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

MikeFloutier

Thanks Xylophone, your summary of TW,s position is correct. Also, there is no additional info in their brochure.

Mania, you appear to have summed it up. The increases to my GMP that I thought accounted for the difference between my two quotes are now seen to be irrelevant to me and don't affect my pension at all (ok, I accept it may affect future increases but that's not what I'm investigating).

I suppose, looking back, I'm where I started, left with the question: "why are these two quotes so different", and "which one is better (for me)"

I have written back to TW along these lines. I try to ask closed questions but seem to always get formulaic answers which have no bearing on my position. It's a good thing I still have 5 months to go:)

xylophone

I suppose, looking back, I'm where I started, left with the question: "why are these two quotes so different", and "which one is better (for me)"

Have you actually asked for a formal statement of how much your pension would be if you took it 150, 120, 90, 60, 30, 3 days before NRD? and how the pension would increase in payment before and after GMP age?

SnowMan

Surely if Mike takes his deferred pension at his Normal Retirement Age of 60, then a minimum benefits test will apply at age 65, so he will get a minimum deferred pension at 65 of

The GMP revalued to age 65, plus
the excess pension at leaving with statutory revaluation to NRA (60), less
the state pension deduction

On early retirement of a deferred pension before NRA of 60 that minimum benefits test won't apply so only the revalued GMP at 65 needs to be covered, which would be a possible explanation of why an early retirement pension (at say 59) may start out at a higher amount than the NRA pension at 60 but still be less valuable.

However what is shocking is that Towers Watson seem to be saying they won't apply this minimum benefits test for males taking their deferred pension at the NRA of 60, but will only check that the pension is equal to the revalued GMP at 65.

I am not sure how they can possibly get away with that. Anti-franking legislation has been introduced over the years that has required the GMP and excess to be separately revalued in deferment. If the Towers Watson method were allowed it would effectively be a giant loophole around the anti-franking legislation.

I would suggest that Mike contacts The Pensions Advisory Service to get help with clarifying what his pension will be at NRA 60 and how it will be calculated at 65 (i.e what step will apply).

xylophone

SERPS was intended to give people a pension over and above the State Pension - it was funded by additional NI payments.


Provided that an employer was prepared to guarantee that he would pay his employee a pension that was at least as great as he would have earned from SERPS he could contract out.

Mike's scheme contracted out. If he retires at his NRD, his pension is both greater than he would have earned from SERPS and greater than his GMP whether unrevalued or revalued to NRD.

At GMP age, his pension will be greater than he would have earned through SERPS and greater than his GMP revalued to GMP age.
This is the basis of TW's position? (I think...)

SnowMan

But they seem to be ignoring SSA85, SSA90

http://www.barnett-waddingham.co.uk/news/2012/07/revaluation-for-early-leavers/

In fact in certain individual scenarios they are going back to the pre 1/1/85 position where the excess pension at leaving could be offset against GMP revaluation leaving the person with just the revalued GMP (albeit with some extra payments from 60 to 65 in this case).

Unless this is a major loophole around that legislation (that nobody was aware of) then I don't think TW can do this.

It raises all sorts of issues for post 17/5/90 accrual where equalisation of benefits apply (aside from the normal GMP equalisation issues that have never been properly resolved of females getting GMPs at 60 and males getting 5 years extra revaluation).

MikeFloutier

Many thanks for these responses Xylophone and Snowman.

1. Yes, I have already obtained various "early retirement" quotes from TW. They are all way above my NRA quote but, as you would expect, due to actuarial reduction factors, the earlier I retire, the smaller the pension (albeit still much higher than the NRA quote).

2. Having clarified my understanding of GMP, I think it's probably best (to ensure we're not talking at cross-purposes) to clarify the meaning of Excess pension. Ignoring Scheme increases, is it a fixed amount OR does it vary in inverse proportion to GMP?

For example, if my total pension at Leaving was say £10,000 and my GMP was £2,000, my Excess, at leaving, would obviously be £8,000.

Then at, let's say, 10 years later (assuming Scheme increases are zero and GMP has increased to £4,000), would my Excess still now be £8,000 or would it have reduced to £6,000 - simply being the excess of total pension (2/3 Final Salary...) over revalued GMP.

3. The other term I'm not familiar with is "minimum benefits test", what does this mean?

I will continue to peruse TW for an explanation regarding the big difference between their NRA and Early retirement age quotes BUT will contact the Pensions Advisory Service, as you suggest Snowman, if I get no joy.

Many thanks again for persevering on this with me, it means a lot

xylophone

Many thanks again for persevering on this with me, it means a lot

Talking of former colleagues http://www.barcpen.org.uk/index.php

I wonder whether you could get in touch with the "old sweat":)who administered the Scheme when it was run in house? You never know, the answer might be out there! Or even the "old sweats" who laboured alongside you.....

With regard to GMP and excess, you already know the total GMP at leaving the Scheme (was the division into pre and post 88 GMP also provided)? TW should also be able to provide you with the figure for the amount over and above the GMP (the excess) at leaving.

As you already know, both the GMP and the excess revalue but under different rules.

Returning to the information given by Barnett Waddington, your GMP ( under the Barclays Scheme) must be revalued at 7% compound for the number of complete tax years between your date of leaving and GMP age at which point the Scheme is obligated to pay you a pension at least as much as your revalued GMP. With regard to the excess, the rule seems to be that it must be revalued by S52a Orders up to NRD which in your case is not the same as GMP age.

