you had put each week of State Pension into a saving account and received 2.5% annual interest rate. When you take it, it is taxable.

Numbers might not be quite right for the additional pension if you have any contracted-out periods, due to the way contracting-out deductions are calculated, but it gives you the general idea. I also can't recall if Additional Pension is increased in the year of receipt by a pro-rata rate of inflation, eg, 8/12 of the annual CPI rate as you became entitled in August - had a look and couldn't see any references to it.

Hope that helps a bit. With regard to definitive references, from previous experience all the leaflets tend to be written in 'Plain English' so are too fluffy to be definitive about the precise calculation - DWP used to put out leaflet NP46 which had all the technical detail and was very helpful, but it hasn't been published for several years now....might help you to look at an old edition though if you want specifics.

Bigmoney2

RichandJ wrote: »

The bolded bit really isn't the case BM2, especially if there is GMP involved. Revaluation of deferred pensions and indexation of pensions in payment are two separate things.

I was going on how many company pension deals with deffered pensions , (I did say it may not be the case for OP), and they do use the same RPI figures for both (upto 5% max).
I agree there are certain rules applied for the GMP part if contracted out between certain dates.

homeperson

Thanks Hugheskevi, that looks like the information I need.
Cheers.

chris1

hugheskevi wrote: »

DWP used to put out leaflet NP46 which had all the technical detail and was very helpful, but it hasn't been published for several years now....might help you to look at an old edition though if you want specifics.

Couldn't find one on the DWP site but found a copy here if anyone needs it.
http://www.pensions-advice.me.uk/pdf/np46/np46apr04.pdf

Although it has 2004 on the cover, there are updates inside dated 2010. Hope that helps.