Final Salary Pension

greenglide

If the original scheme was contracted out (and I see no reason why that shouldnt be) then the buyout bond ought to have a GMP attached. In turn from paying a lower rate of NI by you and the employer there is a guarantee by the pension scheme to pay, at lease, the Guaranteed Minimum Pension (GMP). At least part of this GMP should have been indexed along the way and will be worth more than what it was and may be more that the bond expected to pay you. Under these circumstances they are required to pay you, at least, the increased amount.

Ask the insurance company about any GMP?

PensionTech

I'd just add to this though:

It's also possible that you do have GMP but it was set to increase at fixed rate. In this case the scheme would have always known what GMP would be payable at GMP age, so it could be taken into account within that figure you've been given.

Budge123

If you mean contracted out of serps then yes I was contracted out of serps but the contracted out element of my N.I. contribution went to a pension with Standard Life which I still have and does increase by investment rates etc. but that refers to my contacted out element of my N.I. Contribution. The Standard Life is still running.


The Bond I refer to relates to an employers pension scheme with Scottish Widows which they closed in 1992 and bought me this Bond.


I hope this makes it clearer.


What I also would like help with and that is the interpretation of the additional clause, specifically added to the Bond, by the Trustees.


I am unsure what Special Provision 16 mean in monetary terms which I have detailed out in my first post.


I.E. cash sum paid for each £1 of grantee's pension so exchanged will be £9.00.

PensionTech

I am unsure what Special Provision 16 mean in monetary terms which I have detailed out in my first post.


I.E. cash sum paid for each £1 of grantee's pension so exchanged will be £9.00.

What it seems to mean is that they have given you a guaranteed commutation factor of 9:1 for the first 25% of pension given up, so that if you want to give up some of your pension for a lump sum, you will get £9 cash for each £1 p.a. of pension that you give up. Mighty nice of them... 9:1 is a terrible commutation factor.

It then seems to limit your total cash sum to £7382.20, which is the amount of cash that you would get from giving up £820.24 p.a. of pension. So according to that, your options should be:

• Full pension of £5277.24, or
• Reduced pension of £4457.00 and lump sum of £7382.20

However the figures you've given tell a slightly different story - the commutation factor reflected there is about 10.43:1 (so each £1 p.a. of pension given up buys you £10.43 of lump sum). I don't know why the commutation factor has changed, but it's better than before, so I wouldn't worry about it (although as previously discussed, it's still a pretty awful rate, and receiving the full yearly pension is probably going to be a better idea than giving some of it up for such a paltry exchange).

They also seem to have lifted the restriction on the lump sum, and are instead allowing you to commute enough pension to give you a lump sum of £21464.89, which represents 25% of the total value of your benefits - this is the maximum lump sum allowed under current legislation. My guess is that the previous restriction was one that applied under what used to be called "Inland Revenue Maxima" rules, which were replaced on 6/4/06 - and that's why the restriction has fallen away.

Budge123

PensionTech Thank you for your input. That has helped me to understand where the £21464.89 has come from and where the other information fits in.


Does that mean that, when they quoted me £21464.89 as a cash sum in 2007, they valued my total pension benefits as 4X£21464.89=£85859.56?


If I am correct in that understanding then, after April 2015 pension fund changes, would I then be able to draw down up to £85859.56 when I retire. (not that I intend to but could I)

PensionTech

Does that mean that, when they quoted me £21464.89 as a cash sum in 2007, they valued my total pension benefits as 4X£21464.89=£85859.56?

Sort of. It means the HMRC value of your benefits was roughly that amount. The HMRC value is not, however, a value that can usually be realised as a lump sum. It is simply a tool for working out the maximum lump sum you can take and whether you need to pay any tax as a result of exceeding the Lifetime Allowance.

If I am correct in that understanding then, after April 2015 pension fund changes, would I then be able to draw down up to £85859.56 when I retire. (not that I intend to but could I)

As I wrote in my first reply - no that's not what it means. The April 2015 changes allowing full withdrawal almost certainly won't apply to your benefits. They will apply to money purchase benefits - this is where a member has a pot of money, invested with a provider and subject to investment risk, and when he reaches retirement he has to either put it into income drawdown or buy an annuity (or, from April 2015, withdraw it as taxable income). That's not the type of benefit that you have.

Budge123

Thank you. That has cleared a lot of issues up for me.


It leaves me with the simpler decision to either take the full pension or the lump sum and reduced pension on retirement.


I think the pension that you refer to in your last paragraph would apply to my contracted out pension with standard life which is invested in a with profits scheme.


Thank you again for your help.