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

xylophone

The GMP system postdates your commencement of employment by Barclays. It began in 1978.

I know that you don't like links but nevertheless I suggest you read this which explains more or less in words of one syllable:)
http://www.financialadvice.net/State_Graduated_Retirement_Pension_Scheme/zone/354

It may well be that Barclays was contracted out of GRP but would have had to provide "equivalent pension benefits".

The GRP scheme ended in 1975 and then there was a hiatus until the provisions of the Pension Act of 1975 could be enacted in 1978.

The Barclays pension scheme would still have been operating according to its rules during this time.

The State Earnings Related Pension Scheme (SERPS) introduced in 1978 was compulsory but employers could choose to contract out provided that they undertook to provide an occupational pension that was at least as great as the employees would have earned had they remained contracted in.

So the GMP is within the occupational pension but of course Barclays and other occupational schemes) provided far more than the minimum required by law.

Nevertheless that part of the pension that represented the GMP was caught by GMP rules.

Looking at the statement of preserved benefits you would have been given when you left on 31 Dec 1994, what were the figures for pre 88 GMP, post 88 GMP
and the excess?

It is the case that if a pension in payment did not at least equal the amount that had to be paid from GMP age then an increase would have to be paid at GMP age to make up the difference.

mania112

I think the only confusion amongst us is why you have two very different pension figures on dates only 3 days apart. It's going to be a straightforward response from Barclays, but without seeing your paperwork, it's not possible to give you a concrete answer here.

The way a final salary pension functions is explainable, although tricky to understand if you're not involved with them every day.

In retirement, the word 'pension' refers to the amount of income the scheme will pay you.

The pension can include GMP, as a result of being contracted out of the additional state pension.

GMP is revalued in its own way in accordance with legislation.

Any excess above GMP is revalued in the way the scheme itself dictates (and quite often at a better rate than GMP).

The GMP portion is a guarantee at 65 (the state pension age when this was introduced, and has not changed) - the remainder of your pension might not be.

Your primary question is regarding early retirement: Early retirement and GMP do not mix. GMP will only become valid at 65. That's to say - if you DO retire early and this causes the pension at 65 to be below GMP, you cannot retire early.

Effectively the actuaries will actually calculate an early retirement pension which ensures GMP is met at 65.

SnowMan

Sorry have been away on holiday hence the delay in replying.

There isn't currently enough information available to understand what is going on, either via the individual data or knowledge of the Barclays scheme itself.

However I think the key to understanding this is to first identify the deferred pension at leaving at 31/12/94 before any revaluation (split into the GMP and excess over GMP) and then to understand how the normal retirement pension at 60 is calculated from this, based on what revaluation is given from 1994 to 2014 and how under the scheme rules the pension is structured in terms of what GMP revaluation is given at age 60 and what adjustment applies at age 65 (in 2019). Once this has been clarified the next step would then to be to try and understand the strange early retirement option so I’ll concentrate in this post on understanding the NRD pension.

First thing to check is do Barclays separately increase the GMP and excess over GMP between leaving and NRD (rather than increase the whole deferred pension at as single rate in deferment). It would be normal for private sector schemes to revalue the GMP and excess separately in deferment so I will assume this is the case. It would also be normal for the scheme to apply the statutory minimum increases in deferment to the excess pension so again I will assume this.

Just to put some numbers on it I'll assume the deferred pension at leaving (before any revaluation) is £5,000 per annum.

The GMP at leaving is £1,802 pa so the excess over GMP at date of leaving would be £3,198 pa.

Then to calculate the excess at NRD (60) note that the excess would get 19 years statutory revaluation to age 60. Statutory revaluation is based on complete years at a rate of the lower of 5% and RPI, now CPI, applied cumulatively. The revaluation percentages are given here (although that only goes up to the 2013 year and note it is the higher revaluation column that is relevant in your case). I’ll assume an increase of 69.7% will apply although this won’t be known until the 2014 revaluation orders are declared. Note this also leads to the question what revaluation have the scheme assumed in their figures and how accurate is that assumption.

GMP revalued to NRD = 1,802 x 1.07^18 = 6,091 (scheme might use 19 revaluations instead)
GMP revalued to age 65 = 1,802 x 1.07^23 = 8,547
Excess revalued to NRD = 3,198 x 1.697 = 5,427


In the scenario a Normal Retirement Date of 60 (before the male GMP age of 65) and based on the assumptions above the schemes can do a number of things at age 60 (and 65) in treating the GMP revaluation.

