State Earnings Related Pension not correct

moneyistooshorttomention

I retired from my job at my own personal retirement age of 60 (being a woman). Fortunately, that job retirement age had also remained at 60th birthday. That was at the beginning of 2013.

My State Pension Age got revised to be nearly 63, when they "equalised" the SPA for both sexes when I was in my 40s.

So I had to retire on my work pension only and that is my current income. Later this year I will receive the rest of my pension at last - as I will reach that revised State Pension Age.

So:

Present income = work part of pension only

Income when I reach my personal revised State Pension Age will be:
- work pension (as now)
- full Basic State Pension (of £115.95 per week)
- Serps pension from previous jobs
- a tiny bit of Graduated Pension (from me having started work in 1971).

So I've had a few pension forecasts over the years and a couple of the most recent ones I swear I recall having gone adrift somewhere (possibly in the course of my recently moving).

The latest pension forecast I have that includes ALL of my pensions is in June 2006.

My memory tells me the last full one I had (ie including every bit of my pensions) was probably around 2011 or 2012 and I'm pretty sure I recall my Serps and Graduated Pension together coming to around £35 per week (on top of my work pension and being entitled to a full Basic State Pension).

THE 2006 FORECAST IS:
Graduated Pension = £1.22 per week
Serps Pension = £17.73 per week

THE 2015 FORECAST IS;
Graduated Pension = £1.60 per week
Serps Pension = £18.33 per week

I instantly spotted that the Graduated Pension has gone up by a noticeable percentage and the Serps has barely gone up at all. I would think they would both have the same inflation rise on them.

The Graduated Pension had a 31.15% cost of living rise in that time of 2006-2015.

The Serps Pension has only had a 3.38% cost of living rise in that time of 2006-2015.

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Can anyone cast any light on this please - ie as to why my Serps pension has had such a tiny little inflation rise compared to my Graduated Pension in that time. I think there must be something wrong in how my Serps pension has been uprated during that period.

I don't know whether they have made a mistake on the one hand (hopefully) or whether they've had to uprate Graduated Pensions in line with inflation, but haven't had to do the same for Serps Pensions for some reason?

moneyistooshorttomention

Just got my calculator out again and Serps would be £23.25 per week at the same inflation rises as Graduated Pension.

Thus the "extra" bits of pension would come to £23.25 + £1.60 = £24.85 per week on top of my work pension and full Basic State Pension.

The mystery deepens - from the fact I could swear I recall the "extra" was that £35 or so 3/4 years back...

So the only possible explanation I can think of (apart from them making a mistake) is that maybe that "averaging out" that Serps has over the "average 30 years of worklife", rather than the "best 20 years" (as it used to be) has included being averaged out over the gap between my Retirement Age of 60th birthday and that personal revised State Pension Age of mine nearly 3 years later.

As my income has been/is pathetically low at the moment - whilst its work pension only. So much so that I don't pay any tax.

JezR

Were you contracted out at any time between April 1978 and April 1997?

hugheskevi

You were probably contracted-out of SERPS at some point between 1978 and 1997? If so, the amount of SERPS you receive is calculated by:

Net SERPS=Gross SERPS - Contracted-out deduction

This calculation is done each year, it is not a single calculation done at some point in time after which the result is uprated each year.

Gross SERPS is the amount of SERPS you would have received if you had been contracted-in throughout. This increases in line with earnings until State Pension age, and by prices (currently CPI) thereafter.

The Contracted-out deduction can change in a variety of ways. A common method was fixed rate revaluation, with the rate depending on when you left service. If that fixed rate exceeds earnings growth (which it will have done in recent years) then the contracted-out deduction increases faster than Gross SERPS.

That means the amount of net SERPS can go down over time, or increase by less than prices.

moneyistooshorttomention

Quite possibly/probably.

However, the latest full Pension Forecast I have is for 2006 and I had the job I derive my work pension from from 1985 until retirement in early 2013. So all of the in or out of Serps thing would have occurred, at the latest, in 1985 and that full Pension Forecast is the position as at 21 years later (ie allowing for the in and out of various work pension schemes on the one hand or Serps on the other hand that I had prior to then).

My work history was a bit "bitty" (like a lot of peoples then...) from 1971 to 1985 and I had a few years of bitty little work pension schemes (money duly cashed-in by me many years back) or unemployment or Graduated/then Serps. But it all "solidified" with starting work for last employer in 1985 iyswim.

xylophone

Have you yet received a letter like this from the DWP?

https://forums.moneysavingexpert.com/discussion/comment/60319901#Comment_60319901 post 18

You should also receive a letter from your scheme administrator showing your pre 88 GMP, post 88 GMP and excess.

