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

SnowMan

xylophone wrote: »

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."

It never ceases to amaze me how you come up with these relevant links on all sorts of topics :T:T

MikeFloutier

Clearly these State Pension Deductions (SPD) can vary a lot from scheme to scheme.

The Barclays situation, from their "Post 06 DIP Guidance notes 64" says:

"In the scheme a deduction is made to the Barclays pension once a member reaches SPA. The maximum SPD is 50% of the single person's Basic State Pension in force when you leave the Scheme. The maximum will only apply if you have completed more than 40 years of service. The maximum in any individual case is 12.5% of total gross pension entitlement before any reduction for early payment. The amount of the deduction, as shown on your pension quotation, is fixed and does not increase over your retirement.

In my case, I had 21 years and 2 months and 16 days service which equates approximately to 53% of 40 years. Therefore I calculate that my SPD should be around 53% of 50% of £2995.20 (basic state pension in 1994 (my date of leaving)), which = £793.73.

This is obviously very close to the figure quoted by Barclays to me as my SPD which is £792.48. It is gratifying to note also that they clearly state that this figure will not increase.

MikeFloutier

Whilst waiting for Barclays' confirmation of my GMP revaluation, I thought it might be helpful to get an idea (from the paperwork I already have from them) what will happen to my pension's various components during retirement (i.e. 60 - 65 & post 65) - i.e. Increases

1. My GMP becomes separately identifiable, for increases purposes, at SPA.

2. Until SPA my whole Pension increases, each October using the lesser of RPI (taken immediately prior to August 1) or 5%.

3. After SPA, the Scheme increases my post 6 April 1988 GMP each April by the lower of 3% or RPI.

4. I understand that the State increases my pre-1988 GMP, but only when notional increases to my notional SERPS/AP match my GMP - goodness only knows how this is calculated???

5. My Excess pension (ie non-GMP) continues to be increased at RPI/5% as in 2. above.


Apart from simply setting out Barclays' position regarding increases, I'd like to ask a question, which is:

How does my taking a Tax Free Lump Sum (TFLS) affect the increases to my pension?

Does it reduce the Excess portion OR the GMP portion OR is it possibly pro-rata?

I'm guessing that this is an important issue. Presumably, if it has the effect of simply reducing the Excess portion, which I'm guessing gets better increases than the GMP (possible much better - see 4. above, and bear in mind that my pre-1988 accounts for 2/3rds of my service), then I may have to think seriously about avoiding a TFLS as much as possible.

SeekTruth

MikeFloutier wrote: »

...
4. I understand that the State increases my pre-1988 GMP, but only when notional increases to my notional SERPS/AP match my GMP - goodness only knows how this is calculated???
...

This depends on whether or not the proposed 'Single Tier Pension' has been introduced before you reach SPA.

For those who reach SPA under the current system their State Pension will comprise several elements:

1. Basic State Pension
2. GRB (service prior to April 1972?)
3. SERPS Part 1 (my terminology) for April 1975 - April 1997 (Actually further split into Part 1A prior to April 1988 and Part 1B after April 1988) minus Contracted Out Deduction (COD) - see below
4. SERPS Part 2 for April 1997 - April 2002
5. S2P for April 2002 - present

Those with SERPS Part 1, if they were contracted out during any of that period, will also have a COD - which, if I understand correctly, is numerically equal to the corresponding element of GMP.


NB Even those contracted out between 1975 and 1997 will have earned SERPS exactly the same as those not contracted out. BUT those contracted out will also have a COD.



The COD, after SPA, is increased exactly as GMP: namely, the pre-88 element is not changed and the post-88 element is increased in line with cost inflation capped at 3% (formerly RPI was used, but I think for the past year or so this has been replaced by CPI).


The original intention of this COD mechanism was for the State to be responsible for the index-linking (or part thereof) of the SERPS. Unfortunately, particularly for those whose GMP (and COD) was subjected to fixed rate increases during deferment, the COD can be considerably greater than the SERPS Part 1. In years for which COD is greater than SERPS Part 1 the pensioner receives nothing for SERPS Part 1 (but, at least, the shortfall is not deducted from the remaining elements of the State Pension).


For those reaching SPA after the introduction of the Single Tier Pension (proposed for April 2016) the situation regarding GMP/COD etc in the State Pension is considerably simpler. The SERPS and COD are taken into account in the transition calculation (to be performed as at the date of introduction) but thereafter they have absolutely no effect on the State Pension.

xylophone

4. I understand that the State increases my pre-1988 GMP, but only when notional increases to my notional SERPS/AP match my GMP - goodness only knows how this is calculated???

https://forums.moneysavingexpert.com/discussion/4532605

For the current position, have a look at post 21 and compare the figures for 2012 and 2013 - this would have been correct if the OP's scheme had indeed used FiRR.