So scheme at NRD might pay for example depending on the scheme rules

a) £11,518 pa from age 60 (= GMP to NRD of 6,091 + revalued excess 5,427) or
b) £7,229 pa from age 60 (= GMP at leaving of £1,802 + revalued excess of 5,427) with a step up increase at 65 representing GMP revaluation of £6,655 pa (8457 – 1802)

Of course I’ve made up the deferred pension at leaving of £5,000 pa but if it was this amount then method a) say gets close.

I would suggest Mike that you do some further data gathering from the scheme (starting with identifing the deferred pension at leaving before any deferment revaluation) and post back and hopefully we can then make progress.

Just want to say Mike also, that you are going about things the right way in trying to gain understanding of your pension, but it can be fiendishly complicated, so please persevere.

MikeFloutier

Many thanks to Xylophone and Mania 112 for that information, I'm definitely learning a lot.

Thank you for your response SnowMan, I'm still waiting for Barclays/Towers Watson to write explaining the £3,200 difference between "retiring" at 31/1/2014 and 3/2/2014.

I've gathered most of the information you've requested from documents received from the administrators over the years and will try to present them in an intelligible way below.

Firstly, I should say that I don't want to place too much reliance on info. supplied by Barclays because:

1. Of the strange difference in retirement figures above, and

2. A similar incident in 2008 - 2011. Having given me a retirement quotation in 11/2008 of £10,058 they followed this in 12/2008 with one for £12,760 and then wrote to me in 6/2011 saying that the "previous (presumably 12/2008) illustration incorrectly increased the GMP portion to the calculation date instead of at your GMP payment date" (i.e.. 65). This appeared to be a standard letter as it covered both men and women with just the figure work being specific to me.

Also the following quote from a thread in April is enlightening:

“Does anyone have any information or experience about guaranteed minimum pensions (GMP)? I have one from Barclays who I worked for 8 years for between 1978 and 1986 and left with a deferred GMP as the scheme was contracted out of SERPS. The Barclays pensions administrator refuses to revalue as it says it is down to HMRC when I reach 60 in 7 years time and only Quote: s the amount at leaving and not with the statutory annual increases which make a significant difference considering it will be 34 y”


OK, the value of the deferred pension at Leaving on 31 Dec 1994 is clearly stated as GMP £1803 and the Excess £5477 = total £7280 (all figs rounded to nearest £ btw)

For added info. I would mention that I received the following quote from them as at 1 Jun 2011 stating GMP £1803 again but the Excess is now £8517 = total £10,320.

Regarding the increases between Leaving and Retirement, apart from what we can glean from the above, I would quote from Barclays' “Post 06 DIP Guidance notes 64” (“64” is a nickname for my pension scheme btw). It says: “Since leaving the scheme your pension has received annual increases. Your scheme pension over and above any Guaranteed Minimum Pension (GMP) element has increased with effect from 1 October each year in line with the retail prices index (RPI) up to a maximum of 5%. Any GMP element has increased each April; the rate being determined by the date....” (ie. 7% in my case).

Having said that, I then read, in a booklet entitled “What happens to your pension when you leave Barclays” dated Oct 2011 - “The GMP portion of your pension is revalued at GMP payment date for each complete tax year.....” It then states, but does not explain, that I may get an increase in my pension at GMP payment date.


Taking my revalued GMP, using your calculation this gives £6091 (at 60). Add to this my true Excess (£5,477), again revalued using your factor of 1.697 this gives £9294. This totals £15385.


Now, when I asked about Retiring early, I asked for the Actuarial Reduction factors for retiring at 58 & 59. At the time (about a year ago) they told me that the factor for retiring at 59 was 0.951. If you apply this to the £15385 total above, you get £14,631.

Bearing in mind the Actuarial Deduction will have changed over the course of a year, this figure of £14,631 is remarkably close to the “Early Retirement” Illustration of £14,209 I have just received.

Also, if you revalue the Excess only, using the 1.697 factor (RPI/5%), this, as above, is £9294. Add in the basic GMP figure of £1803. This gives a total of £11,097. Again, remarkably close to the NRD illustration of £11,025.

This doesn't explain the Why, but it may explain the How this “Early Retirement” figure is arrived at.

Clearly this would need confirming by Barclays. Also I would need to know what would happen at GMP date. Hopefully at that stage I might be in a position to make a decision about whether or not Retiring a couple of days early may be right for me.

