My deferred DB pension has fallen in value?!

meantime

Similar shenanigans with the Santander DB scheme (which like the BT scheme is a "descendant" (via Girobank and A&L) of the Post Office pension scheme.)

Not allowed to post links, but search MSE forums for "Santander Pension Query"

agarnett

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.

Yes that's my main concern too, particularly in relation to levels of CETV. Obviously all the time you remain a deferred member, there is an ongoing cost to the scheme if it considers itself liable for post-retirement increases, and that cost should be reflected in a higher CETV quote.

If a scheme - as a result of the recent revelation that post retirement GMP is no longer going to be funded by government in private DB schemes - considers itself no longer liable for post-retirement increases, then it may decide that it can immediately start to reflect that improvement (reduction) in scheme liabilities to individual members by reducing the CETVs it quotes.

I am sorry if that doesn't gel, but in case it does, that was my point, perhaps not well put first time around

Finst

FatherAbraham wrote: »

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

Sounds like you've got an answer. My next question would be why the change? The obvious answer would be they've had legal advice which says the original approach was wrong and overly generous.

At least you'll get a step up in your pension at age 65 when they have to credit you with the GMP increases

xylophone

According to the latest Section C Booklet, deferred benefits


"will be held in the BTPS and cost of living increases will be added to your deferred pension and lump sum over the period to retirement. The increases on any benefit in excess of your Guaranteed Minimum Pension (GMP) will be linked to the Revaluation Order published by the Government (currently based on the Consumer Prices Index), up to 5% a year compound.

The GMP will also be increased, as required by the contracting out laws – these currently require the GMP to be increased in deferment broadly in line with the increase in national average earnings."

So the GMP is increasing at Full Rate (as opposed to Fixed Rate - see https://www.barnett-waddingham.co.uk/comment-insight/blog/2012/07/24/revaluation-for-early-leavers/ )and the excess by CPI up to 5%.

The OP's annual statements are not showing the revaluation of the GMP, only the revaluation of the excess.

According to the booklet, once the pension comes into payment, and this will be 60 (NRA for his dates of membership), the booklet states

"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."

Age 60 is neither GMP age (65 for a man) nor State Pension Age which will be 66/67.


Presumably the case is that at 60, and once in payment, the pension ( revalued excess and unrevalued GMP) will all increase by
Scheme rules as above.

At 65, see https://ompensions.co.uk/media/255935/kb-franking.pdf

will "partial franking" apply?

FatherAbraham

xylophone wrote: »

The OP's annual statements are not showing the revaluation of the GMP, only the revaluation of the excess.

Call me pedantic, but it's not an annual statement. Deferred members do not receive annual statements.

I periodically write and ask for a Current Value, so I can work out how many hundreds of thousands of pounds I'll still need to save in my modern defined-contribution pension order to get any liveable income.

Warmest regards,
FA

xylophone

Deferred members do not receive annual statements.

Not true of all schemes - eg

https://www.yourpension.org.uk/LPFA/Left-The-Scheme/Deferred-members.aspx

http://www.civilservicepensionscheme.org.uk/members/deferred/deferred-news/when-will-annual-benefit-statements-be-issued/

That said, one in scheme I know well early leavers were simply told to advise any change of address but other than that to contact the Administrator at Scheme Pension Age.

FatherAbraham

Finst wrote: »

Sounds like you've got an answer. My next question would be why the change? The obvious answer would be they've had legal advice which says the original approach was wrong and overly generous.

I think they explained that (rather curtly) in the 2015 valuation letter, quoted in the original post:

FatherAbraham wrote: »

The Current Value which you received recently only showing a decrease from your previous Current Value, was revalued under the current process, set by the Government, where the Guaranteed Minimum Pension (GMP) element of your Pension is firstly deducted from your Pension value, then the pension is revalued under Consumer Prices Index (CPI) published by the Government, then the GMP value is then added back on to the revised pension figure.

That seems to say that the state has changed the requirements.

Finst wrote: »

At least you'll get a step up in your pension at age 65 when they have to credit you with the GMP increases

Maybe. I have no idea whether that's true, actually. Possibly some form of franking will apply.

Warmest regards,
FA

Finst

FatherAbraham wrote: »

I think they explained that (rather curtly) in the 2015 valuation letter, quoted in the original post:



That seems to say that the state has changed the requirements.



Maybe. I have no idea whether that's true, actually. Possibly some form of franking will apply.

Warmest regards,
FA

There has been no change in the law regarding this. The law has always required only that GMP deferred increases are credited when you get to GMP payment age (ie 65 for a man). Some pension schemes have rules which go further and credit it effectively year by year. Finally, some schemes have rules which are unfortunately a bit ambiguous, which can lead to confusion, and changes in practice. To me, it still feels like you are being fobbed off without a proper explanation, but I guess it depends on whether you care enough to kick up a fuss!

Anti-franking laws state that, if you left service after 1985 and retire at a normal retirement age of 60, your pension at 65 must be at least equal to:
Your pension at leaving, plus
Statutory deferred increases on the GMP, plus
Statutory deferred increases on the rest (the excess)

The only bit they can "frank" is the increases in payment between 60 and 65 which, for pensions built up before 1997, are non-statutory

zagfles

Finst wrote: »

There has been no change in the law regarding this. The law has always required only that GMP deferred increases are credited when you get to GMP payment age (ie 65 for a man). Some pension schemes have rules which go further and credit it effectively year by year. Finally, some schemes have rules which are unfortunately a bit ambiguous, which can lead to confusion, and changes in practice. To me, it still feels like you are being fobbed off without a proper explanation, but I guess it depends on whether you care enough to kick up a fuss!

Anti-franking laws state that, if you left service after 1985 and retire at a normal retirement age of 60, your pension at 65 must be at least equal to:
Your pension at leaving, plus
Statutory deferred increases on the GMP, plus
Statutory deferred increases on the rest (the excess)

The only bit they can "frank" is the increases in payment between 60 and 65 which, for pensions built up before 1997, are non-statutory

But also, as I understand it, if you take early retirement (ie before the scheme normal pension date) then the anti-franking requirement goes out of the window and they can frank the whole lot!

Finst

zagfles wrote: »

But also, as I understand it, if you take early retirement (ie before the scheme normal pension date) then the anti-franking requirement goes out of the window and they can frank the whole lot!

Sort of. On early retirement there's no requirement to directly satisfy the anti-franking minimum, but other regulations state the early retirement pension should be broadly equal in value to the normal retirement pension, including the value of any anti-franking step up.

So in theory, they should include the value of the anti-franking uplift when calculating the early retirement pension