More pension questions

Excel_2

Hello, back again with some more questions please. Hopefully someone will know the answer(s)!

Main pension - I have a deferred final salary pension that covers a period of employment from 1983 to 1999. Part of the pension is GMP that applied during some of those years.

Small Additional Pension - I have one other pension from another employment 1978 to 1983. At the time of leaving the deferred pension was worth £114.92 (annual). At NRD age 60 (2016) this employer has told me my annual pension will be worth £1441.44. I’m pretty sure this is all GMP.

Guaranteed Minimum Pension

I’ve had a quote for early retirement (main pension) and the letter that accompanied the quote says:

“Please note that this quotation has been calculated prior to confirmation from the Department of Work and Pensions of your Guaranteed Minimum Pension (GMP) entitlement. On receipt of this confirmation, the quotation may be changed if necessary” What could change and why?

1) If I’m already receiving one GMP under one pension does this affect the amount of GMP payable under a second pension?

2) I understand that GMP was originally designed to ensure that members of opt out pension schemes did not receive any less than they would under a state pension. At the time retirement age for women was age 60 but I won’t receive my state pension until age 66. Do I still receive GMP under my occupational pension(s) if I retire early (age 58?) or even if I wait to NRD (age 60)?

Other PensionArrangements

Another statement in the letter that threw me was this: “This quotation assumes that you have no benefits due or being paid from other pension arrangements. In order for us to confirm this please ensure that you complete the enclosed Retained benefits Questionnaire as fully as possible”. Could they just be asking about this because of the Lifetime Allowance? If so, then my 2 pensions are below the £1.25m limit.

Timing of Retirement

From the date of leaving, my main pension has been revalued at an increase of 5% per annum. Also once in payment the pension will be increased by 5% per annum (all this is confirmed in my deferment statement and retirement quotations).

My NRD is 31/12/2015 which is 2 months before my 60th birthday (Feb 2016). The letter from my ex employers says “Your first increase will be proportionate and due on the 1st January following your retirement date”. Could this be why my NRD was set 2 months early? Presumably the annual pension paid to me w.e.f. 31/12/2015 will be the value as at 1st January 2015? Should I ask to retire the day after my NRD in order to benefit from the 5% increase effective from 01/01/2016?

I’ve looked for the answers to these questions online but withoutsuccess!

xylophone

http://www.maturetimes.co.uk/campaigns/pensions-benefits/3439-steve-webb-confirms-women-to-lose-gmp-increase-on-pension.html

You might find this thread of interest https://forums.moneysavingexpert.com/discussion/4532605 Post 21 onwards.

xylophone

It has occurred to me that you will reach state pension age after the single tier pension comes into operation ( April 6 2016?)
https://www.gov.uk/government/publications/the-single-tier-pension-a-simple-foundation-for-saving--2

Excel_2

Thanks for your replies Xylophone with the links. Yes I won't reach state pension age until 2022 so I suppose that means I will receive the flat rate pension whatever that may be at the time. Having read the Steve Webb article in your link I'm delighted that I won't be subject to any sex discrimination by the time I reach state retirement age!!

However at the moment I'm trying to get to grips with my occupational pension as that retirement age is much closer. I need to understand the reasoning behind the caveats in the latest retirement quotation letter as they are worrying me that my pension might be less than quoted. If it is less I'm hoping it won't be significant.

xylophone

You do realize that your GMP is part of and not in addition to your occupational pension(s)?

When you start drawing your pensions from your schemes, part of each pension will be the GMP.

See http://www.pensions-express.co.uk/pex.chi/news.html?id=241 but for RPI read CPI.

As a female, your GMP age is 60 - see above re scheme increases from age 60.

Excel_2

Hi Xylophone, yes I understand that the GMP is part of my occupational pension and not in addition to it but I'm trying to understand how the GMP rules might affect payment of my occupational pension (final salary).

My main pension is a Final Salary pension and the GMP part of it is roughly 16%. Bearing in mind that the GMP part is meant to compensate for loss of state pension benefits where the employer has contracted out, can I receive the GMP part of my occupational pension at age 58?

Or put another way, (just an example) say the occupational pension quote is £30,000 including a GMP portion of £5,000. Will the employer pay the full £30,000 at age 58 or pay £25,000 at age 58 and then £30,000 at age 60 which you say is the GMP age. I hope this question make sense.

mania112

Don't forget GMP rules are statutory MINIMUM requirements.

The scheme is allowed to go above and beyond those rules.

Some schemes (for example) might accrue ALL benefits by 5% in deferment (where the GMP requirement might only have been 4%).

