Pension forecast - what should I ask to see if it's true?

lonestarfan

I am due a pension in 10 yrs time at age 58 from a deferred pension. I have pensionable service from 18 November 1985.
I left the employer on 1 June 1997.
I've had the forecast but it seems very very high and to good to be true!
What evidence and assumptions must I ask for to analyse whether it's a sensible forecast or not. The forecast is from JLT Benefit solutions Limited. It says the options available at normal pension date (58) which I'll describe below.
The quotation is based on current actuarial factors, assumes future increases in deferment of 3% per year, is provided for illustrative purposes only and is in no way guaranteed.
The increase in Sept 2012 in excess of GMP was 3.2%. Don't know what that means lol!
Option 1 . Annual pension £10739.20 or
Option 2 A cash lump sum of £52,621.65 plus a reduced pension of £7893.25.
Option 1 represents 14.32% of your Lifetime Allowance.
Option 2 represents 14.03 % of your Lifetime Allowance.
Am I really going to get a £52k lump sum if I take option 2 ? That feels like I've won the lottery.
Or are the figures based on ridiculous assumptions that it's more like to be £5000? !
What do I need to ask to make sure I've got accurate info.
What would a Pensions Adviser do for me to check it out?
In the scheme booklet dated1 September 2013 it says my current value of my deferred pension payable from my normal pension date is £8193.
Estimated Value of your Deferred Pension projected to your NPD is £10742.
How do we get from these low figures to £50k? Is it complete rubbish or am I just inexperienced and it can be quite a genuine forecast?
I might well get an up to date forecast through the post in the next few weeks by the looks of it.
Thanks anyone.

sandsy

So you had 11.5 yrs service for what sounds like a final salary pension?

Do you know what your salary was at the time you left? That might help us check the figures. Also, any indication at the date of leaving of the GMP (guaranteed minimum pension) and the non-GMP?

xylophone

JLT is the Administrator of your former employer's pension scheme?

That is to say, JLT was not your employer- you were working for X Ltd who have engaged JLT?

You had a deferred Defined Benefits pension with X Ltd and Scheme Pension Age was 58?

Presumably you have a Scheme Booklet from your time with X Ltd - what does it say about pensions in deferment?

These might be worth a look

http://www.barnett-waddingham.co.uk/comment-insight/blog/2012/07/24/revaluation-for-early-leavers/

http://www.barnett-waddingham.co.uk/comment-insight/blog/2014/08/18/what-is-a-gmp/

lonestarfan

xylophone wrote: »

JLT is the Administrator of your former employer's pension scheme?

That is to say, JLT was not your employer- you were working for X Ltd who have engaged JLT?

You had a deferred Defined Benefits pension with X Ltd and Scheme Pension Age was 58?

Presumably you have a Scheme Booklet from your time with X Ltd - what does it say about pensions in deferment?

These might be worth a look

http://www.barnett-waddingham.co.uk/comment-insight/blog/2012/07/24/revaluation-for-early-leavers/

http://www.barnett-waddingham.co.uk/comment-insight/blog/2014/08/18/what-is-a-gmp/

Yes JLT is the administrator. Yes it's deferred and yes my scheme at the time I joined allowed me to retire at 58 although I can defer it to age 60 but don't want to. Will have to find what it says in my scheme booklet so will do that thanks.

Your_Hero

lonestarfan wrote: »

I am due a pension in 10 yrs time at age 58 from a deferred pension. I have pensionable service from 18 November 1985.
I left the employer on 1 June 1997.
I've had the forecast but it seems very very high and to good to be true!

Probably not, since your deferred benefits have to be revalued.

The quotation is based on current actuarial factors, assumes future increases in deferment of 3% per year, is provided for illustrative purposes only and is in no way guaranteed. The increase in Sept 2012 in excess of GMP was 3.2%. Don't know what that means lol!

This is the main assumption used. For benefits built up pre-6 April 1997, there is no statutory minimum for increases on these rights, but it is down to discretionary increases. May wish to check the history of these increases? They've said 2012's was 3.2%.

In addition to this, it's likely that your scheme is a contracted-out DB scheme, you may have accrued GMP rights pre 6 April 1997. The revaluation of this element depends on what method is used (either National Average Earnings (NAE) or a fixed method for leavers post 6 April 1997). There will be a separate assumption for these rights.

Option 1 . Annual pension £10739.20 or
Option 2 A cash lump sum of £52,621.65 plus a reduced pension of £7893.25.
Option 1 represents 14.32% of your Lifetime Allowance.
Option 2 represents 14.03 % of your Lifetime Allowance.
Am I really going to get a £52k lump sum if I take option 2 ? That feels like I've won the lottery.

