The Pension Review - help please

JAG61

Several years ago I was mis-sold a pension by the Prudential and was offered 100 pounds in 2002 as a redress from the Pension Review which I declined and I heard nothing else on the matter.

From 2011 a guarantee started to show on my annual statement which stated Following the Review of Personal Pensions required by our regulator,the Financial Services Authority, your personal pension has a guarantee added to it. It also said I could request an estimated value of this Guarantee and that Full details of it's crystallisation where set out in the offer letter I accepted and signed.

In November I decided to look out my UK Pensions and find out their worth. I wrote to request the Guarantee estimate and asked for details re crystallisation as I had not signed a letter and had no details. In return I received an offer which should have been sent to me in 2003 during the Pension Review, they also told me the guarantee on my statement was an administration error.

They mentioned that the calculation for redress uses both facts and assumptions from 2003 guidelines.

They have used my retirement date as 65 in the calculation , yet my GMP date was 60 and I selected 60 as my date of retirement when I took out the policy the certificate confirms this. Does it have to be 65 for this calculation?

They have estimated my Rolls Royce Pension from NRD as 6,543.92GBP made up from

GMP pre 88 3872.15
GMP post88 68.39
Excess 2603.37

total 6543.92

I also had Spouses Benefit, 5 year Pension guarantee and statutory increases in payment.

They have then converted this into a cash equivalent value of 22,108GBP - this seem awfully low.

They mention that they have to use 2003 figures and that annuity and discount rates used are stipulated by the regulator.

They say I can accept the 5,000 which they will increase to 10,000 as it should have been sent in 2003 or Decline giving a Valid reason.

Please can anybody help me regarding the calculations - is this the best offer I am likely to receive , can they change my date to 65, should I decline because once I accept the matter is over for good.

Any help would really be appreciated.

JAG61

Sorry I should have stated Prudential Fund value is currently only 50,000GBP

DaveMcG

Did you opt-out while still employed by Rolls Royce or did you transfer after you left their employment? If the latter, the "guarantee" would indeed have been an error as the practice at that time was to calculate the loss and apply it to the pension fund.

If your Normal retirement date (had you have stayed in the scheme) was 60 and your pension was payable on that date without reduction, you should point that out. What was selected on the Prudential policy isn't relevant, however, as they are comparing the value of the benefits had you stayed in the scheme with the value of your Prudential policy.

Presumably the cash equivalent of £22108 is in 2003? They have calculated this by valuing the benefits at retirement and then discounting this value back to 2003. The discount rate was set by the regulator, so their probably isn't anything amiss there. They may have used a generic method to value the benefits though, so that is the area that you could ask for clarification. I.e. ask them for a breakdown of the value of the members pension including increases and the 5 year guarantee, spouses pension including increases. Obviously if you could have taken benefits from the scheme at age 60 that makes a huge difference.

On the plus side, the interest on the £5000 redress seems pretty fair as its roughly 6.5% interest to turn 5k into 10k over 11 years.

JAG61

Many thanks for help DaveMcG.

It was the latter I transferred my deferred Pension a few years after leaving Rolls Royce. I wondered if they placed the guarantee on as I had not accepted their initial offer.

Yes the cash equivalent of £22108 is in 2003. Thanks for pointing that out to me.

They appear to have added all appropriate increases up to 65. I have not checked it, but they know The Rolls increases 7.5% to both GMP and increases on the excess, but they also mention about Increases in Payment so they may have used these for the 60 to 65 portion of the calculation. They have been very open with this part of the calculation and helpful.

Please ignore my ignorance but if this was to be recalculated would they always use 2003 as the benchmark. Would they roll forward the Rolls leaving figures to 65 - this time knowing more of the excess statutory figures (which now may be lower than assumptions ) then deduct as they did before back to 2003 ,this time maybe getting a lower figure or would they deduct back to 2014 and compare this value with the 50,000 GBP current Prudential fund value.

They mention annuity rates are also based on the rates and factors given to them - are the rates they are regulated to use not reflecting the Real life situation? Will the figures in the calculations never reflect what is currently happening?

I think they are giving me 10,000 gbp the letter stated "The redress amount of 5,447 would be added to your policy using a unit price date of 1 April 2003. The current value would be 10,973 gbp."

Thanking you for your help so far

xylophone

Are you male? If so, GMP age is 65.

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

DaveMcG

They should calculate everything as if it was done in 2003 under the FSA guidelines. They can't really pick and choose as they have to stick to the process from that time. The annuity rates used to derive the value of your pension at retirement date would be higher than today and the discount rate higher as well but these would all have been calculated in good faith in 2003 and could have moved either way.

You could take legal advice but imo, you are time barred anyway as its many years since you became aware of the issue. I'd be very surprised if the ombudsman didn't dismiss any complaint summarily because the review guidelines have been followed, so there really aren't any avenues, once again strictly imo.