Most schemes with GMP tend to have their retirement date at the same age to keep things neat. But those with earlier retirement ages will normally pay the GMP part early too - and so long as they meet the minimum standards at 65, that's fine.

Take note that i've used 'most schemes' and 'normally' - Unlike Money Purchase pensions, final salaries are very flexible and each schemes can/will operate in its own way.

These sorts of questions are only going to receive definitive answers from the Trustees themselves.

RichandJ

Excel wrote: »

Hi Xylophone, yes I understand that the GMP is part of my occupational pension and not in addition to it but I'm trying to understand how the GMP rules might affect payment of my occupational pension (final salary).

My main pension is a Final Salary pension and the GMP part of it is roughly 16%. Bearing in mind that the GMP part is meant to compensate for loss of state pension benefits where the employer has contracted out, can I receive the GMP part of my occupational pension at age 58?

Or put another way, (just an example) say the occupational pension quote is £30,000 including a GMP portion of £5,000. Will the employer pay the full £30,000 at age 58 or pay £25,000 at age 58 and then £30,000 at age 60 which you say is the GMP age. I hope this question make sense.

The full amount Excel. GMP payment age, i.e. the age at which it is deemed to come into payment, is still 60 female, 65 male. This is regardless of whether you are already 'receiving' it as part of your occupational pension. The only thing that might happen after the relevant age is that it could be 'split' out for increase purposes. That could mean any GMP earned prior to 6/4/1988 will not be increased by the scheme but by the state (how this is going to work with the new flat rate state pension is beyond me) and any earned after 5/4/1988 may only need to be increased by CPI up to a max of 3%.

The caveats in your first post from the administrator sound generic. They can't be 100% definite that the GMP they record for is 100% correct until they get HMRC confirmation & HMRC don't send that until people hit GMP payment age.

Also re having 2 separate GMPs from two different periods of contracting out - they shouldn't interact at all.

xylophone

When you left your contracted out schemes, your pre 88 GMP and post 88 GMP would have been calculated because they would have had to be revalued to your GMP age.
http://www.barnett-waddingham.co.uk/news/2012/07/what-is-a-gmp/

As far as I can see from your post, both your pensions with GMP arise from private rather than public service occupational schemes?

If you choose to draw these pensions before Scheme Pension Age, they will suffer an actuarial reduction but then your pension will be paid and increased by scheme rules. The pensions will include the GMP.

Once you become 60, as a female, your revalued GMP will be calculated because of the rules that apply to increases in GMP in payment after GMP age.

Your administrators should give you a statement showing your pre88 and post 88 GMPs at that point.

Interpreting what Capita have said in the link above, your pre 88 GMP from each scheme will not be increased by your schemes and since you will not be receiving your state pension will not be increased by the state either.

Your post 88 GMPs will be increased by your schemes up to 3%.

The excess will increase in accordance with scheme rules.

With regard to your state pension, presumably you will be eligible to draw it at the age of 66 - 2022?

It looks likely that the single tier pension will start in 2016 but if you read the information in the relevant link, you will see that there will have to be transitional arrangements to cover the vast numbers of people who have various entitlements under the old system.

"21. The transition process for the single-tier pension will translate people’s pre-implementation
National Insurance records into a simple single-tier starting amount – the ‘foundation amount’.
22. An individual’s National Insurance record will be valued using single-tier rules as at the
implementation of the single-tier pension. Where an individual has previously been contracted
out of the additional State Pension, a deduction will be applied, reflecting the fact that they have
paid lower National Insurance contributions whilst they were contracted out, as is consistent with
current practice.
23. As an added safeguard, the Government will check to see if the rules of the current system
would give a better outcome. The higher valuation will then become that individual’s foundation
amount.
24. Under this approach to transition, those reaching their State Pension age after the
implementation of the single-tier pension will fall into four distinct groups: "

You spent over twenty years in contracted out employment.

The above is only a best guess - you will need to seek specific information from your scheme administrators.

Excel_2

Thanks RichardandJ, that's put my mind at rest!

Excel_2

Again, thanks Xylophone for taking the time to post all this information. As you may be able to tell from my user name I'm very fond of using spread sheets to plan my future income!

The information you gave me will help me to modify the figures but the impact is likely to be less severe than I had feared

The important thing is that I now know if I retire at age 58 I will receive 100% of the pension quotation I received from my ex employers. I had thought the GMP component might be excluded until age 60, or even 66!

I can see now why they abolished GMP, it's a bit of a mess isn't it?