Barclays Final Salary pension GMP/Excess revaluation & Anti-franking

MikeFloutier

Thanks Xylophone,

That's makes sense of Their illustrations (both without TFLS):

A = £14,209 (scheme retirement date - 3 Feb 2014), and
B = £11,025 ("early retirement" date - 31 Jan 2014)

And yes, Barclays do impose the Abatement which in my case is £672.49 pa.

OK, I know I keep banging on about this, but because it's so crucial in my decision as to whether to opt for A or B, can you say whether my GMP calculation is correct: i.e. from a GMP of £1802 (on leaving the scheme on 31 Dec 1994) with an fixed revaluation figure of 7% pa I would get £8591 in payment at 65???

Is there any reason you are aware of, that I may be overlooking, as to why this would not be the case; it's just that I was not aware of GMP revaluation prior to beginning this thread and the figure is obviously much larger than I was expecting (albeit payable 5 years later than I expected)

Many thanks!

xylophone

Firstly, are we talking about either retiring at age 65 or 3 days earlier (the A versus B shown in the first post)?

No, as far as I can see the OP is talking about his deferred FS pension with Barclays.

It would appear that the normal retirement age for the Scheme was age 60 (virtually the norm for this type of Scheme) and the OP reaches his Normal Retirement Date for the Scheme on 3 Feb 2014.

This would usually mean that the OP could take his full deferred pension without actuarial reduction.

That pension would include the GMP[/B- thereafter, Barclays would increase the whole of the pension in accordance with their Scheme Rules until the OP reached GMP age which in his case means virtually State Pension Age.

For example, suppose the Scheme pension at age 60 was £10000 per annum and the Scheme Rules stated that pensions would be increased by RPI as at December each year. That £10000 includes the GMP. At this point the Scheme Administrator should be able to give him the figures for his pre 88 GMP (x), his post 88 GMP (y) and the excess(z). Then x + y+ z =£10000.

The first December after age 60 RPI is 5% - therefore the pension becomes £10500 per annum. The £10500 will increase by RPI at the next December and so on until the December after the pensioner reached 65. Let us suppose at this point that the pension has reached £12,000 per annum and of that £12000, the amount of pre 88 GMP has now reached £2000 (x) and post 88 £750 (y) so that z (the excess) is now £7250.

Then the Scheme pays no increase on £2000, up to 3% or CPI inflation (whichever is the lesser of the two) on £750 and RPI inflation on the balance.

The point is that the GMP is always included in the pension at the date it is taken, it is not in addition to it.

What seems to me to be odd is that the OP has been quoted a pension amount that is £3000 higher three days before his NRD and then that Barclays seem to be telling him (whichever of these figures is correct) that the GMP as calculated at his NRD is not within the amount.
I used to think that I understood GMP pretty well, but I confess to being utterly flummoxed and am hoping that Snowman can throw some light.

mrschaucer

MikeFloutier wrote: »

Thanks Xylophone,

That's makes sense of Their illustrations (both without TFLS):

A = £14,209 (scheme retirement date - 3 Feb 2014), and
B = £11,025 ("early retirement" date - 31 Jan 2014)

QUOTE]

Mike, you've now transposed the two figures from the original post, which were flummoxing people. Can you confirm which figures go with which retirement option?

MikeFloutier

Gosh, sorry Mrs Chaucer, you are so right, it should have read:

A = £11,025 (scheme retirement date - 3 Feb 2014), and
B = £14,209 ("early retirement" date - 31 Jan 2014)

I spoke to the administrators on the phone but they couldn't explain the difference, although they said it related to the GMP portion. They have promised to write explaining in full; something I'm waiting for.

Good spot, thank you!

SeekTruth

mania112 wrote: »

...

In any case: When you turn 65, a GMP will be paid.

That's the only fact you need to be concerned with, really.

If your reduced pension for retiring early was £5,000, the £5k is calculated to ensure once you hit 65 it has grown to be at least the GMP.

GMP is the guaranteed minimum pension (as you know), so it's the minimum the pension must be at 65. At that's all.

EDIT: And so if GMP can not be met by retiring early, they wouldn't let you do it (unless you were at 'deaths-door')

If normal retirement is way in excess of the GMP, it's clearly irrelevant that there's a guaranteed minimum.

If you retire early the pension at 65 still needs to be at least equal to the GMP proportion.

What GMP isn't, is an additional amount. It's normally a total pension (of which GMP is £x).

Apologies if this is confusing the issue, but doesn't the Anti-Franking legislation mean that the pension at SPA will be more generous than implied by mania112?

I think that I understand the impact of Anti-Franking on the pension calculation for someone who, for example, leaves a pension scheme early and then takes the deferred benefits on reaching SPA. I definitely do not understand the impact on someone who leaves a pension scheme early, leaves the benefits deferred for a period and then takes them before SPA. If anyone can explain the latter case to me in words of one syllable and with worked examples then I'd be grateful!

MikeFloutier

Ok, I'd really like to get back to basics here if we can; it's got too complicated:)

Let's just assume that I want to take my Barclays FS pension at Normal Retirement Date and I don't want a TFLS.

I left the scheme on 31 Dec 1994 and "retire" on 3 Feb 2014.

My GMP portion (at Leaving) is stated to be, £1802 and it's also stated that this will be revalued at a fixed rate of 7% at GMP payment date. I now think this equates to a figure of £7989

I have a statement from Barclays that says "Total scheme pension at retirement, £11,025". (subject to a deduction of £672 at SPA).

My feeling is that this is a fairly normal situation, I'm not asking about increases when the pension is in payment so please ignore that.

