Deferred pension question

lorryw

I worked for the AA back in the 80s. They had an automatic enrolment pension scheme and when I left to start a family the pension was deferred.
I am now 55 and suddenly remembered my pension and wrote to the AA to find out how much it was worth. I was given a quote of £501 p.a.
Yesterday while clearing out a cupboard I found a letter dated 1985 from the pension trustees.
It said that my pension would be £2786.70p.a. "Your pension is the Guaranteed Minimum Pension representing the level of benefit which must be provided in respect of your of contracted-out service with the Association.
"It has not been the practice of the Automobile Association to review deferred pensions in course of payment to allow for inflation during the period before payments commence'
Would the original 1985 quote still be valid? I have read the 2nd paragraph several times but still don't understand it!

mrschaucer

You could write to them again asking the specific question: "At age 60" (if female, which I'm assuming) "will I be entitled to a GMP of £2786.70 per annum as per your letter of xxx?"
Once you have the answer from them, take it from there with queries about this £501 pa they have offered. Is this some kind of early retirement amount?

xylophone

http://www.theaa.com/public_affairs/news/strike-ballot-is-premature-says-aa.html
An old link but "For clarity – the AA Pension scheme consists of two sections – a final salary section which closed to new members in 2005 and a Career Average (CARE) section which is open to new members of the pension scheme."

seems relevant.

You would have been a member of the FS Scheme which appears to have been contracted out and therefore built up a GMP. You are a deferred pensioner of the Scheme.

See http://www.barnett-waddingham.co.uk/news/2012/07/what-is-a-gmp/

When did you leave employment?

What was the Normal Retirement Date for the Scheme?

The GMP payment age for a woman is still 60 but see this

https://www.rsapensions.com/635/895 which may be relevant to your scheme and also http://www.scottishlife.co.uk/scotlife/web/site/Employer/TrusteeZone/1202GMPequalisation.asp

As Mrs Chaucer says, you need to check with your Scheme.

lorryw

Thank you for the information.
I left in July 1985.

xylophone

And for completeness read https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/181237/single-tier-pension-fact-sheet.pdf
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/210299/single-tier-valuation-contracting-out.pdf

xylophone

I left in July 1985.

You need to ask which revaluation method your scheme uses - see link.

mania112

I'm sure the letter from 1985 is assuming continued employment (and therefore continued contributions).

Pre 1988 GMP revalues annually between leaving the scheme and retirement by:

1978 to 1988 - 8.50%.

Then in retirement there are no increases (as you have them paid by the state directly).

You could investigate the Cash Equivalent Transfer Value to see if you could benefit from a transfer to a money purchase arrangement (for potentially higher income and a cash lump sum), however it's rarely recommended to do so.

lorryw

The letter does state
'in accordance with the rules of AA staff pensions you are entitled to a deferred pension in respect of your pensionable service from April 78 to July 85'
I think I will write and ask for clarification.

lorryw

Just had another look at the information I received this July (2013) which states that
"Guaranteed Mininmum Pension (GMP) accrued up to 5th April 1988 is £197.08 pa
Pension in excess of GMP £315.14 pa."
There is no mention of the figure of £2,786 stated in the July 1985 letter

jem16

lorryw wrote: »

There is no mention of the figure of £2,786 stated in the July 1985 letter

That was probably just an estimate of benefits if you had stayed with the scheme until normal retirement age.

SeekTruth

If your scheme uses fixed rate revaluation for GMP then the rate would be 8.5% (as you left before 6 April 1988).
If there are 32 complete tax years between leaving and reaching the age of 60 (for female) then the original GMP value of £197.08 would be revalued to approximately £2,682 (by my calculations).

I suspect that anti-franking legislation applies in your case - if so then it would mean that your pension at 60 would comprise the GMP (of approximately £2,682) plus £315.14 revalued by whatever the scheme mandates. Perhaps someone with a better understanding than mine of anti-franking could comment.