Many thanks for your help with this SnowMan

MikeFloutier

Ok, I've now received a written reply from Barclays which contains the following info:

1. They acknowledge the £3,200 difference between NRD (3/2/2014) and "early retirement" (31/1/2014). They say the quotes appear correct BUT because they are calculated differently they "cannot easily be compared"

2. They confirm what I thought, i.e. the £11,025 NRD pension = non-revalued GMP (£1803) + revalued excess. The £14,209 "early retirement" pension = GMP revalued at 7% (up to 60) + revalued Excess ALL subject to an early retirement actuarial reduction factor. It's confirmed that the GMP revaluation will continue between 60 & 65 and that this "may result in a step-up which may be applied to your pension" (at 65)

I would add the following quote from their (£11,025) NRD statement received the other day. "At your GMP age of 65, we will write to you with details of any increase in your pension...". This is probably the heart of the matter; will this increase (at 65) be better than £14,209 now??


Today I telephoned them to try to clarify exactly what my future position would be if I accepted the far lower initial pension quote of £11,025.

They agreed that it would be reasonable to expect a step-up, at 65, of an amount commensurate with the initial GMP compounded at 7% pa from Leaving (1994) to GMP date (2019). I think this step-up should be £6745 (GMP revalued to age 65 = 1,802 x 1.07^23 = 8,547 minus GMP at Leaving £1802)

They have agreed to produce a new full official Early retirement illustration (mine was simply printed off their website app), just in case the website gizmo is faulty.

They will then come back to me confirming my options AND they have agreed to put the "7% GMP step-up at age 65" in writing.


In speaking to them on the telephone it became clear that they were as perplexed by the big variance in these two options as we were. I understand that there are some 140,000 Barclays deferred pensioners so it is surprising that this hasn't been clarified previously.

My guess is that this is because Towers Watson have only just taken over as administrators in the last few months AND that prior to this (as we have seen) the old Barclays pensions people were not exactly forth-coming.

Anyway, I'll report back again when I get my next letter from the administrators. I guess there's no harm in having two quite different options (which may suit different circumstances) I just need to make sure I know exactly what those options are. Phrases like - this "may result in a step-up which may be applied to your pension" - aren't that helpful.

Many thanks for all your help with this!

mrschaucer

Good on you for pushing and pushing for this information. I think you are doing absolutely the right thing trying to get as much in writing as possible before making that decision.

xylophone

Have you kept in touch with any colleagues from Barclays who have drawn their deferred pensions at NRD and have passed GMP age and who would be prepared to share their pension statements with you? Or indeed any who drew their deferred pensions slightly early and have passed GMP age?

I have looked at the above again and I am still flummoxed.

Are TW saying (1) that you would receive an actuarially reduced pension of £14,209 pa if you started drawing your pension on 31/1/2014 and that the whole of this pension would escalate in payment by whatever your Scheme Rules specify (RPI?) until GMP age when the usual pre 88/post 88/ excess rules would apply? That a few weeks later when your State Pension comes into payment, there will be a small abatement which is the same whether you take your pension pre or post NRD?

(2) That if you wait to draw your pension until 3/2/2014, you will receive £11.025 per annum (wholly escalating in payment by Scheme Rules ) until your GMP age when you may receive a top up of £6745, (at which point the normal GMP rules re future increases come into play) and a small abatement when your SPA comes into payment?

For the sake of simplicity let us suppose that there were no escalation in payment, then if you take the pension three days before NRD, you will have received a total of £71025 gross pension by GMP age but if you take the pension at NRD you will have received only £55,125 gross and then you might not receive the step up?

Even if you did receive the step up it would not cover the total gross received in the other scenario.

It just doesn't make sense? Or perhaps my brain has become addled?

xylophone

In fact, when you come to think of it Mr Ainsworth ( see http://webcache.googleusercontent.com/search?q=cache:rZgVz5VexKsJ:www.pensions-ombudsman.org.uk/determinations/docs/2008/aug/s00105.doc+&hl=en&gl=uk)

albeit that he took redundancy and a full pension, nevertheless drew his Barclays Pension before NRD and before GMP/SPA age and as far as I can see what happened was just as would have been expected?

The Scheme increased the whole of his pension until SPA/GMP and the the pre 88/post 88 etc applied.

MikeFloutier

Many thanks Mrs Chaucer, your encouragement helps me to persevere

Thanks for your reply Xylophone, unfortunately I'm not in contact with any of my old colleagues; good idea though!

I think your assessment of TW's position is correct. However, if they confirm that I will receive the 7% pa step up at 65 then I feel I am in a good position to make a decision.

