Logic Check

xylophone

To get back to basics and taking account of the additional information provided by the OP.

And as a further thought, I am wondering whether because he joined Digital in 1989 albeit that he transferred in some pre 88 GMP, the digital scheme has somehow subsumed this into all post 88 GMP?

If this were the case, then once GMP age was reached, the scheme would have the obligation to index link the whole of the GMP up to 3% as discussed before.

Whatever may be the case in this respect, when the OP left Digital in 1992, he became a deferred member of the scheme and on leaving he had a GMP and an excess.

Given the date of leaving, the Scheme had the legal obligation to revalue his pension in deferment, the GMP by the method chosen by the Trustees (Fixed Rate in this case), and the excess by at least as much as required by legislation (see the Barnett Waddingham link).

It appears that although the Scheme Pension Age is actually 65, the Trustees permit benefits to be taken without actuarial reduction at age 60. This however does not rid them of their obligations in respect of the GMP which must be split out at GMP age.

What normally happens for male members in DB schemes where Scheme Pension Age is 60, is that up until GMP age (which used to align with state pension age), the Scheme increases the whole of the pension in line with Scheme rules, but at GMP age (or possibly now at State Pension Age, or, in some schemes, when the member draws his state pension), the pension is split out into pre GMP, post GMP and the excess, with the excess increasing by Scheme Rules and the GMP as previously described.

The Digital documents mention that the State may be responsible for indexing part of the GMP (which is the case and will remain the case for those retiring before 6 4 16) but does not mention that where a pension has been deferred and the GMP revalued by Fixed Rate, it is almost certain that the COD will be so high that it far exceeds ASP- this means that for members affected, there will be no increase on the pre 88 part of their Scheme Pension GMP, and nothing above 3% on the post 88 part of their Scheme Pension GMP until ASP is equal to or greater than the COD.

The OP reaches 60 after 6 4 16 - it remains to be seen how the Administrators cope with this.

Turning now to whether or not the pension increases once in payment (over and above the GMP), it now seems that at least for people who retire in service, the pension for service after 1997
increases by RPI - but how does pension over and above GMP for service before 1997 increase?

Is the case then that the pensioners have the right to the RPI increase, but there may also be discretionary increases?

And for deferred members like the OP, how will the pension increase if paid at 60 and how will it increase after age 65?

Do those taking a pension after deferment have the right to RPI increases and discretionary increases where awarded?

AlanP_2

Taken from the various guides found here:

http://hp.xpmemberservices.com/Digital/Scheme-Guides.aspx

For pensions in payment:-


In-Plan AVC Pension

That part of your pension which relates to In-Plan AVCs does not receive guaranteed pension increases but is reviewed annually and discretionary increases may be granted.

Pre ‘97 Pension

If some, or all, of your pension relates to pensionable employment in the Plan prior to 6th April 1997, that pension does not receive guaranteed pension increases but is reviewed annually and discretionary increases may be granted.

Pre 88 GMP Pension (Payable from age 65 (men) and 60 (women))

In accordance with legislation, you will not receive any increases from the Plan in respect of your pre ’88 GMP. Instead the State may increase any pre ’88 GMP you have earned for membership before April 1988. Any increases provided by the State will be paid by The DWP each April and will form part of your Basic State Pension.

From your date of leaving to your GMP Payment Age your pre ’88 GMP was increased by the Plan at a fixed rate and this rate is likely to be more favourable than the State applied to your Additional State Pension (ASP).

Therefore, your pre’88GMPwill only start to attract inflation proofing rises from the DWP once your pre ’88 ASP catches up to the level of your pre ’88GMP.

Post 88 GMP Pension (Payable from age 65 (men) and 60 (women))

The Plan increases theGMPyou have earned since April 1988 in accordance with the rise in the annual increase of the Consumer Prices Index (CPI) up to a maximum of 3% a year.

In addition, further increases will be paid by the State each April if the rise in the CPI is greater than 3%.


Once I find out what the Pre and Post 88 GMP values are it appears to me that the only GUARANTEED increase to the pension will be the CPI / 3% applied to the Post 88 portion.


Given that my previous GMP at Age 65 transferred into the scheme was £6,393.04 (built up between 1982 and May 1989) and the current GMP value at Age 65 is £7,559.24 I would estimate the pre-88 element as being worth in the region of £6k and the post 88 element being worth in the region of £1.5k.

