Logic Check

xylophone

Re state pension, the government guidance says:



"• Under the Government’s proposals, if your foundation amount is lower than the full single-tier pension, you can increase the value of your state pension with further qualifying years up until you reach State Pension age.

• You can do this even if you already have 35 qualifying years. This is likely to be people who were previously contracted out.
• [
Each further qualifying year after 6 April 2016 will increase your foundation amount by 1/35th of the full single-tier pension (up to the maximum level)."

As you know, the GMP must by law be revalued in deferment.

The Digital Scheme has an obligation to index link the post 88 portion of your GMP pension in payment by CPI up to 3% after GMP age.

There is no obligation to index link the pre 88 and from what you have said, no obligation to index link the excess in payment if the Trustees so decide?

I have never come across a DB scheme quite like this before.

Do you have any old chums who are drawing a Digital pension?

AlanP_2

greenglide wrote: »

Don't forget that with an SPa date later than 5/4/2016 the GMP inflation proofing by the state (all of GMP for pre 88 and above 3% for post 88) will not occur.

The scheme has no duty to take over this but they may decide to be generous!

Is this the Digital scheme as in Digital Equipment Corporation ( DEC ) now HP. If so I assume HP is still funding it?

My Dec 2014 letter about Age 60 options confirms that the GMP element revalues at 7.5% pa but does not say whether or not this continues post April 2016 but certainly implies that it does as the value at Age 60 is based on that continuing.

Yes the DEC scheme now part of HP.

xylophone

The GMP on leaving was £801.34 and revalues in deferment at 7.5% for 31 years giving a GMP at 65 of around £7546.

This is not in dispute. The OP needs to get the pre and post 88 split from the Administrator.

He can check with the administrator whether or not existing rules will apply to index linking after GMP age.

At all events, a portion of the pension he eventually draws will by law have some inflation protection.

However, it appears that HP have no obligation to index link the excess once it comes into payment - this seems to depend on the grace and favour of the Trustees?

AlanP_2

Further information on the scheme and appropriate documentation / FAQs can be found here:

http://hp.xpmemberservices.com/Digital/Digital.aspx


haven't browsed through it yet but will to see if there is anything in there to shed more light.

AlanP_2

xylophone wrote: »

The GMP on leaving was £801.34 and revalues in deferment at 7.5% for 31 years giving a GMP at 65 of around £7546.

This is not in dispute. The OP needs to get the pre and post 88 split from the Administrator.

He can check with the administrator whether or not existing rules will apply to index linking after GMP age.

At all events, a portion of the pension he eventually draws will by law have some inflation protection.

However, it appears that HP have no obligation to index link the excess once it comes into payment - this seems to depend on the grace and favour of the Trustees?

No obligation as you say and a track record of not increasing pensions in payment over recent years but not sure what current situation is.

including appeals (that have been rejected) to Pensions Ombudsman by ex-employees group as I have just found out via Google.

Recent newsletter (Dec 2014) concludes with:

Following these Pensions Ombudsman determinations, our recommendation is that all Digital deferred pensioners should consult a qualified Pensions/Financial Advisor before drawing a pension from HP


Further investigation and reading required then.

greenglide

The plan booklet seems quite clear on this. Service after April 1997 is uprated by RPI up to a limit of 5%.

GMP for pre 88 service is uprated by RPI (legally CPI now?) up to 3% because they have to!

And the rest is up to the plan. The relevant wording out of the plan is:-

Your pension is paid from the date you retire and
an initial payment will be made for the period
from this date to the 5th of the following month.
Thereafter, it will be paid in advance on the 6th
of each month. Income tax is deducted in the
same way as from your salary at present.
Any pension you have earned in respect of
service from 6 April 1997 will be increased by the
Plan each year in payment in line with the rise in
the Retail Prices Index, up to a maximum of
5% a year.
If you were a contributing member of the Digital
Pension Plan between 6 April 1978 and 5 April
1997 you will have been contracted-out of the
State Earnings Related Pension Scheme (SERPS).
As a result you have built up a guaranteed
benefit known as your Guaranteed Minimum
Pension (GMP). This is broadly equivalent to the
SERPS pension you would have earned up to 5
April 1997 if you had not been contracted-out
and forms part of your overall pension which is
payable from the Digital Pension Plan.
From age 65 for a man and age 60 for a woman,
any GMP that you earned between 6 April 1988
and 5 April 1997 will be increased automatically
by the Plan each year in line with the rise in the
Retail Prices Index, up to a maximum of 3%. Any
GMP earned before 6 April 1988 will not
automatically be increased by the Plan.
The State is responsible for further increases on
the GMP that you have earned in the Plan to
ensure that it keeps pace with the increase in the
Retail Prices Index. It will therefore take account
of the increases paid by the Plan when
calculating any additional pension which is
payable by the State. This additional pension
would be payable to you with your basic State
pension.
Although the Trust Deed and Rules do not oblige
the Company to provide further increases to
pensions, there is discretion to do so if finances
permit. Pensions are reviewed annually and the
Company has regularly been able to grant additional
increases in the past

Is the plan still open to contributing members? If it is the numbers must be very, very small. The contributions are only 3% of employees pensionable pension and the pensionable salary is salary less 1.5 times the basic pension for the year.