You say "it doesn't make sense". I would agree that there doesn't seem to be a good reason for offering these two alternatives; it may simply be the result of incorrect computer programming that has never been challenged.

However, if you continue to calculate the total pension payments to be received, beyond the age of 65, say to 70, or even 75, then (ignoring any increases), we see that:

1. At 65, as you say, NRD = £55,125 & ERD = £71,025, but, when revalued GMP is added,
2. By the age of 70, NRD = £143,975 & ERD = £142,070, and continuing on,
3. By the age of 75, NRD = £232,825 & ERD = £213,115.

So, we see that equilibrium occurs during my 69th year BUT, by 75, I am £20,000 ahead.

Looked at in this light, it's actually quite helpful to have these alternatives, bearing in mind I may have a particular financial position, or a particular view about my life expectancy that would be better serviced by one or other of these alternatives.

These calculations will obviously be compounded, in practice, by the statutory/scheme increases. I think the effect of this would be to exacerbate the effects noted earlier; i.e., to delay the equilibrium date BUT to increase the long term positive betterment of the NRD deal.

Anyway, I'll wait for confirmation from TW for the time being.

PS I'll have another good read of the Ainsworth link, in due course, I don't think my head can take much more for a day or two

Thanks again!!

SnowMan

It is definitely looking a bit clearer and with the promised further info from Barclays hopefully that will start to clear things up.

My best understanding of what is going on is as follows:

1. The Barclays pension at NRA of age 60 will be made up of the revalued excess added to the initial GMP of about £11,096 per annum (= 1,802 + 9,294).

2. This NRA pension will increase further at 65 by the GMP revaluation from leaving to age 65 so the £11,096pa will increase by a further £6,745pa (= 8547 - 1802) to £17,841pa (but see additional note 1).

3. Between NPA (60) and age 65 the whole of the pension of about £11,096 pa will increase in line with (any) pension increases in payment paid by the Barclays scheme. However those increases may be offset after age 65 by the GMP revaluation increase in 2. above so that the pension paid from age 65 will be just £17,841 pa and not £17,841 pa plus increases in payment between 60 and 65 (see additional note 2).

4. The pension from 65 in excess of the revalued GMP i.e. £9,294 pa of it, will get increases in payment after age 65 at the scheme post retirement increase rate (if any). Of the revalued total GMP at 65 of £8,547, the pre 88 GMP will not increase in payment and the post 88 GMP will be inflation linked up to 3% (although the Barclays scheme might give further increases to the GMP element although this is unlikely, and unfortunately because of a single tier state pension technicality the state won't pay up the tab for any post SPA GMP increases which they MAY have done under the current state pension rules)

5. If Mike had decided to take early retirement at age 59 then his pension with excess revaluation to age 59 which I estimate to be £10,894 (= 1.660 x 5,477 + 1,802) would have been reduced by an early retirement factor to £10,371 (0.952 x 10,894). See additional notes 3,4 and 5.


ADDITIONAL NOTES

1. There appears to be a separate deduction from scheme benefits in relation to integration of the Barclays scheme benefit structure with the state scheme which is not allowed for in the figures above, the deduction of £672 per annum mentioned in post 17. Mike needs to clarify what is deducted at age 65 in this regard which may be more than £672 pa because of increases.

2. What happens at age 65 in terms of adding in GMP revaluation is complicated and depends on both scheme rules and anti-franking legislation. I am not sure if under anti-franking legislation the scheme can offset the in payment increases between age 60 and age 65, if I had to guess I think they probably can.

3. The indications are that the early retirement quotes of for example £14,209 pa was just a mistake by the scheme. It does not seem logical that they would treat GMP revaluation between retirement and age 65 differently for someone retiring early by 3 days relative to someone retiring at NPA.

4. Note the early retirement reduction factor of 0.951 could be a 5% compound factor. So for one year early at 59 the factor is 1/1.05 = 0.952 which is close to 0.951 mentioned earlier and for 2 years early would be 1/(1.05^2) = 0.907.

5. I've estimated the revalued excess at age 59 in the early retirement calculation by taking out one increase of 2.2% from the excess revaluation factor.

6. Mike will be affected by the changes to STATE pensions under the single tier coming in if planned in April 2016. What that will probably mean is that he will be entitled to about £110 per week of state pension at SPA in todays terms (the current basic state pension) if he has a full 30 years contribution history which I suspect he does (probably won't get the headline £144 pa single tier pension because he has been contracted-out of SERPS). However this won't be affected by any decision to retire early under the Barclays scheme albeit it doesn't look like early retirement is now relevant if the above is correct.