You will note that in 2012, his pre 97 ASP was shown as £98.83 and his COD as £132.43. He receives no pre 97 ASP from the state.

The difference between the two is £33.60.

The following year, CPI having been 2.2%, the pre 97 ASP has risen to £101.00.

The COD however has risen only by 2.2% of the poster's post 88 GMP which has been paid to him with his occupational pension. This is now £133.56. The difference between the two is now £32.56.

In 2014, the pre 97 ASP will increase by whatever CPI is in September.

The COD will rise by CPI or 3% whichever is less on the post 88 GMP payable by the occupational scheme.

It is only when the pre 97 ASP is greater than the COD that pre 97 ASP is paid by the state.

For certain occupational pensioners this means a very long wait for any increase on their pre 88 GMP https://forums.moneysavingexpert.com/discussion/4532605 see post 16.

However, you will be receiving your state pension under the new dispensation (single tier) - see links in previous posts and Snow Man's 31.

Does it reduce the Excess portion OR the GMP portion OR is it possibly pro-rata?

http://www.pensionsandannuities.co.uk/Tax_Free_Cash_And_Pension_Lump_Sum.htm

http://www.barnett-waddingham.co.uk/news/2012/07/what-is-commutation/
seems relevant.

But with regard to your scheme pension after SPA even under the new dispensation, the part that relates to the revalued pre 88 GMP will still not be increased by your scheme and the part that relates to post 88 GMP only up to CPI or 3% whichever is less.

MikeFloutier

Thank you both,

I should say that my SPA is in 2019 so I will be affected by the new Single-Tier system.

Hopefully this should make things easier to assess when I get the confirmations I'm waiting for from Barclays.

MikeFloutier

Ok, here is the email thread of my conversation with Barclays - you need to read it from the bottom up to get it in chronological order.

My understanding of this is that, at GMP date, provided that my total Barclays pension is more than my revalued GMP, there will be no increase.

This seems to tie in with a layman's view of GMP, in that it's purpose is simply to ensure that the pension provider is actually providing at least the minimum.

In my case, since my pension is already above the revalued GMP, there can be no doubt that there will be NO increase or Step-up (due to GMP revaluation) at GMP date.


Moving on, the question about why the Early Retirement Illustration is £3,200pa higher than the NRD illustration remains outstanding.

I will write to them about this AGAIN but in the meantime, if anyone has any thoughts I'd love to hear them.

Regards,

Mike

---

Dear Mr Floutier
!
Thank you for your reply.
!
I can confirm that a when a pension that consists of a GMP element and non-GMP element comes into payment before the GMP payment date, all of the pension is treated by the Scheme as an excess and increases annually in line with the Retail Price Index, up to a maximum of 5%, during the period from the retirement date and the GMP payment date.
!
I confirm that at the GMP payment date we will revalue your GMP using the relevant GMP increases (e.g. 7% fixed increase per each complete year from the date of leaving to the GMP payment date) and check if your pension at GMP payment is at least of same value. If your pension in payment at GMP payment date is less than the revalued GMP, a step up will occur to increase it to be equal to the GMP payable.
!
Please note that we cannot comment on the likelihood of this occurring.
!
If you have any questions, please contact us.
!
Regards
!
Joanna Bienko
Administrator
!
Towers Watson
PO Box 709 | Redhill, RH1 9EG

T +44 (0) 1737 227567 | F +44 (0) 1737 241496
barclaysteam@towerswatson.com
https://www.barclayspensions.co.uk
https://epa.towerswatson.com/doc/BCL/login.htm
!
!
!
From: MikeFloutier [mailto:mikeandliz.floutier@btinternet.com]
Sent: 28 August 2013 11:08
To: TW BEN Contact Barclays Team
Subject: Re: Michael Floutier - removed - Normal Retirement Date 3rd February 2014 (0148997)
!
Dear Mark,
!
Thank you for your email.
!
Unfortunately, from my point of view, my position seems to remain ambiguous.
!
What I'm looking for is confirmation that the revaluation of my GMP (which at the rate of 7% would equate to an increase of £6743) WILL result in a like increase to my overall Barclays pension at GMP age.
!
Kind regards,
!
Mike Floutier
07778-335151
Mikeandliz.Floutier@btinternet.com!


