The Real Truth of new 'flat rate' pension (where everybody gets different amounts)

coyrls

okydoky wrote: »

Well, got my State Pension Statement this morning.


It states that it is based on the rules of the new State Pension that starts on 6 April, 2016. It also states that the figure is based on my NI contribution record up to tax year 2013/14 which shows I have 41 qualifying years. It further states that the amount I will receive in 2022 when I retire may be higher than the amount quoted. It says on page 2 that a deduction has been made as I was contracted out of the State Pension at some time.
The amount is £190.17 a week.
I must admit I am somewhat relieved - I was fearful that the figures forecast earlier might be further decimated by more contracted out deductions, thankfully this is not the case.
Hope this helps to put other minds at rest that may also have been worrying about this.
Thanks

Got mine today and my experience is the same as yours. The pension amount is consistent with previous online statements, it states that contracted out deductions have been made and that the amount could go up.

In this instance I think Jamesd is wrong, from the way it is all worded I cannot see the final amount being significantly lower than the value in the statement.

roxy28

coyrls wrote: »

Got mine today and my experience is the same as yours. The pension amount is consistent with previous online statements, it states that contracted out deductions have been made and that the amount could go up.

In this instance I think Jamesd is wrong, from the way it is all worded I cannot see the final amount being significantly lower than the value in the statement.

I am keeping an eye on this thread for dad, he is 59 and has 42 full qualifying years.
He will be sending off for a statement and it would be good to know his estimate is as accurate as possible, as he was contracted out for some years.

jamesd

coyrls wrote: »

Got mine today and my experience is the same as yours. The pension amount is consistent with previous online statements, it states that contracted out deductions have been made and that the amount could go up.

In this instance I think Jamesd is wrong, from the way it is all worded I cannot see the final amount being significantly lower than the value in the statement.

If it's explicit that contracted out deductions have already been made it should be pretty much right.

There's some potential variation on what the COD will be that might possibly change between now and 6 April 2016 but that's inflation-related and almost certain to be insignificant.

coyrls

jamesd wrote: »

If it's explicit that contracted out deductions have already been made it should be pretty much right.

There's some potential variation on what the COD will be that might possibly change between now and 6 April 2016 but that's inflation-related and almost certain to be insignificant.

The precise wording is:

When working out your estimate, we made a deduction because you have been contracted out of the additional State Pension at some time.

and that the estimate is:

based on your NI contribution record up to the tax year 2013/14 only

So I'm confident that the contracted out deductions have already been made.

agarnett

coyrls wrote: »

So I'm confident that the contracted out deductions have already been made.

But if you have a contracted out private sector DB pension out here too (sorry, can't recall if you do, coyrls but a few million of us due to retire in the next 10 years still do), then the still to be clarified Pension Reforms changes effect on those will remain in something of a quandary until someone forces transparency! What may look to have been given on the one hand, may be being funded by an abdication on the other.

gadgetmind

I'm expecting (perhaps optimistically!) that things will be transparent once we can all request our foundation amounts.

Given the age of self+spouse, we haven't been able to get pension statements for quite some times, but I've got them for the 10 years before this, and have everything in spreadsheets to let me check their working!

After that, it's just making sure we hit the full amount even if we elect to retire early.

coyrls

agarnett wrote: »

But if you have a contracted out private sector DB pension out here too (sorry, can't recall if you do, coyrls but a few million of us due to retire in the next 10 years still do), then the still to be clarified Pension Reforms changes effect on those will remain in something of a quandary until someone forces transparency! What may look to have been given on the one hand, may be being funded by an abdication on the other.

I was contracted out but not to a DB scheme. I understand your concern about what will happen to your GMP in a DB scheme but as far as your state pension statement goes, I think it will take your contracted out period(s) into account.

As I was contracted out into DC schemes, there was never anything "Guaranteed" about my benefits!

agarnett

gadgetmind wrote: »

I'm expecting (perhaps optimistically!) that things will be transparent once we can all request our foundation amounts.