And with regard to the fact that the pension quoted to you for taking your deferred benefits prior to NRD (even after actuarial reduction) is higher than your pension at NRD, I am still flummoxed - as a matter of interest, I had a look at the Lloyds Bank pension pages (NRD is 60)

http://www.lloydsbankinggrouppensions.com/ltsb/fs/amc/active/how_the_scheme_works/leaving_the_company/deferred_pension

"Taking your deferred pension before NRD

The deferred pension you are entitled to will be calculated as a proportion of the pension you would have got at NRD (based on Final Pensionable Salary at the leaving date), taking into account both completed and potential Pensionable Service."

If the above were the case with Barclays, then Snowman's calculation in post 31 (point 5) would seem to be closer to what your pension should be if taken before NRD?

Just one other thought did occur to me - (something stirred in the recesses of my memory :eek:) - many years ago, I recall that a certain employer had an arrangement that if the employee would leave before NRD but after it was legally possible to draw a scheme pension, the pension would receive five years' worth of enhancement - this is a long shot I know - I wonder whether TW are consulting some old tables relating to such an arrangement?

xylophone

I am not sure how they can possibly get away with that. Anti-franking legislation has been introduced over the years that has required the GMP and excess to be separately revalued in deferment. If the Towers Watson method were allowed it would effectively be a giant loophole around the anti-franking legislation.

I am reading my way through this http://www.academia.edu/4301359/Meet_Mr._Frank_-_Developing_pension_plans_with_defined_benefit_and_defined_contribution_features

http://www.hmrc.gov.uk/pdfs/nico/ca14.pdf page 48 refers.

My head is spinning!

SnowMan

MikeFloutier wrote: »

I think it's probably best (to ensure we're not talking at cross-purposes) to clarify the meaning of Excess pension. Ignoring Scheme increases, is it a fixed amount OR does it vary in inverse proportion to GMP?

To keep the explanation simple let's ignore the state pension deduction at 65, and increases in payment to the £11,025 between 60 and 65 (although neither should be ignored it doesn't change the logic much).

Your excess at leaving you mentioned earlier was £5,477 (your pension at leaving of 7,279 being made up of your GMP of 1,802 and this excess of 5,477).

According to the NRA 60 quote, your Normal Retirement pension at 60 was £11,025.

Then that would mean that your excess at 65 would be 2,431 (= 11025 - revalued GMP of 8,547).

That means that your excess pension has shrunk from 5,477 at leaving to 2,431 at age 65. And this is despite legislation that says your excess because you left after 1st January 1991 gets 5% or RPI (now CPI) revaluation in deferment.

So effectively it is taking you back to the position that applied to leavers before 1/1/85 where the excess pension at leaving could be used to offset GMP revaluation, whereas the intention of the revaluation legislation was you would get both your excess at leaving and revaluation of the excess on top of the revalued GMP. A fundamental difference.

That doesn't seem to me to be right unless there is a giant loophole in the revaluation legislation.

I was under the understanding that the legislation (to revalue excess and GMP in deferment) must provide a minimum pension that must be provided at 65 to stop this erosion of your excess and to ensure you get this excess revaluation. So the check the scheme must carry out to ensure this minimum is met at age 65, is what I mean by the minimum benefits test. It's just none of us are sure what that test is

If we carried out a thought experiment and assumed you were female, then the scheme would have to have provided you with a pension from NRD of 60 of £15,385, made up of your GMP revalued to female GMP age of 60 of £6,090 (1,802 x 1.07^18) and your revalued excess of about £9,294 (= 5477 x 1.6967).

So you are getting a lifetime retirement pension of £11,025 instead of £15,385, despite you and your female equivalent having the same pension age of 60.

I am not suggesting you urgently undergo an immediate sex change by the way, just illustrating how it is that NPA is before age 65 that causes this issue and uncertainty :rotfl:

SnowMan

xylophone wrote: »

I am reading my way through this http://www.academia.edu/4301359/Meet_Mr._Frank_-_Developing_pension_plans_with_defined_benefit_and_defined_contribution_features

http://www.hmrc.gov.uk/pdfs/nico/ca14.pdf page 48 refers.

My head is spinning!

Both of those are good tries but neither are useful, the first link looks impressive but is a bit muddled.

But have a look at this DWP document titled 'A possible method for equalising pensions for the effect of the Guaranteed Minimum Pension' (first and last time I will find a better link than xylophone :rotfl:)

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/220482/methodology-document-2012.pdf

Don't worry about the GMP equalisation issue, which is what the note is talking about, that is not relevant to us here.

But what is relevant is the male pre-equalisation calculation allowing for anti-franking in the example starting on page 11

That is an example which includes a male who leaves a scheme with an NRA of 60 at the age of 55 with a deferred pension of 1,500 (made up of 522 GMP and 978 excess) and takes that pension at the NRA of 60. It illustrates how anti-franking works at 65.

The GMP is revalued in deferment at 7% and the excess is subject to statutory revaluation in deferment (5% or RPI now CPI). The statutory revaluation for the 5 years from 55 to 60 is a 13.6% increase.

The scheme pension at age 60 is the GMP at leaving of 522 and the excess revalued to 60 of 1,111 (= 978 x 1.136) which adds to 1,633.

Now this is the important bit, look at the male anti-franking test on page 14

This is £2,071 which is the revalued GMP at 65 of 959 (= 522*1.07^9) plus the revalued excess at 60 of 1,111 ignoring a £1 rounding error.

So that backs my best guess that the scheme can't frank excess and excess revaluation after 65 and that Towers Watson are wrong to say they only have to cover the revalued GMP at 65.

See this earlier post for the possible figures for Mike allowing for the DWP method, point 2 is the point of contention where the DWP seem to back me up that the calculated step is required.