CETV - Concern re different multiples for Pre-97 and Post-97 non-GMP deferred pension

arogers222

Hi

The CETV document I received provides a breakdown of the pension and the corresponding transfer value for :
1. GMP Built up after 5 April 1988
2. Scheme pension (over the GMP) built up before 6 April 1997
3. Scheme pension built up after 5 April 1997
(Joined service in May 1998 so GMP before 6 April 1988 is Nil; Scheme was contracted out throughout)

I have noticed that the multiples offered for the Pre-6 Apr 1997 and Post-5 April 1997 *non-GMP* portions of the deferred pension (i.e. '2' & '3' above) are significantly different.

As both the portions are payable from Age 60 and to my knowledge have the same rights, I would have expected the multiples to be the same.

I requested the DB scheme administrator to clarify and she refused saying they don't have to!

DB Scheme has made numerous errors in the past so want to be sure no more present.

I understand why the GMP and non-GMP portions are valued differently.

I would appreciate any reason(s) which could explain two non-GMP components accessible at the same age, and with ostensibly the same rights, being valued differently.

Thanks for your help.

hyubh

arogers222 wrote: »

As both the portions are payable from Age 60 and to my knowledge have the same rights

What do you mean by 'rights' exactly...? By law, increases in payment on excess is only required for the post-97 part. While many schemes pay above statutory increases, sometimes this is explicitly discretionary, or discretionary for certain periods of service, etc.

xylophone

You say that you joined the Scheme in May 1998 so you don't have any GMP or any accrued pension ( or any "rights" in the scheme) before that date.

There was a major change to Contracted Out Salary Related Schemes from 1997

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

"In April 1997, COSRs stopped needing to provide GMP in respect of contracted out service after that date. A much simpler test applicable to the whole scheme known as the Reference Scheme Test was introduced to evaluate the overall level of benefits being provided by the scheme rather than an individual guarantee for each member. If a scheme passed the Reference Scheme Test, it could remain contracted-out."

arogers222

hyubh wrote: »

What do you mean by 'rights' exactly...? By law, increases in payment on excess is only required for the post-97 part. While many schemes pay above statutory increases, sometimes this is explicitly discretionary, or discretionary for certain periods of service, etc.

To clarify, by 'rights' I meant that the annual increases to the pension in deferred status and in payment and the age at which the pension is accessible without an actuarial reduction are identical for both the portions i.e. '2' & '3' in my initial post.

I had asked for an immediate retirement quotation with a breakdown of the calculations and this indicates that both these portions have been valued on an identical basis for all of the following three adjustments:
a. increase to deferred pension from date of leaving service to the date of quotation
b. assumed increase from date to leaving service to Normal retirement date
c. Early retirement factor

As such I am puzzled as to why the CETV multiples are different for these two parts.

I had requested for a breakdown of the CETV calculations and this was refused stating that the Scheme is legally not obliged to provide this.

arogers222

xylophone wrote: »

You say that you joined the Scheme in May 1998 so you don't have any GMP or any accrued pension ( or any "rights" in the scheme) before that date.

There was a major change to Contracted Out Salary Related Schemes from 1997

.....link......

"In April 1997, COSRs stopped needing to provide GMP in respect of contracted out service after that date. A much simpler test applicable to the whole scheme known as the Reference Scheme Test was introduced to evaluate the overall level of benefits being provided by the scheme rather than an individual guarantee for each member. If a scheme passed the Reference Scheme Test, it could remain contracted-out."

As the two portions have been valued on a similar basis in the immediate retirement quotation (as clarified in the my update above), I am inferring that the major changes in April 1997 did not impact the way these are valued in my case.

Seabee42

Pension increase rules changed in 1997 and it is not unusual for pre 97 and post 97 accrual to be valued in accordance with getting different increases in payment.

hyubh

Seabee42 wrote: »

Pension increase rules changed in 1997 and it is not unusual for pre 97 and post 97 accrual to be valued in accordance with getting different increases in payment.

arogers222 has already confirmed increases are the same after I raised the same point (see post 4)

xylophone

The OP is querying the multiples for pre 97 excess over GMP and post 97 pension(no excess because no GMP).

The Shell DB scheme, (for example), calls the latter "post 97 contracted out rights".

Since the former is only valuing a portion and the latter the "whole", it is quite feasible that the multiples are different?

hyubh

xylophone wrote: »

The OP is querying the multiples for pre 97 excess over GMP and post 97 pension(no excess because no GMP).

The Shell DB scheme, (for example), calls the latter "post 97 contracted out rights".

Erm, and other schemes will call it something else, like 'post-97 excess', or not make the distinction in the first place, if the increases due don't differ. Labelling is not particularly important in itself, the benefit denoted by the labelling is.

Since the former is only valuing a portion and the latter the "whole", it is quite feasible that the multiples are different?

Aren't we all agreed on that, apart from the OP...?

arogers222

Thanks for all the responses.

Sorry if I am missing something obvious, but the bit I am puzzled about is the reason(s) why the CETV valuation basis should differ for two parts of a pension which are valued using identical adjustment factors for early retirement calculations (as detailed in Post #4.)

To confirm, the terminology used by the DB scheme for the different parts is as mentioned in my initial post.

zagfles

arogers222 wrote: »

To clarify, by 'rights' I meant that the annual increases to the pension in deferred status and in payment and the age at which the pension is accessible without an actuarial reduction are identical for both the portions i.e. '2' & '3' in my initial post.

I had asked for an immediate retirement quotation with a breakdown of the calculations and this indicates that both these portions have been valued on an identical basis for all of the following three adjustments:
a. increase to deferred pension from date of leaving service to the date of quotation
b. assumed increase from date to leaving service to Normal retirement date
c. Early retirement factor

As such I am puzzled as to why the CETV multiples are different for these two parts.

I had requested for a breakdown of the CETV calculations and this was refused stating that the Scheme is legally not obliged to provide this.

I think you're confusing the increases in deferment with increases in payment. The post 97 and pre-97 excess over GMP will likely be increased the same during deferment, but not necessarily the same once in payment. Have you checked the scheme rules for the increases when in payment?

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

http://www.pensionsadvisoryservice.org.uk/about-pensions/retirement-choices/pensions-in-payment/annual-increases