Pension forecast decreased

hayleydaley

Phoned about my final salary . With withdrawing cash lump sum. 2 letters one last year says 24,000 , letter this year says 18,000 phoned and asked why it differs by 6000, they said it is how they have done the trivial commutation figures, any one else heard of this, not a happy bunny

atush

You dont really give enough information about the pension.

but if you take a lump sum, then your pension is lower. If you dont, it is higher.

dunstonh

A defined benefits scheme does not have a value. It is a package of defined benefits. However, it is possible to transfer out or take trivial commutation (although it is rarely a good idea to do so unless really small amounts). When that happens, the administrators have to work out a equivalent value and that is based on a range of things. That value will fluctuate over time as the assumptions used will change. Gilt prices, for example, had increased transfer values upto last year. However, these have fallen back again. Plus, we had a stockmarket crash last Autumn. Sterling has also fallen in value. So, even without knowing scheme details, we know that the market issues would see a decline from the high point of last year.

Finst

As dunstonh says, trivial commutation factors can vary. Typically they either vary on a monthly basis based on market conditions (gilt yields and market implied inflation if your pension is going to increase), or they can be fixed with a review every 3 years or so.

Your trivial commutation lump sum has dropped by 25%, that's a lot to be driven by monthly changes in market conditions since last year, but might be possible if the factors were a little out of date in the first place.

I'd put in a complaint and ask them to verify the drop (just in case they've made an error). But if the new figure is correct, I think you'll be stuck with it.

FYI, anyone you speak to on the phone won't know anything about how the factors have been calculated. So write/email, don't phone (so that it can be referred, probably to the actuaries).

xylophone

https://forums.moneysavingexpert.com/discussion/comment/68069471#Comment_68069471

Final salary. 24,000

Final salary can take pension of 1671pa or cash lump 7838 with a pension of 1175 pa

You are now 62? What was the Normal Retirement Age of this scheme?

PensionTech

Reading the thread xylophone linked to, I think you may find that this is all a little irrelevant. Trivial commutation is only available if the total value of all of your pensions put together is under £30,000. The other thread suggests you have multiple pensions:

Stakeholder pension. 28,000
Final salary. 24,000
Final salary can take pension of 1671pa or cash lump 7838 with a pension of 1175 pa

The value of your final salary pension for these purposes is £33420 (note, this is the value of the pension according to an arbitrary HMRC factor, not the actual amount of payment you will receive) so it alone disqualifies you from trivial commutation - and even if it were slightly lower (e.g. it's been recalculated because they found an error last time, perhaps), the stakeholder of £28k would put you over the limit. So I don't think you can take trivial commutation at all and I think your scheme administrators are barking up the wrong tree by trying to offer you this option. They might not know about your other pension, but they should have explained the conditions to you so that you can check it out.

Just so you know, taking trivial commutation when you don't meet the conditions for it would result in what's called an "unauthorised payment" - which will carry a tax penalty for you of 55% of the payment.

I'd get in touch with the scheme and ask them whether they've got their facts right before going any further.

EDIT: The OP may or may not find this useful, but just to elaborate:

The value of your pension in terms of testing it against the trivial commutation limit is 20x the pension. That's why I say it's £33420. The amount that they will pay you isn't calculated in the same way, and varies according to certain factors, as dunstonh points out. However, even if that calculation has changed somehow so that they are offering you £18k rather than £24k, the figure that gets tested against the trivial commutation limit - the £33420 - won't change. The only reason that would ever change is if they've miscalculated the underlying pension itself, and it isn't £1671 at all.

However, as I say, it's the total value of all your pensions that counts. So the actual value to test against the £30000 limit is the £33420 from the final salary pension plus the £28000 from the stakeholder = £61420 total. Way over the limit. Even if the value of your final salary pension were lower - say £1300 - the value of that would be £26000, plus the stakeholder £28000, total £54000. You'd be nowhere near the limit and therefore no chance of trivial commutation.

I would be deeply suspicious of the quality of an administrator who told me that my pension was £1671 and I could take trivial commutation, even if they didn't know I had another £28k knocking around in another pension. That's a straightforward calculation and they should be able to easily work out that you're over the limit, if they know what they're doing. Unfortunately, my experience is that trivial commutation is one of the most common things for administrators to get wrong, despite being really very simple. You should be very wary of taking their word on this without further challenge.

xylophone

https://forums.moneysavingexpert.com/discussion/comment/67919899#Comment_67919899

The OP had 2 DC and 1 DB pension.

From the above, it will be seen that she nearly fell into an "unauthorised payment" trap last year.

I had thought that pension providers asked claimants for details of other pensions they might have before authorising payments - certainly HL do.

Given HMRC rules, should it not be a requirement?

PensionTech

I had thought that pension providers asked claimants for details of other pensions they might have before authorising payments - certainly HL do.

Given HMRC rules, should it not be a requirement?

Don't think it is a requirement, oddly enough - I'd need to check that out though.

It should be standard to ask for details of other benefits, as you say. But I have seen bad practice here so often - administrators not asking about benefits not yet in payment, administrators not using the correct calculations to value other benefits, administrators not using the correct calculations to value scheme benefits, etc. - that I really wouldn't rely on it.

xylophone

Another point, the OP seems to think that she should be eligible to claim the State Pension next year - as she is only 62 now, this will not be the case.

OP, have you obtained a New State Pension Statement?

PensionTech

Thanks for the link to that thread as well xylophone - it does indeed look like the administrators have got it wrong:

Just been onto them they said it is fine as I am not taking any other payments. From the other pensions.

Absolute tosh. See - "administrators not asking about benefits not yet in payment" - common mistake. When I was in admin we had a cuddly toy that we'd put on someone's desk when they got something wrong. It was called the Bad Admin Duck. I think he should make a trip over to the OP's scheme.

Also, she might be able to take her state pension next year? If her 63rd birthday is in the next couple of months, then SPA will be in 2017: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/310231/spa-timetable.pdf

xylophone

Also, she might be able to take her state pension next year? If her 63rd birthday is in the next couple of months, then SPA will be in 2017

Yes, thanks, I had thought she was born in early 1954 but as you say, if her 63rd birthday will be before 6 September, then SPA will be next year.