You have a scheme booklet explaining about pension increases after State Pension Age?

moneyistooshorttomention

I will have to go off and check the wording of my letter - but I don't think its anything like that and will come back later once I've done that.

When you say "scheme administrator" - do you mean the administrator of that work pension scheme (ie for the job I had 1985 until retirement in early 2013) - and that I am getting the work pension that is currently my sole income from? (NB; a letter worded like that isn't ringing any bells either). Will check that too...

xylophone

You are the recipient of a DB pension from a contracted out scheme?

Do you have a scheme booklet?

My relative received his DWP letter about three months before he received the pension but after he had responded to the invitation to claim it.

He was a member of a contracted out DB Scheme so the amount of pre 97 pension after the COD was small.

Re letter from your Occupational Scheme Administrator - see post 33 here

https://forums.moneysavingexpert.com/discussion/4532605

moneyistooshorttomention

Right - I've got the letter in front of me that I've recently had from DWP ("Award notice and statement of details").
The sheet entitled "How your weekly rate of State Pension is made up" includes:

Basic SP = £115.95

Additional State Pension (based on your earnings between 6/4/78 and 5/4/97) = £34.12

Less Contracted-out Deduction you earned from an employers scheme between 6/4/78 and 5/4/97 = £25.74

Additional State Pension to 5 April 1997 is = £8.38

Additional State Pension based on your earnings between 6/4/97 and 5/4/02 = £NIL

Additional State Pension based on your earnings (or credits given for any periods of caring or incapacity, if appropriate) from 6 April 2002 = £9.95

Graduated Retirement Benefit - based on graduated contributions paid between 1961 and 1975 etc = £1.60

Total amount of State Pension = £135.88

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I'm actually rather puzzled by the reference to ASP from 6/4/2002 - as I got my last job in 1985 and did that steadily through until retirement in early 2013. Also puzzled at them mentioning "contracted out deduction" until 1997. My job pension from 1985 onwards was from one (public sector) employer - ie the Civil Service.

Generally, I cant see why the years 1997 and 2002 are being used as a reference point at all. Is that a couple of years that everyone has got arbitrarily put down on their record for some reason (ie Governmental changes affecting us all that went on over our heads) or am wondering if my record has been mixed-up with someone elses there.

moneyistooshorttomention

Follow-up thought re why those 2 years that are irrelevant to me personally (ie 1997 and 2002) are mentioned in my record being that I am wondering if one/both of those years might be when cuts in Serps scheme affecting all members was made??

I recall that, when Serps started it was based on the "best 20 years of worklife" and that was then cut to being based on "an average 30 years of worklife" and I realised that was being done as a way to cut money payable to everyone in the scheme.

There was a second cut of some description in the Serps scheme - but I cant remember what was said to be the reason for that one now.

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On a personal basis - I am wondering whether this "average" idea is impacting on me because my retirement age and my State Pension Age are different. The DWP should have "stopped the clock" at my 60th birthday (because it was the retirement age I was born with and the one I actually retired at - being the Civil Service retirement age as well and I chose not to work on past that). I am wondering whether the DWP has made these calculations based on not "stopping the clock" until I reach my personal Revised State Pension Age?

If they did that - then that would mean them doing this "averaging out" including nearly 3 years of appalling income (ie only about £8,000 pa) during that gap and bring down the average income they were basing my Serps on.

I would think they should only base the Serps part of my pension on the time up till I got my Civil Service job in 1985? - as after that the Civil Service had responsibility for providing my work pension. Is that the case?

Fingers crossed I can get this sorted out okay - as I'm still far from financially straight (despite being in my 60s).

hugheskevi

All your Civil Service pension will be contracted out.

There are several periods under which accruals are treated differently for Additional Pension purposes and contracting-out

1978-1988 SERPS, nil statutory uprating of GMP pension for those contracted-out (indexation adjustment made via Additional State Pension when in payment)
1988-1997, SERPS, employer indexes GMP up to 3% for those contracted out into a Defined Benefit scheme (indexation adjustment made via Additional State Pension when in payment)
1997-2002, SERPS, no GMP or Contracted out deduction, member just don't accrue SERPS if contracted-out
2002-State Second Pension, if contract out don't accrue amount equal to SERPS, but accrue the difference between SERPS and State Second Pension if on low to medium income.

That is why those various dates are split out in the letter, nothing to do with you personally.

On a personal basis - I am wondering whether this "average" idea is impacting on me because my retirement age and my State Pension Age are different.

That is not relevant.

I would think they should only base the Serps part of my pension on the time up till I got my Civil Service job in 1985? - as after that the Civil Service had responsibility for providing my work pension. Is that the case?

That isn't how it works.

It is a complicated system that is not based on common sense and is not intuitive. You will need to do quite a bit of research if you want to understand how it all works. Things such as this Parliamentary note are a useful starting point.