Option 2 you are commuting £2845 of your pension for a lump sum of £52k. This represents an 18.5 to 1 commutation factor which is quite fair. More commonly, it is usually 12:1 or 15:1 in other DB schemes.

Estimated Value of your Deferred Pension projected to your NPD is £10742.
How do we get from these low figures to £50k? Is it complete rubbish or am I just inexperienced and it can be quite a genuine forecast?

You are referring to a "low" deferred pension. The lump sum is commuted separately (see above).

All in all, appears fine but could reclarify the assumptions on revaluations particularly the discretionary increases.

lonestarfan

sandsy wrote: »

So you had 11.5 yrs service for what sounds like a final salary pension?

Do you know what your salary was at the time you left? That might help us check the figures. Also, any indication at the date of leaving of the GMP (guaranteed minimum pension) and the non-GMP?

Yes it's final salary scheme,. Think I was on about £30k maybe but cant recall so will dig out pay slips. Not sure where to find the info about GMP. Did that even exist when left in 1997? I thought GMP was a new thing.

xylophone

Yes it's final salary scheme,. Think I was on about £30k maybe but cant recall so will dig out pay slips. Not sure where to find the info about GMP. Did that even exist when left in 1997? I thought GMP was a new thing.

Have you referred to the links in my previous post?

lonestarfan

xylophone wrote: »

Have you referred to the links in my previous post?

Yes I did lol and discovered GMP is not a recent thing. Never heard of it before 2008 when a friend asked if my grandma was getting GMP. Thought it was new so thanks for that. I don't understand it though but think its a good thing. The notes attached say

Before Age 60
Your total pension will increase in line with the change in the RPI to a max of 5%. If there is no rise in the RPI, no increase will be applied.

After a Age 60
Pension in excess of any GMP will increase by 5% or the rise in the RPI if less. If there is no rise in the RPI then no increase will be applied.
Pre 6 April 1988 GMP will not increase.
Post 5 April GMP will increase by 3% or the rise on the consumer price index (CPI) if less.

Is that helpful at all?
Thanks a lot.

lonestarfan

Your_Hero wrote: »

Probably not, since your deferred benefits have to be revalued.
This is the main assumption used. For benefits built up pre-6 April 1997, there is no statutory minimum for increases on these rights, but it is down to discretionary increases. May wish to check the history of these increases? They've said 2012's was 3.2%.

In addition to this, it's likely that your scheme is a contracted-out DB scheme, you may have accrued GMP rights pre 6 April 1997. The revaluation of this element depends on what method is used (either National Average Earnings (NAE) or a fixed method for leavers post 6 April 1997). There will be a separate assumption for these rights.
Option 2 you are commuting £2845 of your pension for a lump sum of £52k. This represents an 18.5 to 1 commutation factor which is quite fair. More commonly, it is usually 12:1 or 15:1 in other DB schemes.
You are referring to a "low" deferred pension. The lump sum is commuted separately (see above).

All in all, appears fine but could reclarify the assumptions on revaluations particularly the discretionary increases.

So are you saying it's probably not too good to be true? And I probably am going to get £50k of I commute part do the pension? That would be wonderful as my endowment policy which I initially needed for my Mortgage and for the future should have paid out £77200 but is only going to pay out £28000 or less so at least I may be able to have a reasonable retirement.

Pension increases were
1985. 5%
1986. 3%
1987. 4.4%
1988 4.8%
1989. 6.5%
1990. 7%
1991. 5.5%
1992. 4.2%
1993. 1.4%
1994. 2.3%
1995. 3.5%

Don't know why it stops at 1995
I think it's because the booklet is dated 1994 and the para inside it says the increases in the last 10 years so that's up to 2005.
Might need to ask them to send me the next booklet from 2005 to find out the following 9 yrs.

Is this info helpful?
Thanks a lot.

lonestarfan

In the scheme booklet it says for early leavers :-

Included with your deferred pension is your GMP.
This amount will be increased by 7% each year for leavers after 6 April 1993 (I left 1997), until you reach state pension age (mine is 67).
The balance of your deferred pension above your GMP will increase at 5% pa or the rise in inflation since you left, whichever is lower, each September.
As increases cannot exceed the rise in inflation, increases awarded during the first year are often below 5%.
Increases above those guaranteed can be made on the recommendation of the Trustees.
The increases awarded during the last 10 years (1994 to 1985) are shown in my post above .
TIA.

lonestarfan

Your Hero - yes it's says about prior to 6 April 1997

It says Contracting Out

GMP accrued prior to 6 April 1988. £427.44

GMP accrued after 5 April 1988 £3599.44

These figures will be confirmed by HMRC shortly before your 60th birthday and are therefore not guaranteed.
Not are what all this means.

I'll just be happy if you say it's not too good to be true and yes it looks like I'll get £50k in ten years time !
Thanks for reading and helping.