Revaluation of non-GMP accrued pension benefits

mshcah

I left employment with an airline company in 1988 and received a letter at that time explaining my pension benefits. It unequivocally states that the GMP component of my accrued rights will increase at 7.5% and the non-GMP at 5% pa.
Since about 2000 the pension has been administered by Mercer, which I think it a pension administration services company. Its 2007 correspondence says that the post 1985 non-GMP component will increase at RPI or 5%, whichever is lower (and more recently CPI and 2.5%). I know legislation has affected revaluation rates and the figures provided by Mercer are what is in the legislation. My questions though are these:
1. Are the figures in the legislation minimum rates or the rates that must be used? Could higher revaluation rates be applied?
2. If the pension rules were different when I became a deferred member, must they apply or could the rules have been changed retrospectively since then?
3. Do I have any grounds for challenging the latest revaluation rates based on the earlier lettter from my employer.
I expect to start drawing the pension in three years' time.
Thanks for any help provided!

xylophone

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

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

agarnett

I also left a DB scheme employer in 1988 and I also am wondering how I can challenge the latest valuation because it looks too low compared to ten earlier valuations. The average rate of growth in transfer values from 1988 to 2010 for mine was over 13%

The average rate of growth in transfer value for the last five years is apparently just 3% according to their best calculation so far.

My pension has similar GMP rules to the OP, but I believe CPI has no relevance to mine until at least after I start taking the benefits - I have been told as much.

But I know my latest CETV uses S1 Life Expectancy tables (well out of date, because after a long gestation, we finally have S2 now which confirms we are all expected to live significantly longer than forecast in S1).

I feel I am being right royally ripped off by being invited to sell my entitlement very short - how can I challenge their calculation, which incidentally, they have already corrected upward by a percent or so after checking it manually upon my insistence ?

What could be making such a great adverse difference? The 27 years after leaving date even including the last five at only 3% still averages over 11%, but why not still over 13% at least, and maybe higher? As I say, the last 5 years averages 3%. That makes no sense given the new pressures of the last 5 years economic climate on such things as annuity rates, does it?

Clearly the same DB benefits must now be assumed to cost significantly more to provide than the assumptions that were used to forecast that cost 5 years ago ?

It actually appears that the non GMP part of my transfer value is that given five years ago increased by exactly RPI increases in the intervening period. No more or less. The GMP portion is increased by fractionally less than RPI. RPI increases over the entire first 27 years average almost exactly the same figure as the last 5 years.

I don't get it. What sort of thing would they be up to?

sandsy

To the OP: if the scheme rules were worded that the revaluation would be in line with legislation, then the scheme would be entitled to reduce the revaluation at each point when the legislation changed. Your 1988 letter would then be consistent with legislation at the time.


To agarnett: probably best to post your issue as a separate query as it gets confusing when there's more than one issue up for discussion in the same thread.

agarnett

sandsy wrote: »

To the OP: if the scheme rules were worded that the revaluation would be in line with legislation, then the scheme would be entitled to reduce the revaluation at each point when the legislation changed. Your 1988 letter would then be consistent with legislation at the time.

At what points did the legislation entitle pre-1988 rights to be revalued at lower rates ?
Most informed MSE commentators on the subject of revaluing these schemes agree that the valuations are far more likely to have gone through the roof due to the difficult investment climate for scheme trustees, who then are required to show that they have more assets under trust to invest, not fewer.

To agarnett: probably best to post your issue as a separate query as it gets confusing when there's more than one issue up for discussion in the same thread.

I disagree - my 'issue' looks remarkably similar to the OP's. I am not asking for a particular analysis of my case. I am offering evidence of a similar unexplained pattern which I am sure we would all like to see explained rather than fobbed off.

1988 was a year which saw an important date which altered legislation on revaluing the GMP rights within DB pensions.

My understanding is that means rights from years of service accrued prior to that date are much better protected from inflation than subsequently.

My understanding is also that 1988 was a good year to leave the employer and become a deferred member of the scheme because of this.

Most of the pension legislation changes to help cheapskate employers and trustees reconcile the books without putting in more money (indeed to even allow them to declare a false surplus and take money out in the late 80s/early 90s!) occurred from then on, but,

• in what main ways could legislation be exploited by schemes to effect a retrospective lower revaluation of their liabilities since 1988?
• in each case please quote the change and the date
• in each case please indicate the typical weaknesses in the schemes' arguments in justifying the way they exploit the legislation
• in each case please indicate when the actuarial market started to use the change to solicit business by condoning a particular exploitative interpretation as an excuse for employers and trustees to justify restatement (lowering) of their funding shortfalls and consequently their CETV valuations.

A summary of that type would I think be useful to the OP and many thousands of MSE'ers wondering if the time to ditch their supposed gold-plated DB scheme entitlements and take the cash may have already passed sometime in the past 5 years.

Thank you.

It is becoming very clear to me that the advisers to the remaining DB schemes have set out to create monopolies for themselves by inviting collusion with employers and trustees, then steering a large proportion of the remaining DB schemes -those where most members are in deferment and have no day-to-day say in the matter, in the same scheming exploitative directions in exchange for blood money which they call professional fees. That is why we should stand together in discussing these things and not allow them to pick us off one by one.

The abuse of the word 'professional' in describing the sort of services they tout is sickening. They have been taught clever mathematics as actuaries and how to scheme and front as bully-boy lawyers, and now they have no shame in using what they learned to sell their own grandmothers in the City, and then systematically to shortchange yours.

sandsy

agarnett wrote: »

At what points did the legislation entitle pre-1988 rights to be revalued at lower rates ?

