My deferred DB pension has fallen in value?!

Mr_Prudent

I’m 99% sure that as a section C member increases are RPI up to 5% max. Only section A and B where changed to CPI (something to do with previously being civil service pensions)

chris_m

Mr_Prudent wrote: »

I’m 99% sure that as a section C member increases are RPI up to 5% max. Only section A and B where changed to CPI (something to do with previously being civil service pensions)

That is correct, apart from the reason IIRC - the section C rules specifically state RPI, whereas I think sections A & B rules only state "inflation".
I believe there was a court challenge over the change to CPI for sections A&B but it was ruled against.

xylophone

I’m 99% sure that as a section C member increases are RPI up to 5% max. Only section A and B where changed to CPI (something to do with previously being civil service pensions)

http://www.prospect.org.uk/news/story/2010/November/4/BTPS-Pensions-

"If you are a member of the BT Pension Scheme, you will have received a communication today from BT explaining that in future BTPS Section A and B pensions in payment, and Section C deferred pensions will increase in line not with the Retail Price Index but in line with the Consumer Price Index. This is a change that results from a government decision, announced in July, that in future state benefits and public sector pensions will be increased in line with CPI rather than RPI."

The OP has a deferred pension.

xylophone

See also http://www.iii.co.uk/research/LSE:BT.A/news/item/57561/bt-provides-update-pension

zagfles

It sounds like it doesn't apply here, but the nominal value of deferred DB pensions can fall due to the change in years used for indexation. It happens in my scheme every year. Revaluation is based on complete years' deferment and new tables are published for each calendar year and number of complete years' deferment, so if you left the scheme in a year with high inflation and inflation is now low, you'll likely see the nominal value of your pension go down on the turn of the year and go up on the anniversary of leaving the scheme.

Mr_Prudent

xylophone wrote: »

http://www.prospect.org.uk/news/story/2010/November/4/BTPS-Pensions-

"If you are a member of the BT Pension Scheme, you will have received a communication today from BT explaining that in future BTPS Section A and B pensions in payment, and Section C deferred pensions will increase in line not with the Retail Price Index but in line with the Consumer Price Index. This is a change that results from a government decision, announced in July, that in future state benefits and public sector pensions will be increased in line with CPI rather than RPI."

The OP has a deferred pension.

Hi Xylophone. I didn’t realise that section C deferred only rises with CPI. I take it that once in payment it switches to RPI for section C pensions but not for section A & B?
Regards

xylophone

According to the latest Section C Scheme booklet (6 4 15) which can be downloaded here http://www.btpensions.net/149/section-c-member-booklet

"Pension increases
The review period for pension increases is January to December in each year with the increase paid the following April. Pensions (in excess of your Guaranteed Minimum Pension (GMP)) that have been in payment for a full year at April will be increased in line with inflation, subject to a cap of 5%. Pensions that had been in payment for less than a full 12 months at April will receive a proportionate increase. Inflation is currently measured against the Retail Prices Index (RPI), although this is subject to the Rules of the Scheme and could be changed."

FatherAbraham

Finst wrote: »

The explanation you quote from Accenture is a standard explanation of the revaluation terms, and in no way attempts to explain your actual question. I would be writing to them with copies of both statements and demanding a proper explanation (with a threat to raise a complaint if it isn't dealt with).

I can think of a few reasons for the reduction. In order of most likely to least likely:

1. Its a mistake in one of the statements

2. The figures quoted are projected to your retirement date with an estimate of what future inflation will be. As the 2nd statement has fewer years to run and inflation has been quite low recently, this would explain a drop

3. Although the change to CPI takes effect from 2011, a lot of pension schemes had to take extensive legal advice to see whether it would apply to them. It may be that the statement in 2013 was before they had got a definitive answer

So I looked again at the 2013 letter, and realized that it said: BTPS Section C deferred pensions are revalued twice a year. The benefit actually consists of two elements, the Guaranteed Minimum Pension (GMP) and the excess (over the GMP). The GMP element re-values annually in line with Section 148 Orders issued by HMRC on 6th April. The excess revalues on 1st January in line with the Occupational Pensions (Revaluation) Orders also issued by HMRC. It is the latter factor which has a cap on the increase to be applied, i.e. a maximum of 5%.

The 2015 current-value letter says: Increases on your GMP are added at your GMP Payment Age. Increases on the GMP haven't been included because your GMP Payment Age is five years after your Normal Pension Age.

In other words, they've changed the way they calculate the Current Value, and now no increases to the GMP at all have been included. This is why the current value has fallen.

Presumably I'll get a pension at 60 which will include a non-revalued GMP element, until I reach 65, when increases to the GMP element will apply. Or something else will happen, because I'm realizing that I understand far less about this "defined benefit" than I thought I did.

Warmest regards,
FA

agarnett

Do we think this is the sign of things to come with most up til now contracted out private sector DB schemes?

My sense is (I haven't been able to fully understand all I have read just yet) that the government has abdicated post retirement GMP revaluation funding to contracted out private sector DB schemes, and those schemes aren't going to step in and make up the difference ?

Indeed, do we here have an example of a scheme which has already revised its liabilities (downwards) to immediately exploit the ill-conceived half-baked change by HMG?

FatherAbraham

agarnett wrote: »

Do we think this is the sign of things to come with most up til now contracted out private sector DB schemes?

My sense is (I haven't been able to fully understand all I have read just yet) that the government has abdicated post retirement GMP revaluation funding to contracted out private sector DB schemes, and those schemes aren't going to step in and make up the difference ?

Indeed, do we here have an example of a scheme which has already revised its liabilities (downwards) to immediately exploit the ill-conceived half-baked change by HMG?

Probably not. The change you're talking about is relevant to post-retirement increases. My concern is with the pre-retirement value of the benefits.

Warmest regards,
FA