Frozen final salary pension.

Debt_Free_Chick

let_it_be wrote: »

In 2012 I got a quote on the pension and it stated for testing against your lifetime allowance the value of your full pension at the date of retirement shown on this quotation, if the tax-free cash sum and residual pension options are taken is £187.723. In August last year (16 months later) I requested another quote and this figure had reduced to £164.453.

In 2012, they took your pension at that date and added increases through to normal retirement age. These increases are (roughly) inflation but as they couldn't know what inflation was going to be, they assumed it would be 3% pa. This is what HMRC require them to do.

Put simply, the pension (actual amount) for 2013 was calculated to be exactly 3% higher than the 2012 figure. The actual increase awarded in 2012/2013 was almost certainly not 3% so the 2013 amount was lower than the figure they calculated in 2012.

When you got the 2013 valuation, they took the right figure (lower than what they thought in 2012) and rolled that forwards by 3% pa. Therefore, the figure to be tested against the Lifetime Allowance was lower than the figure calculated in 2012.

As Im retiring in April so I got a final quote and it has gone down again to £159.763.

Same thing happened, I would guess. The actual increase on your pension was less than 3%. Take the right (lower) figure, roll that forwards by 3% pa and this new estimate of the amount at retirement age is lower than the 2013 estimate.

From August to January it has reduced by nearly a thousand a month and from 2012 its down, just short of 28.000. I thought the whole point of a quote was to plan your finances for retirement. Can the figure go down and if so, is it acceptable that it has reduced by nearly 15% in 2 years.

I would appreciate any advice on this matter.

Thank you

Your pension today is the amount calculated at date of leaving, plus inflation (specifically calculated) to date (simplified explanation of a more complex process ...!). What you can't calculate - and no-one can - is the amount you will actually get at retirement age, as that depends on inflation between now and then. Any forecast of what that amount could be is simply a "well, if inflation is exactly x% every year you will get £xyz".

In summary, the amount which will be tested against the LTA is the estimated amount at retirement, assuming inflation is exactly 3% each and every year between now and then. You can be certain that the estimate will turn out to be inaccurate

HTH

xylophone

As Zagfles says, you will be unaffected by single tier as you are eligible to receive your state pension before April 6 2016.

If your scheme was "contracted out" (almost certainly the case with a FS scheme), then part of your occupational pension will be a GMP, most of it built up pre 1988.

You might find post 12 onwards of interest https://forums.moneysavingexpert.com/discussion/4532605