OK, all I want to know is, what will they pay me at Retirement AND, what will they pay me at SPA/GMP age (ie 65). Could you possibly give me a worked example from my figures?

I just have a slight concern that I might be labouring under a misapprehension about some aspect of this - e.g. Increases to my GMP portion may not actually increase my overall pension.

mania112

Ok

At retirement Barclays have estimated for you that your total pension will be £11,025 - that includes the GMP portion which becomes 'valid' for want of a better word at 65.

As you can see at SPA the pension from Barclays goes DOWN, not up.

The deduction at SPA is known as a 'bridging pension' which means Barclays give you a bit extra to 'tide you over' until such time as your basic state pension kicks in.

The overall figure INCLUDES a proportion of which which is made up of GMP as a result of contracting out.

MikeFloutier

Ok, I've certainly learnt a lot in the last few days. At first I have to admit being slightly irritated by the deluge of links in place of straight answers However, as I've assimilated some of the info I've begun to see the wisdom of this and to appreciate the time and trouble taken to know about these links and, more importantly, to know which are relevant to me. Thank you!

For the time being, I'm going to wait for Barclays' (Tower Watson's) response to my query about why my Normal Retirement Illustration is £3,200 less than a (3 day earlier) Early Retirement Illustration.

I'm also hoping to hear from the legendary SnowMan.

I'll post again when more is known.

PS. One last question, is it fair to say that, "IF one's FS pension (at retirement) is greater than one's revalued GMP, THEN, even if the said GMP suddenly ceased to exist, the value of the FS pension would remain unchanged (ignoring the effect of any post-retirement increases)???"

Do you see, since the GMP seems to be the thorn in our sides, I'm trying to establish whether my GMP has any relevance at to me at all.

mrschaucer

This is continuing to make my head hurt, but is most intriguing. I think the options you have in front of you at the moment equate to comparing apples and pears - one quote including the theoretical gmp portion as at Jan 14 (but not telling you what it is) and one quote without the gmp as at Feb 14, telling you it will be paid later ...
(By the way, I don't think I agree with your calculation of gmp at age 65 - if you are right and the figure of £1802 is revalued at 7% each April making 24 years-worth of revaluing, then if you compound that up you get to somewhere in the region of £9140. Google a compound interest calculator.)

By Jan/Feb 2014, the gmp element (originally £1802) would theoretically have been revalued over 18(?) years, giving a figure of £6090 ish. So now you can compare the two offerings a bit more sensibly:

Early retirement Jan 14 at £14209 (including a gmp of £6090) which is the same as:
Early retirement Jan 14 at a theoretical £8119 without gmp

Compared with
Normal retirement Feb 14 at £11025 without gmp.

So that helps a bit. It doesn't solve your problem as to which to choose, however.

Early retirement: £14209 with increases to 65 governed by whatever the scheme rules say about early retirement increases. (So £14209 plus x.) At 65 you get a letter from the pension scheme outlining your pre-and post 88 gmp figures (totalling for the sake of argument £9140) and the Excess amount, (which will therefore be £14209 plus x minus £9140) all of which will then be treated differently as far as increases are concerned (see earlier posts and links). At some stage (age 65 or SRD?) you give up your £672 back to Barclays, and at your State Retirement Date you qualify for your state pension.

Normal retirement: £11025 with increases to 65 governed by whatever the scheme rules say about normal retirement increases. (So £11025 plus y.) At 65 you get your long awaited GMP, so £11025 plus y plus £9140. You get the same letter as above from the pension scheme outlining pre-and post- 88 gmp amounts totalling £9140, BUT the Excess will obviously be different (£11025 plus y minus £9140). Again, you give up your £672 at whatever stage and qualify for your state pension at SRD.

Whatever you do, the gmp amount is a constant which has to keep revaluing at 7% until you are 65 (whatever increases are applied to your early retirement pension of which it could form part, note) and ends up at the same amount in either scenario.

Like others I'm at a loss to understand why they would "include" gmp in the early retirement quote and "exclude" it in the normal one apart from the scheme rules having been written in this very arcane way. Please come back and fill us in on any other info gleaned when you get your reply!

MikeFloutier

Many thanks Mrs Chaucer,

I will report back when I get my response from my FS scheme administrators.

In the mean time I going to continue to try to understand things better.

To begin with I'd like to check my assumption that my GMP is an addition my FS scheme pension (in spite of the fact that it is expressed as a "portion" of it). The logic behind this is that a) my FS pension was begun when I joined Barclays in 1973, and b) my GMP was added to this when we contracted out of SERPS on 6/4/78.

Another reason it must be an addition is that Barclays' benefit from contracting out was that they paid less in the way of NIC.

I have been a little confused by the wiki entry for GMP combined with the term "excess" (used to describe Your FS pension minus GMP). In the worked example quoted on wiki, one's pension appears to be inversely proportional to one's GMP.

You may be thinking that I'm just stating the obvious but remember this is all new to me and I'm very conscious that a lot of my reasoning needs testing.

Next I think it might be helpful, since were all struggling to make sense of this (including the guy I spoke to at Barclays ), to go right back to the beginning and do all the calculations from scratch.

I should easily be able to calculate what my pension was (ie 2/3 final salary times years service divide by 40. Then I just apply the scheme increases since retirement.

Then I can check my GMP calculation as this should be similar to what my SERPS entitlement would have been. Well it may be a bit of an estimate since I'll have to try to remember what I was earning from 1978-1994.

Anyway, as I said, I'll report back in due course.

Thanks again!