So on the pension review side of things, unless the information about benefits used in the calc is incorrect, there isn't much more to be said.

As you were anticipating taking the benefits at age 60 it is probably worthwhile asking them for an illustration ASAP after the redress is added to your fund.

JAG61

Thanks for information Xylophone

No I am female aged 53

The Pru put my GMP into a protected rights fund with a selected retirement date of 60, they then changed this several years later when female retirement age changed I believe, they may change it again if that's the way they work it - all will be revealed next statement I expect. This change could prove tricky if I want to take funds prior to this date. They may start to apply MVR.

The Excess was put into a separate fund and retains the original NRD from Rolls Royce - the April after I turn 60.

I have read many postings yourself and other members like Snowman have posted re GMP and used this information to gain knowledge on the subject which in turn allowed me to ask appropriate questions, regarding my other deferred Pension, to The Barclays Fund administrators. Having this knowledge allowed me to understand the true value of what I had and stopped me transferring this pension out via QROPS just two weeks ago - so a huge thank you on that one.

I now understand how important the GMP is and how I have lost so much with it moving into the Prudential fund all those years ago.
Their out look is an estimated 793 pounds pa when I reach 65 Vs Rolls Royce 3,940.37 pa at 60. It has all gone and will never be recovered - the redress appears a token gesture.

I really can not understand how the calculation can be so far from the actual situation.

JAG61

Thanks for clarification on the 2003 assumptions of annuity rates.

This is where I think it all goes wrong but as you say they have followed the guidelines and this time around the offer was 5,000 pounds and last time 100 pounds .There is nothing I can do as waiting will not improve the calculation.

Thanks for your guidance

JAG61

Thanks for information supplied DaveMcG

I have processed what you have been saying and I was bugged so I returned to the letter I was sent re the calculation.

Having re read the information they had sent regarding the calculation - I noticed the following

Italics are extract from letter.

"When we initially carried out our loss calculations (23 April 2002) the administrators of the Rolls Royce Pension Fund were contacted. They advised that your date of leaving pension was £1,299 per annum. At the time they were unable to provide details of the Guarantee Minimum Pension (GMP). As a result we confirmed with the Department of Work and
Pensions (DWP) your GMP amounts

They would not have know my scheme NRA. I contacted Rolls a month ago and received all information and a confirmation of GMP benefits at 60.

This is the calculation part where they look to have still used 65. But the GMP part matches the Rolls GMP revaluation at 60

"Estimated pension at normal retirement age
Taking into account actual increases on both your pension elements up to 1 April 2003 and then assumed annual increases up to your 65th birthday, we estimated that your revalued pension would have been as follows:
Guaranteed Minimum Pension Pre 6 April 1988 £3,872.15
Post 6 April 1988 £ 68.39
Excess pension £2,603.37
Total £6,543.92

Cash equivalent value

The cash equivalent value of your occupational pension scheme benefits is calculated as follows.

The benefits earned up to the date you left the scheme are revalued to Normal Retirement Age (NRA) as explained above. The cost of purchasing these benefits is calculated based on annuity rates applicable to the age you will be at your NRA. This cost is then discounted back to the calculation date. The discount rate varies dependent on the period between the calculation date and NRA. Both the annuity and discount rates used are stipulated by our
regulator.

As at 1 April 2003 we calculated the cash equivalent value of your lost occupational pension benefits to be £22,108."

I think they have assumed I retire at 65 instead of my NRA being 60 but does that make a huge difference with this annuity discount bit or will I lose out even more. Must they use an NRA of 65 for this calculation?

I am allowed to decline the offer and say that some of the Key facts and assumptions are wrong but I don't know if they will recalculate they also say the value if recalculated can go up or down.

DaveMcG

Yes def ask them to recalculate as it looks like you would have been able to take full benefits from the scheme at age 60.

JAG61

Hi DaveMcG

I have just sent away a letter via PDF/email to the Prudential asking many question regarding data used in the calculation and from where it was sourced and how it was derived. I also asked about how the benefits fitted in as you suggested in your first post.

I read a document yesterday called "Financial Services Authority
Personal Investment Authority-Simplification of the pension review
Loss assessment calculations for transfers" - which discussed a way forward for Phase 2 transfers using a generic approach - it was a consultation document - it gave me an insight into the calculation. I am not saying this was used.

Found another document "Pensions Review bulletin No 24" which showed a Discount table for 2003 assumptions - 15-19 years to retirement was 7.3%pa discount and 20-24 years 7.6% pa - worked my years to retirement from 2003 to 2021 (aged 60) as 18 years - a big difference if 65 is used. Is this the part where it Chisels away at the Value created from the Roll forward to Retirement date by then deducting each year 7.3% pa until 2003 is reached thus leaving you with the Value required.


Many thanks for help and guidance so far.