So probably CPI up to 3%pa on ~£1.5k to be relied on from Age 65 then.

For reference there is a Pension Ombudsmans's Determination challenging the non-payment of discretionary increases to the non-GMP portion of pensions here:

https://www.pensions-ombudsman.org.uk/determinations/2014/po-4065/hewlett-packard-ltd-retirement-benefits-plan/

xylophone

From the additional information above -

The AVC was an in house AVC http://www.pensionsadvisoryservice.org.uk/about-pensions/pensions-basics/workplace-pension-schemes/defined-contribution-avcs-and-fsavcs

This seems to indicate that it is tied into your employer's scheme but it does not appear to work as indicated in the link in so far as any increases are entirely discretionary?

With regard to GMP, I note that the effect of Fixed Rate revaluation in deferment has been covered in the guide document you have found.

I think that it is very important that you should check your pre and post 88 situation with the administrators.

Clearly, part of your deferred pension is over and above the GMP and relates to service before 1997 - to be exact, this was between 1989 and 1992.

This would have to have been revalued in deferment.

As you say, we are then back to the position that because all your pensionable service related to pre 97, when you draw your pension, any increase above that on the GMP will only be awarded at the Trustees' discretion?

And then, if you took option one in your first post, what exactly is the situation with regard to increases up to age 65?

And what if you don't draw your pension until age 65?

I hope you'll come back with the answers!

AlanP_2

I have put a letter together to send to the administrators and would welcome comments before I send it to ensure that I am asking the right questions, using the right terminology:


=========================================
Dear Sirs

Re: The Helwtt-Packard Ltd. Retirement Benefits Plan – Digital Section.



Thank you for your letter (ref: dated 8 December 2014) and the current benefit statement.

I have a few queries which I am hoping you may be able to help me with.

1. Your second paragraph refers to the revaluable pension in excess of GMP increasing in line with RPI up to 31 December 2010 and then by CPI from 1 January 2011, up to a maximum of 5% for each complete year in deferment up until age 60.

Quoting from your website (http://hp.xpmemberservices.com/Digital/Scheme-Guides.aspx) :

Pre 97 pension accrued in excess of the GMP: this will revalue by the statutory revaluation orders announced each year capped at 5% for each complete year between the date of leaving service and your normal retirement date.

Can you please confirm what would happen if I were to defer taking my pension until age 65 (Normal Retirement Date) as opposed to age 60 as the letter refers to revaluations up until age 60 whilst the website refers to up until NRA (which I understand to be 65)?

Statutory Revaluation is the measure used by The Occupational Pensions (Revaluation) Order. This is RPI measured from September to September for the period up to 31 December 2009, and CPI measured from September to September for the period 1 January 2010 onwards.

Can you please confirm whether the move to CPI was made in January 2010 or in January 2011?


2. GMP – can you please tell me the split between pre-88 and post-88 GMP as I understand, again from your website, that they are treated differently in terms of pension increase calculations once the pension is in payment?

3. How do the pension values in your letter increase between age 60 and age 65, broken down by pre-88 and post-88 GMP, the excess above GMP and the AVC fund?

4. As per point 3 but from age 65 onwards please?

5. In your letter, the note in respect of Option 2 states that the reduced pension of £4,422.42 p.a. payable at age 60 “will increase to at least the minimum of £7,559.24 p.a. at GMP payment age (65)”.

My understanding, based on the Preserved Pension Certificate issued on 30/09/92 was that my pension was made up as follows:

Type - At Date of Leaving - Normal Retirement*
GMP - £801.84 - 7559.24
Balance of Digital Plan - £1092.06 - £5203.63
In-plan AVC - £310.44 - £1479.25

* 29/08/2024 age 65

Whilst the GMP element is revalued at the Flat rate of 7.5% and is still the value predicted I appreciate that the other two elements are revalued by the factors covered in my point 1 above and that, overall, 5% p.a. has not been applied by any means.

