Calculating a GMP

kangoora

I've been chasing a small pension pot for a number of months now and Mercer have come back with a CETV. Incidentally, I asked for a pension benefit statement, not a transfer value. The main problem is I have absolutely no records for this pension, apart from pay-slips from the period. I had thought I'd transferred out to another scheme (so binned all the paperwork 20-odd years ago) but obviously didn't as they got in touch with me

I may need to go to an IFA but was hoping I could get my basic question answered here. There appears to be no spouse benefit but they have me down as single.

The headline figure is £43,841 CETV. The fund is in deficit and they have already subtracted £9k from the CETV. Weirdly, the CETV is calculated before they have confirmation of my GMP, I understand they are challenging the original HMRC figures.

My pension benefits are shown below. This seems a large sum as I only worked for them for 2 years and I left on, I think, about £18k salary. I only paid in for 2 years for a total of £1758 so £43k is looking pretty tempting to transfer to a SIPP or PP but alarm bells are ringing .

Pension at Date of Exit
Post 5.4.1.1988 GMP at DoE - £72.28
Escalating pension at DoE - £398.03
'Total Pension at Date Pensionable Service Ended' - £470.31

The DB Benefit components (GMP) of that money is
Post 5.4.1.1988 GMP - £72.28 - Fixed rate revaluation 7.5
Scheme post88 ---- £72.88 --- Fixed rate revaluation 7.5 (this is the same line as above I assume repeated?

I suppose the queries are, sorry for taking so long to get to them

1. The £470.31 p.a, is this the value it was worth in Dec 1991?
2. Any idea how to calculate what it would be worth now?
3. Does it look better to keep or transfer to a PP

One thing the CETV valuation doesn't state is the NRD for taking benefits, I've asked them to supply it but I am assuming 60 for now.

Thanks for your attention

xylophone

Re your deferred pension

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

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

You may be able to obtain a copy of the scheme booklet from the internet - it's surprising what can be found.

It would seem that you joined the company after April 1988 so that all your GMP was post 88.

It would seem that your GMP at DoE was £72.28 and the fixed rate method of revaluation was chosen by the scheme trustees - see link above.

You can use a compound interest calculator to get a rough value for this at GMP age.

Then there is the excess over GMP at DoE which in your case seems to be £398.03 but this would not normally revalue at fixed rate - see second link.

Do you need to check whether this is correct?

WobblyDog

I'm not an expert, but intensely interested because I have a deferred pension with a GMP portion that's hopefully growing at 6.25% per year.

If your pension scheme was a "1/80th" scheme, and you worked for 2 years and left on £18k per year, the pension at Dec 1991 would be £450 per year, so I think the answer to your question 1 is "yes".

Unless the non-GMP portion is revalued on a very generous basis, I don't really understand why the CETV is so high. That said, any pension involving a GMP component could be surprisingly valuable, so it would be wise to fully understand what's going on before taking action.

sandsy

I think, roughly, it would be the following, based on you leaving a bit over 23 years ago:


The GMP is now worth about 72.28*1.075^23 = 381.43
The rest is now worth £398.03 * (1+ 0.921) = 572.52
Total = £953.94


The 0.921 is based on the 92.1% in this table:


http://www.legislation.gov.uk/uksi/2014/3078/pdfs/uksi_20143078_en.pdf

xylophone

How old are you now?

kangoora

Sorry, been out all day since the 1st post.

I'm just about to be 53 this month.

I left the firm in Dec 1991, it appears I have 7.5% a year compounding on the GMP part which over 31 years (assuming NRD of 60) will be £680.27 p.a when I get to age 60.

Looking at the link provided by Xylophone it appears that I'll get RPI increases on the other part capped at max 5% up to 2011 when it goes to CPI. Sandsy kindly calculated This out at £572, I guess that will increase further over the next 7 years. Anyone able to hazard a guess what this might be?

So my calculation of minimum pension at age 60 will be £680 + £572 + (572 x xx% ) per annum. So £1252 + (something).

If the above is correct (can someone check my assumptions) then I need to decide if £44k now is better value than £1252 (+ a bit) pension in 7 years time.

Would appreciate any comments on this, or my calculations.

Thanks again.

PS Doesn't the revaluation of the £398 = 398 + (398 x 92.1%) therefore = £764 and not £527?

sandsy

Yes, £764. Sorry, must have hit a wrong key on the calculator and didn't sense check it!

xylophone

I make it £764.61563.....:)

Something else to take into consideration is how the GMP is dealt with if the Scheme Pension Age is 60- ask the Administrator.

The Scheme Pension will be inflation linked in payment - how?

You are married but the Administrator appears to think that you are single - it would be unusual for there to be no spouse benefits in a DB pension - this needs clarification?

If you want to transfer out, as the CETV is (apparently) in excess of £30,000, you will need the advice of an IFA qualified in Pension Transfers.

kangoora

Cheers, so the pension is now likely to be £764 + £680 + a bit

So, £1444 p.a. (+a bit), maybe around £1,500 p.a. in 7 years time.

Sounds good to me for a couple of years work

I do need to ask about

• the NRD,
• age I can take pension without any actuarial reduction,
• spouse benefits (presumably as I wasn't married 23 years ago they have me on record as single),
• how GMP is handled if I can take a pension at age 60 plus
• details on what any annual increases are based on.

Thanks for input so far

xylophone

(presumably as I wasn't married 23 years ago they have me on record as single),

Nobody nabbed you as a sweet young thing...:D

Let us know how you get on...

kangoora

Back again. I've now got some docs from the administrators including an up-to-date pension valuation.

Pleasantly surprised to find out my current pension value will be £2459.92 p.a. and will increase further until I retire and start to draw it.

• The NRD for the pension is 65.
• It does say I can take it without any reductions from 60 onwards. This seems to have a proviso 'with the companies consent' - will that mean I am likely to have to wait until 65 anyway?
• There are spouse benefits of 50% plus a 5 year balance payment if I die within 5 years of retiring, just need to return a form to them
• Pension in payment - Annual increases in excess of GMP will be a flat 3% (here's hoping for low inflation)
• Pension in payment - GMP increases will be RPI up to a max of 5%

So, what triggered all this off was them offering me a CETV of £43,841 - that's not looking very clever now (which I did assume was going to be the case).