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

mania112

SnowMan wrote: »

BUCKET LOADS OF QUALITY INFO...

You'll have to start charging for this!

MikeFloutier

Many thanks SnowMan.

1. The crucial thing for me is to get written confirmation that the 7% GMP revaluation WILL take place; if so, I will go for this option as I'm planning to continue working for at least another 5 years.

2. I have a query in terms of my understanding of GMP. I understood that the benefit to me for contracting out of SERPS was that I paid lower NIC. My Barclays pension stayed the same (i.e. 1/720 of my final pensionable salary for each completed month of service); it's just that it must be at least as much as what my SERPS pension would have been (this portion being identified as my GMP).

Additionally I understood that Barclays also paid reduced employer NIC (due to contracting out). Surely this should go towards an increase to my pension? Am I missing something here? The SERPS pension forgone (by contracting-out) would have cost more than the amount I save in NIC reduction

Surely there would only be a short term benefit to me in Contracting-out. Maybe this was the government's plan

3. Just to confirm, my State Pension Reduction (ie from my scheme pension at 65) is £672.49.

I'll report back when I get my next letter from Barclays.

SnowMan

Using your numbering.....

1. I think you are right to concentrate on getting written confirmation of the (GMP) step-up at 65 to avoid any unexpected and unwelcome surprise at age 65. This is the material aspect that isn't entirely clear and requires confirmation. Ruling out a very small chance of an overly generous early retirement option is the other thing to clarify.

2. I think you are talking about what happened in 1978 when SERPS was introduced and the changes the Barclays scheme made then. Your understanding is broadly correct. But at the same time prior to 1978 there was only very limited additional state pension in place. So prior to 1978 you will have been accruing 1/60th (1/720th pm) of Barclays pension and a basic state pension (because additional state pension was very limited). And after 1978 you will have been accruing 1/60th plus a basic state pension (because you were contracted-out of SERPS). So arguably not much changed in the most general sense. To the extent that the introduction of SERPS in 1978 for the population as a whole had to be funded from something, either increased national insurance or increased general taxation (albeit it subsequently proved to be unaffordable) it is not logical that Barclays should have increased your pension in 1978 looking at things in the most general sense. And of course you personally have done well out of the Barclays final salary pension.

xylophone

Your understanding is broadly correct. But at the same time prior to 1978 there was only very limited additional state pension in place

Indeed- link in post 22 above covers this aspect.

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.

I came across this post from a Norwich Union (Aviva) deferred pensioner ( worked for them from 1973-1996) http://www.mycompanypension.co.uk/index.php?area=forumviewthread&zs=1&ft=174

"Aviva now advise that the GMP portion is not increased with inflation as this portion is only revalued at age 65. Whatever is paid at that time is reduced in some way by increases in my pension paid from age 60 to 65."

xylophone

Additionally I understood that Barclays also paid reduced employer NIC (due to contracting out). Surely this should go towards an increase to my pension? Am I missing something here? The SERPS pension forgone (by contracting-out) would have cost more than the amount I save in NIC reduction

According to a letter of explanation sent to a member of a certain Final Salary pension scheme :-

"Contracted Out employment was introduced in 1978 as an incentive for employers to retain or start private pension schemes. There were two benefits for electing to contract out of SERPS - firstly both the employer and the employee paid less in NI contributions....

The Government was concerned that unscrupulous employers would elect to contract out their employees so saving NI but then not provide a pension that was at least equal to SERPS - to counter this they introduced the GMP.....

The second incentive for employers related to how the GMP element of a pension is increased from State Pension Age...."

There follows an explanation of the pre 88 and post 88 rules - clearly, had the pre 88 never been replaced by post 88 rules, employers would have felt even more incentivised.....:)

In short, you paid less NI and that was your sweetener - the employers also had theirs.....;)

MikeFloutier

Thank you both,

Regarding the GMP/SERPS, I think I understand it now. I contracted out on the short term incentive of less NIC in exchange for giving up a more advantageous long term AP. Barclays saw the benefit to them of contracting out as a simple gift to them of the reduced NIC and, of course, took it.

Regarding the possible £14,209 Early Retirement pension SnowMan, you seem to be suggesting that, if this turns out to be genuine, then it would be the better deal. My understanding is that, short term it is, but longer term (say, post age 70) it's not as good.

Does that make sense?

SnowMan

MikeFloutier wrote: »

Regarding the possible £14,209 Early Retirement pension SnowMan, you seem to be suggesting that, if this turns out to be genuine, then it would be the better deal. My understanding is that, short term it is, but longer term (say, post age 70) it's not as good.

I didn't intend to suggest the £14,209 would be a better deal.

The slight possibility that an overly generous early retirement exists would be based on a combination of two factors both happening a) that the initial early retirement pension of £14,209 pa is genuine and not a mistake, and b) that the £14,209 pa works out better than the £11,096 pa option when it is properly analysed.

In relation to b) then it depends precisely what happens at age 65 in terms of the two options and what increases apply etc. I understand your logic re age 70 etc but it is based on too many guesses and assumptions and the time to starting analysing b) is if it turns out to be a genuine option and not a mistake.

A less cautious individual than me might just assume an overly generous early retirement option does not exist and simply ignore it.

MikeFloutier

SnowMan, I'm sorry you're right of course, please forget I said that:)

I keep learning a tiny bit and then make the mistake of thinking I understand more than I do.

I love your suggestion that it's possible to properly analyse the situation once the facts are fully known; I will wait for Barclays response.

Xylophone, thanks, another apposite link. Very similar situation to my own; he even has my name. Not surprisingly, no-one has responded to him.

xylophone

I keep learning

So do I, especially from your situation!

On the topic of abatement though, yours seems tiny in comparison with HSBC's or the Railway Pension Scheme's!

https://forums.moneysavingexpert.com/discussion/3886143 post 1

https://forums.moneysavingexpert.com/discussion/4085527 post 11

mrschaucer

SnowMan wrote: »

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.
.

It's tiny as long as they don't increase it, as pointed out by SnowMan, which is one of the (many) things Mike needs to check and then get in writing if poss.