On 28 Aug 2013, at 09:45, TW BEN Contact Barclays Team <barclaysteam@towerswatson.com> wrote:

Dear Mr Floutier
!
Thank you for your email 21 August 2013.
!
I can confirm that your understanding is correct, and that upon reaching our 65th birthday your GMP will be revalued at 7% per year since your date of leaving to GMP payable age.
!
However, please be aware that we do not “step-up” your GMP benefits. We will take the GMP benefits that you accrued up to your date of leaving and increase these benefits using the correct GMP revaluation rate up to the GMP payable date. Please note that GMP can be split between Pre 6 April 1988 and Post 5 April 1988. Once in payment, any GMP accrued prior to 6 April 1988 receives its increases from the State and not the Scheme, however this will be done automatically and no action would be required from you.! Should your GMP benefits exceed the value of your excess! pension, we will step-up your excess pension to ensure that this matches the minimum amount of pension that we must pay you.
!
I have also enclosed a “What happens to your pension when you leave Barclays” booklet which explains the above in further detail.
!
If you have any queries please let me know.
!
Kind regards
Mark Heseltine <image001.png>
Administrator
Towers Watson
PO Box 709 | Redhill, RH1 9EG

T +44 (0) 1737 227567 | F +44 (0) 1737 241496
barclaysteam@towerswatson.com
https://epa.towerswatson.com/doc/BCL/login.htm
!
From: M Floutier [mailto:mikeandliz.floutier@btinternet.com]
Sent: 21 August 2013 14:07
To: TW BEN Contact Barclays Team
Subject: Michael Floutier - removed - Normal Retirement Date 3rd February 2014
!
I am writing with regard to our recent telephone conversations in connection with my retirement (NRD) due on 3rd Feb 2014.
!
I have received from you, two pension illustrations:-
!
1. For Normal retirement date, 3/2/2014, showing a Scheme pension of £11,025.62 (Option 1).
!
2. !For Early retirement date 31/1/2014, showing a Scheme pension of £14,209.52 (Option 1).
!
Clearly there is a big difference and I wanted to understand the implications of both in order to decide which would be better for me.
!
You wrote to me on 15 August explaining that it's hard to make the comparison, but clearly it's something I need to attempt.
!
The information provided you in that letter was very helpful BUT I do need to clarify the penultimate paragraph regarding the revaluation of the GMP portion of the pension.
!
My understanding is that (given my date of leaving - 31/12/1994) my GMP (then £1802.84) would be revalued, on a compound basis at the rate of 7% each year.
!
However, your letter of 15 August states that, "this calculation is not completed at Normal Retirement which MAY result in a step-up which MAY be applied to your pension when you reach GMP age."
!
Obviously, if I am to accept an NRD pension that is some £3,200 pa lower than the Early Retirement pension, then I need your assurance that the 7% pa increase WILL definitely be applied at GMP age.
!
Just so we are clear about things, perhaps I could show some rough calculations:
!
1. At NRD my Option 1 pension is £11,025.62, which includes my un-revalued GMP of £1802.84. Therefore, the Excess portion of my pension is £9222.78.
!
2. Then, ignoring any increases, at GMP age (65), I would expect my GMP to "step-up" by the extent of the afore-mentioned revaluation, i.e. £1802.84 x 1.07 ^ 23 = £8546 less the basic GMP of £1802 leaving a "step-up" of £6743.
!
Hopefully this all makes sense.!
!
Please don't hesitate to telephone me on 07778-335151 to clarify any issues
!

xylophone

I can confirm that a when a pension that consists of a GMP element and non-GMP element comes into payment before the GMP payment date, all of the pension is treated by the Scheme as an excess and increases annually in line with the Retail Price Index, up to a maximum of 5%, during the period from the retirement date and the GMP payment date.

Then whether you take your pension before or after NRD the situation is as at post 8?

Are TW confirming

(a) if you take your pension at NRD, it will be £11,025.62 per annum.

(b) that the £11025 is made up of your unrevalued GMP plus the excess?

(c) that from then until you reach GMP age, the whole of the £11,025 will increase at RPI up to 5%?

(d) that at GMP age, your revalued GMP is calculated but the purpose of this is not to make any addition to your pension (unless your total pension were to be less than your revalued GMP) but simply to establish how your pension would be increased by the state/the Scheme after GMP age?

And (although this has not been mentioned) at State Pension Age there would be a small abatement?

In other words, the situation is exactly the same as that of Mr Ainsworth?

And have you asked again what the amount of your pension would be if you took it before NRD and if it would be treated as above?

xylophone

“What happens to your pension when you leave Barclays” booklet which explains the above in further detail.

Does this throw any light?

mania112

Hopefully you're comfortable now with what GMP is.

If you retire early, GMP needs to still be met at NRD.

That's it.

For me your only query is why you have two quotes with two differing pension amounts.

Find out which one is correct and enjoy your retirement!