The HP scheme is similar - it deducts up to £5,046 from the real salary.

The HP scheme is, at least reasonably well funded as is the EDS scheme (maybe they have to because of the number of outsourced civil service pensions in it) but the Digital version may not be?

AlanP_2

greenglide wrote: »

The plan booklet seems quite clear on this. Service after April 1997 is uprated by RPI up to a limit of 5%.

GMP for pre 88 service is uprated by RPI (legally CPI now?) up to 3% because they have to!

And the rest is up to the plan. The relevant wording out of the plan is:-



Is the plan still open to contributing members? If it is the numbers must be very, very small. The contributions are only 3% of employees pensionable pension and the pensionable salary is salary less 1.5 times the basic pension for the year.

The HP scheme is similar - it deducts up to £5,046 from the real salary.

The HP scheme is, at least reasonably well funded as is the EDS scheme (maybe they have to because of the number of outsourced civil service pensions in it) but the Digital version may not be?

I read that differently:

From age 65 for a man and age 60 for a woman, any GMP that you earned between 6 April 1988 and 5 April 1997 will be increased automatically by the Plan each year in line with the rise in the Retail Prices Index, up to a maximum of 3%.

and

Any GMP earned before 6 April 1988 will not automatically be increased by the Plan. The State is responsible for further increases on the GMP that you have earned in the Plan to
ensure that it keeps pace with the increase in the Retail Prices Index. It will therefore take account of the increases paid by the Plan when calculating any additional pension which is payable by the State. This additional pension would be payable to you with your basic State pension.

So up to CPI / 3% on 88-97 GMP element, nothing on the pre-88 GMP portion and discretionary on anything else.

It is the discretionary element that has been zero by the sounds of it, legal obligations no doubt being met.

The website has a section for Active members so it sounds as if there are some ex Digital employees that have stayed with HP following the takeover. I would think it is a very, very low number though TBH.

Not sure about funding situation, especially relative to HP/EDS, although as it now a "section" within the overall HP Plan and a new combined, board of trustees was formed at the time from Digital and HP Plan trustees maybe the scheme funds have been combined as well. I will spend some time looking at the trustee's reports etc.

AlanP_2

Picking out points from the responses (gratefully received) I think I have the following questions for them:

• GMP - What is the split between pre-88 GMP and post-88 GMP?
  
• Excess - What is the current value of the excess portion expressed as pension p/a?
  
• AVC - What is the current value of the AVC portion expressed as pension p/a?
  
• Age 60 - How do the Option 1 and the Option 2 pension values increase between Age 60 and Age 65 broken down by 2 * GMP elements, excess and AVC?
  
• Age 65 - How does pension in payment increase from here broken down in the same way?
  
• Discretionary increases - What has been the increases awarded over the last 10 years?
  

Does that cover it for now or is there anything else I should add?



Thanks

greenglide

I got my pre and post 88 mixed up!

As at September 2009 the scheme was 94% funded and at March 2010 it was estimated at 99% which I think is highest of the HP schemes (Digital, HP & EDS (multiple schemes for TUPE transfers)).

As at Octeber 2009 there were 771 active members, 7,529 deferred and 2,393 pensioners.

Since HP has had to pay some £229m into the EDS scheme to get it up to 84% (with further contributions to follow) and £73m into the EDS 1994 scheme (ex public sector) I wouldnt have thought there would be much appetite within HP to fund discretionary increases.

I assume the members are still paying 3% contributions while the EDS scheme is 6.75% for the full accrual amount and the HP scheme went up from 3% to maintain the accrual rates some years ago.

I assume you have access to the documents?

AlanP_2

No problem Greenglide.

The "appetite" comment is appropriate from what I understand, it sounds like a lot of existing pensioners are up to 30% "down" on where they expected to be by assuming discretionary increases would continue.

Active Members have had various opportunities to increase the 3% up to 12% I think it is now to retain the 1/60th accrual rate. By sticking at 3% all the way through the accrual rate is down to 1/84th of Pensionable Salary.

I have access to the administrator's (equiniti paymaster) website as it is public.