It'll certainly help those who have only ever had DC pensions I think. But what will actually be inflicted upon the rest of us by little known back doors in our DB schemes is yet to be seen.

The uncertainties of operation of my one remaining private sector DB scheme are so great for me (just less than a handful of years older than you) that I really do wish I had got a fair transfer value into a SIPP by now.

Honestly, gadgetmind, you might be horrified if you saw the inconsistencies plotted now in my spreadsheets of how the scheme has arrived at my CETVs over the years. The trustees, administrators and actuaries clearly believe that the calculations are nothing to concern members pretty heads over, yet the mathematically illogical and several times adjusted anomalies I have experienced show that either they are trying to pull the wool over my eyes, or someone is pulling it over theirs. This is especially true over the way they now value GMP for CETV purposes.

Given the age of self+spouse, we haven't been able to get pension statements for quite some times, but I've got them for the 10 years before this, and have everything in spreadsheets to let me check their working!

Yes I too am flabbergasted that HMRC should have unilaterally decided that anyone, let alone any of those over 50, should have to do without a forecast for even a moment. Some European countries have had internet accessible databases for some years now where every single citizen can log in and look at their entire pension situation, state, private, the lot!

Compare and contrast the absolutely p|ss poor UK government offering. We do make ourselves a laughing stock country sometimes.

After that, it's just making sure we hit the full amount even if we elect to retire early.

Absolutely - power to your elbow then - LLAP

gadgetmind

agarnett wrote: »

But what will actually be inflicted upon the rest of us by little known back doors in our DB schemes is yet to be seen.

Will it really affect DB schemes? I'm sure there are perhaps complex impacts on your foundation amount as a result of these changes, but on your DB pension?

The uncertainties of operation of my one remaining private sector DB scheme are so great for me (just less than a handful of years older than you) that I really do wish I had got a fair transfer value into a SIPP by now.

The "money tree" parts of DB are how quickly the sum accumulates given the meagre member contributions, and the (almost) fully guaranteed payments. Forgoing even the latter is a major decision.

Yes I too am flabbergasted that HMRC should have unilaterally decided that anyone, let alone any of those over 50, should have to do without a forecast for even a moment.

Yes, very poor. But pensions (state and private) have been a political punchbag for many a year, under governments of all colours. Trying to make retirement plans under these circumstances is like trying to walk in a straight line during an earthquake.

agarnett

gadgetmind wrote: »

Will it really affect DB schemes? I'm sure there are perhaps complex impacts on your foundation amount as a result of these changes, but on your DB pension?

Yes, Martin51, Billopp and others thinks so, and so do I.

You'll have read that for some private DB schemes, 2015 with low gilt yields could have created a special no brainer window to grab your CETV and get the cash into a SIPP or similar. By no means does it apply to all such schemes, and perhaps not even to the majority, but since most schemes are in some way affected by gilt yields it is an interesting time to analyse a CETV quote (if you can!).

Plotting a simple graph of my CETV quotes for mine over the past 25 years led me to conservatively expect a CETV this year which turned out to be an estimate at least 10% too high (and that was before I knew about low gilt yields hopefully inflating my CETV).

Looking more closely at the GMP portion shows that recently, the cost to my scheme of such liabilities may already have been completely abdicated.

My CETV quotes always quote a total Transfer Value and a GMP portion within the total.

Pre-97, the ratio of those GMP TV/Total TV was always about 30%. Post 97 it jumped to over 50%. Now it is back at 45%, and that is all the more worrying because the GMP portion is revalued at 7.5%pa, whilst the non-GMP portion grows with RPI but is capped at 5%. We have had relatively low RPI increases in recent years so the GMP portion should have become more prominent, but instead it has been tinkered with in actuarial expert ways which pretty heads are encouraged to accept as gospel.

Sure, private DB schemes were once great perks, especially "non-contributory schemes" but nowhere near in the same bracket as the more recently understood perk of city bonuses. Private sector DB schemes were simply much like public sector schemes in terms of what they produced as a reward, except that employers paid the cost, not taxpayers. The state changed that a bit with contracting out, but basically that was to shift a portion of known state pension risk into the private sector who were generally better at investing it alongside their main pension funds. It wasn't of course given to individuals to invest. It was given to licensed pension schemes and regulated fund managers.