Neither I nor anybody else say that it did. Neither did the OP say that his pre-88 rights had been revalued at rates lower than those stipulated in legislation at that time.


As for your own situation, I suspect you'll get more assistance from the knowledgeable members of this board if you reconsider the style of your posts which not only come across as being very aggressive but frequently go off topic with rants against various companies or professions.

mshcah

Thanks to xylophone for the links. I had already looked at these and, although very informative, they didn't seem to answer the specific questions that I posted.

Thanks to Sandsy too. I have already asked the current scheme administrators for a copy of the rules that were current in 1988 but have had no joy so far. I think I will need to continue to pursue this with them. I guess there's no alternative source where I might find that document? And what if it can't be provided?

hyubh

1. Are the figures in the legislation minimum rates or the rates that must be used? Could higher revaluation rates be applied?

They form a minimum standard. Given you have implied about the pre-85 excess it's possible you're already receiving higher than that overall however.

2. If the pension rules were different when I became a deferred member, must they apply or could the rules have been changed retrospectively since then?

Unless covering legislation changed matters, no, however it's the letter of the rules that is important not their common understanding at any given point.

3. Do I have any grounds for challenging the latest revaluation rates based on the earlier lettter from my employer.

The letter in itself won't override carefully-worded scheme rules, and indeed might even have a disclaimer at the bottom saying so. However, if you have made significant financial decisions now imperilled on the basis the letter was correct, then it could have weight if you kicked off a complaints process and it ended up with the Pensions Ombudsman.

I have already asked the current scheme administrators for a copy of the rules that were current in 1988 but have had no joy so far. I think I will need to continue to pursue this with them. I guess there's no alternative source where I might find that document?

The trustees.

And what if it can't be provided?

Request a breakdown of your pension from the administrator specifying the increase due on each element (e.g. '5% fixed', 'RPI up to 3%', etc.) and the reason for each one (e.g., 'xxx section leaver pre-1990' - a reason from the point of view of someone who knows the data in other words). The increases due in a private sector DB scheme can get quite complex, so it's possible there's been a miscoding at some point.

xylophone

It is not impossible that there was a fixed 5% increase on the excess- just for interest (not your scheme, obviously) see the footnote to the S52A table provided to deferred members of the NTL Pension Scheme, of which DTELS became a part.

"there are some DTELS members who receive fixed 5% per annum revaluation in deferment
- pension accrued from 6 April 2009 revalues in deferment in line with the increase in RPI up to 2010 and CPI from 2011, subject to a maximum of 2.5% per annum,
calculated over the whole period of deferment.
- GMPs are revalued in accordance with a different method."

However, it is also possible that the information in your original letter was incomplete, or that the Trust Deed and Rules permitted changes in accordance with legislation.

It should be possible to obtain a copy of the Trust Deed and Rules but these are likely to be a long and difficult read.

Have a look at https://www.mybapension.com/resources/schemeDocuments/NAPS_Trust_Deed_and_Rules.pdf and you'll see what I mean.

hyubh

agarnett wrote: »

Most informed MSE commentators on the subject of revaluing these schemes agree that the valuations are far more likely to have gone through the roof due to the difficult investment climate for scheme trustees, who then are required to show that they have more assets under trust to invest, not fewer.

Valuation of a pension fund: formal assessment of how its assets square (or don't square) with its liabilities. Typically performed by an actuary every three years.

Revaluation of a pension: increase of a pension or part of a pension by a given rate in order to maintain its value in real terms (roughly speaking). Typically done ever year.

There is no special connection between the too, beyond trustees naturally wishing to limit discretionary increases if the fund is in deficit, or in times past, be open to higher revaluation rates than originally envisaged if the fund is strongly in the black.

agarnett

I think I appreciate the subtle difference you are exploring with discretionary increases (or lack of), hyubh. However if we bear in mind most legacy DB schemes have been in deficit for years consecutively now, one would doubt that there would have been much by way of discretionary increases for remote deferred members for a very long time? Isn't it over a decade since it became the norm to run them in constant deficit as long as there was an agreed plan to eliminate the shortfall over a notional period - but at each tri-annual scheme valuation, that plan gets reviewed?

I accept your argument might ... just might, explain part of an anomaly that the OP may be querying if the OP has really seen nothing between the 1988 letter and whatever it was that led to the OP's question in this thread, i.e. something that seems to have unexpectedly disappointed the OP very recently, but is the absence of just discretionary increases really likely to be a plausible explanation? The guarantees described in the original post were quite heavyweight in their own right. Discretionary increases would only ever be icing on top?

Having had some interaction with the airline industry, and therefore being an easy subscriber to the old line of thought that used to go along the lines "Q: How do you make a small fortune in the airline industry? A: start with a large one!" then it is surely doubtful that much in the way of discretionary increases over and above guaranteed rule-based increases ever made it to deferred members who had left employment of the company, especially if they had left en masse due to redundancy following takeover, for example.

I could accept that a strong union back in the late 80s early 90s e.g. BALPA may still have been successfully arguing each year for a certain level of discretionary pension revaluation increases as part of the annual pay round negotiations for lucky existing and continuing staff, and perhaps to square or equalise arrangements between existing and newly taken over employees.

But I can only guess at a scenario where discretionary increases might ever have been removed again later: that's perhaps if the member was still working for the same airline group and their union had been forced to agree it on behalf of active deferred members (if there is such a thing!) as some sort of survival compromise?

But if the OP left the employer completely in 1988 (no frozen scheme/no takeover), surely no discretionary increase given up to that date could ever be removed?