Checking on http://www.ariespensions.co.uk/public/stats/tables/reval.htm as you suggest (and using the 22 year factor) leads me to conclude that these two elements are worth, as of today:

Balance of Digital Plan - £1688.30
AVC - £479.93

By further adding the 3% working assumption for excess revaluation as per your letter I arrive at the following values by age 65 (a further 10 full years since leaving):

Balance of Digital Plan - £2,268.94
AVC - £644.99

I appreciate that the 3% going forward is only an estimate but working through it in this was I arrive at an age 65 total pension of £10,473.17 (£7559.24 + £2,268.94 + £644.99. On the face of it this seems substantially different to the minimum which you refer to as being the GMP portion only.

Whilst the fact that in your letter payment commences at age 60 will need to be taken into account I am struggling to understand how the minimum at age 65 can only be the same as GMP. At the very least it should surely be equal to GMP plus revaluations to the excess and to the AVC up until age 60 (ignoring any in-payment increases which may or may not occur between 60 and 65)?


Yours faithfully etc.
========================================


Thanks

TH1878

xylophone wrote: »

The Digital documents mention that the State may be responsible for indexing part of the GMP (which is the case and will remain the case for those retiring before 6 4 16) but does not mention that where a pension has been deferred and the GMP revalued by Fixed Rate, it is almost certain that the COD will be so high that it far exceeds ASP- this means that for members affected, there will be no increase on the pre 88 part of their Scheme Pension GMP, and nothing above 3% on the post 88 part of their Scheme Pension GMP until ASP is equal to or greater than the COD.

Almost certainly true. Average earnings (which SERPS / S2P is revalued by) has been in the region of 4%pa (compounded) over that period against 7.5% fixed revaluation.

At 3% inflation, you're looking at just under 35 years before the OP would begin to get inflationary increases along with his basic state pension.

AlanP_2

TH1878 wrote: »

Almost certainly true. Average earnings (which SERPS / S2P is revalued by) has been in the region of 4%pa (compounded) over that period against 7.5% fixed revaluation.

At 3% inflation, you're looking at just under 35 years before the OP would begin to get inflationary increases along with his basic state pension.

Thanks for this. I hadn't done the maths but had written off any likelihood of inflationary increases to my basic State Pension in my thinking.

xylophone

Almost certainly true. Average earnings (which SERPS / S2P is revalued by) has been in the region of 4%pa (compounded) over that period against 7.5% fixed revaluation.

Yes, and in fact, (see my post above), Alan found some more information (see his post 23) which advises pensioners that this could be the case

"From your date of leaving to your GMP Payment Age your pre ’88 GMP was increased by the Plan at a fixed rate and this rate is likely to be more favourable than the State applied to your Additional State Pension (ASP).

Therefore, your pre’88GMPwill only start to attract inflation proofing rises from the DWP once your pre ’88 ASP catches up to the level of your pre ’88GMP."

However, I did note that his GMP was not split out in his

Preserved Pension Certificate issued on 30/09/92 which led me to wonder whether as he had transferred in to the HP/Digital plan in 1989, HP/D Administrators regard this as all post 88 (see my post above) - Alan needs to clarify.

xylophone

I have put a letter together to send to the administrators and would welcome comments before I send it to ensure that I am asking the right questions, using the right terminology:

Alan, I think you should ask

(1) whether the GMP on your Certificate at leaving is all post 88 GMP and if not, how much of it is pre 88
GMP. (See my previous posts.)

(2) how your excess is revaluing in deferment - refer to the information contained in http://www.barnett-waddingham.co.uk/comment-insight/blog/2012/07/24/revaluation-for-early-leavers/

(3) how your AVC has been and will continue to be revalued in deferment

(4) for confirmation of the current value of your GMP and more particularly of the excess and of the AVC.

(5) whether or not you have the option to defer your pension to NRA (65).

(6) whether the pension in option 1 (your first post) represents the whole of the GMP revalued to age 65 plus £1338.28 and if so, what the latter sum represents. (Excess? AVC? How much of each?)

(7)how the pension in (6) above would increase in payment - would it only be at up to 3% on the post 88 GMP unless there were discretionary increases in addition?

(8) if option 2 (in your first post) is chosen, how would it increase in payment (a) pre age 65 and (b) post age 65.


And as a separate piece of research, obtain a new state pension statement.

https://www.gov.uk/government/news/millions-more-offered-free-pension-statement

Hope this helps - let us know how you get on.