Now we all know that eventually, fund manager types became licensed for daylight robbery, so I would be all for retrospectively stripping city types of their crazy bonuses because they have not been deserved and they are criminally inflated and morally reprehensible types of reward.

However, you wouldn't say that about a DB pension scheme entitlement, I hope.

What we now have is the state saying they will no longer keep their part of the contracted out bargain made to employer sponsors who invested GMP money for us. Instead, they have walked and broadly tipped the wink to the employers I think that they can walk too if they feel like it.

It's a bit like when the government started revaluing public scheme pensions with CPI instead of RPI. That also enabled private schemes to start using the lower CPI if their scheme rules weren't specific enough about RPI to disallow some other index like CPI. Some employers/schemes immediately seized the chance to reduce liabilities by converting to CPI. Others were swayed by union pressure. Others were at the time, still too proud to abdicate, and shareholders still reasonable enough to accept it.

What about now? I think employer sponsor shareholders win every time now. If an employer doesn't exploit every trick in the book to reduce its pension scheme deficit liabilities then the shareholders will cause a different finance director to be put at the triannual scheme revaluation negotiating table (if there still is a negotiating table worth the name!)

Upshot of all this ? No matter what you think of private DB schemes as original perks, membership of them is effectively being retrospectively undermined such that an great chunk (I estimate over 20% in CETV terms based on some figures I possess for my own) of the overall plus of private sector NI rebate investing over all the years since 1978 when SERPS contracting out in those schemes began, is being insidiously removed from deferred members like me, like some remote landlord who once agreed to subsidise the cost of seed as it was good for tenant farmers to fully utilise the land lest it became sour, has now returned and is taking back not just a fair portion to cover the original subsidy, but the bulk of the harvest from it, prospectively leaving private scheme members a very lean deal. We aren't quite believing what we are seeing, but the grainstores seem to have been unlocked, we've been warned about it not being topped up as comprehensively as previously, and no-one is quite sure how they are being dipped into now or by whom on what pretense.

It's another story of course, but think endowment shortfalls too. Similar kind of smoke and mirrors thing, except the state, I hope, did not have a direct hand in that unfinished scandal. Punters in their millions recommended to buy into endowments as the standard way to get a mortgage in the UK high street.

Then by the early 90s the guts of the performance had been diverted and was being hidden, and punters in their millions were then persuaded, that due to one apparently adverse investment climate after another (down and down as well as maybe up sometimes), they should walk away from their endowments.

Then just to satisfy the loudest voices, a mis-selling claims shindig was permitted for a while, with punters encouraged to accept too little and to find another way to pay a mortgage (if they were aware enough to even claim).

Now that's all blown over, we are beginning in the last few years only (perhaps fifteen years after the foundations for the main heists were already completed) to see that there was actually billions in many more of the endowment with-profit funds (called inherited estate) than they ever admitted, which has become so great that they now can't even hide it any more!

That one of course spilled into DC Pensions. But whatever happened to the W-P Pensions shortfall scandal - did we miss it ? Or maybe that's another which hasn't yet gained traction and sleeping dogs might lie.

Any of your DC pension ever been in with-profits, gadgetmind?

I said the state did not have a hand in that one, but actually thinking about it, they did! Large numbers of the original 1987 on SERPS DC policies were invested in with-profits funds. The same with-profits funds that contained the endowment policies in many cases.

Did the government tip the wink to the City on those too? How many of those remain in the same WP funds they started in? Or were Personal Pension punters quietly persuaded that they were responsible for their own WP investments so the smarter punters transferred out of deliberately beached WP years ago?

What happened to the inherited estate that would have been theirs now if they stayed? And the GMP protected rights ? Disappeared on transfer much of it, we think?

Beautiful to behold these things in retrospect ... NOT :mad: