GMP & Franking I need some Urgent Help!

grahap

Hi everyone, this is my first ever post on any forum, so be gentle with me

I really need some urgent help as I am in financial difficulty and struggling to understand my pension options, I need to take an urgent decision on my pension. I have been doing some research on here and elsewhere on the internet, but now I’m stuck and hoping someone on here can lend a hand :j My details are as follows –

I have an old final salary scheme with HBOS.
I am 62 and my NRD was June 2017. I am a single male, no dependents.
I left the scheme in Sept 1986. At that point they stated pension was as follows –
GMP (pre Apr 88) £345.28 per year (revalued by section 148 orders, up to 5%)
Pension over GMP £1077.84 (revalued by CPI, up to 5%)
They have sent me a retirement (Jan 18) quote as follows –
Full pension - £4210.98 per annum
Reduced pension £3026.29 with Max lump sum of £20175.23.

They have also given me a transfer value of £127,866.
I sent them an email asking what my GMP would be at 65. They replied that HMRC confirmed it would be £98 per week at 65 - £5096 per year. This figure is obviously more than the full pension they are quoting now, and as it is all pre 1988 GMP I’m assuming it will not receive any cost of living increases following recent pension changes. The DWP has separately told me that my COPE estimate on my state pension is £50 per week.

All this is pretty vital for me as my only other significant pension is the State one (which I can take at 66).

I have used the Money Advice Service website to get a pension quote for the transfer value (using a similar lump sum figure of approx. £20300). I am in good health, but a little overweight ….. and this came out as follows –

£5457 per annum level payment
£3620 increasing yearly at 3%

Both amounts include a lump sum of £20459.

HBOS have recently outsourced their pension line support and the service is poor in comparison to previous support. I have asked them to confirm that my GMP at 65 will be the £5096 figure they stated, in an email, that HMRC had confirmed, and whether it should be the same as the COPE figure, and also whether this will be the case regardless of my taking the £20175 lump sum now (I understand that lump sums cannot be taken from GMP).

All I have received is a bland letter which states that the retirement quote they have given me ‘includes the GMP element of your pension and this is not paid in addition to your main scheme pension’. They ignored the questions about COPE and their previous confirmation that my GMP was £5096 at 65.

Thanks for bearing with me so far

My Questions are -

When I’m 65 should I not receive £5096 per annum from HBOS (all GMP)?

I had previously assumed that if the GMP at 65 was £5096, then it would take the place of the existing pension, leaving me with just the GMP at £5096, however after doing further research online I came across a government regulation called ‘franking’ which implies that companies cannot just deduct increased GMP pension from the previously built up ‘excess’ pension i.e. the non GMP element.

Will I therefore receive £5096, plus the pension excess over the GMP figure? I have revalued this excess as approx. £2226 per annum, using CPI index figures, compounded yearly since 1988. This would make my pension at 65, approximately £7200 per annum.

Should my COPE figure be the same as the GMP?

If HBOS will only pay me £3026 (with a lump sum) or a full pension of £4210, then it looks like I’d be better off taking the transfer value….and this leads to my final question ---

Does anyone know of any advisors willing to take a fee based on the transfer value rather than an upfront fee which I haven’t got ? I found one (Tideway) however they only do this for pots over £400,000, and this seems to be the case with a few now.

This has been keeping me up at night as I’m really struggling to find a way forward, and I need to do something urgently about my debts. There is a delay each time I approach HBOS and the recent reply has not helped me at all. I would be grateful if anyone can help.

Thanks for reading this, if you got this far, and I do appreciate the stuff you have already posted which has helped a lot :j

Silvertabby

First of all, forget the COPE - this was just used to calculate your State pension foundation amount as at April 2016 and has no bearing on your future State or private pensions.

My concern is the figures you have been quoted and your GMP:

They have sent me a retirement (Jan 18) quote as follows –
Full pension - £4210.98 per annum
Reduced pension £3026.29 with Max lump sum of £20175.23.

I sent them an email asking what my GMP would be at 65. They replied that HMRC confirmed it would be £98 per week at 65 - £5096 per year.

I realise that different pension schemes have different rules but, with these figures, if you had been in the LGPS you wouldn't be allowed to take your pension until GMP age (still 65 for a male). Furthermore, even then you wouldn't be allowed to give up some of your pension for a tax free lump sum if doing so dropped your reduced pension below the GMP level.

You need to ask HBOS for written confirmation that the figures they have given you are correct, despite your GMP.

grahap

Hi Silvertabby

First of all, thanks for the prompt reply:). I really appreciate your help.

I have got written confirmation of the figures, as they have sent me them several times in the last 18 months as I approached my NRD at 62. That said, I notice that they ignored my recent question about the HMRC confirmation of a GMP of £5000 (although I do have their email advising me of this).

When I was doing research online I did come across an LGPS leaflet which suggested that scheme would increase its pension to the GMP figure at 65 if it was more than the current pension (although this was not in the context of a lump sum payment - and in any case, it is a different scheme; however it was interesting that at least some schemes do increase pensions to the GMP amount - and as far as I can tell, they HAVE to do this?).

I've looked at the rules of my scheme (available online) and it doesn't say a lot about GMPs. I do remember, back in the seventies; that we were constantly being told that our salaries and pension benefits were closely modelled on the Civil Service/Local government models.

I'm wondering whether the scheme rules were sufficiently updated to take account of GMPs. There is no mention of reducing (or eliminating) my 'normal' pension at NRD (62) in order to offset GMP costs, and I am now six months past my NRD.

Silvertabby

When I was doing research online I did come across an LGPS leaflet which suggested that scheme would increase its pension to the GMP figure at 65 if it was more than the current pension (although this was not in the context of a lump sum payment - and in any case, it is a different scheme; however it was interesting that at least some schemes do increase pensions to the GMP amount - and as far as I can tell, they HAVE to do this?).

The GMP is the minimum pension that has to be paid by law - it was part of the conditions of contracting out of SERPS/SP2, as the contracted out pension scheme must pay you at least the State second pension that you would be giving up. ie, your Guaranteed Minimum Pension.

In the LGPS example you quote yes, the LGPS would have to increase your benefits to the GMP level - but they wouldn't have to bring your benefits into payment before your GMP age (still 65 for men, 60 for women).

It is possible that HBOS rules are more generous - but I'm still concerned. One possible scenario is that your current estimate and your GMP query were dealt with by newbies who haven't got a full grasp of GMP regulations - and that your actual pension claim will have to be signed off before payment by someone more senior who does know the regulations.

ADD:

Can't find anything on HBOS, but the NHS state that they won't pay an actuarily reduced (for early payment) pension if it fails the GMP test. So, the question now is - if your NRA is 62 and so won't incur an early payment reduction, would HBOS pay you £4210. 98 until 65 and then top you up to GMP? My gut feeling is still 'unlikely' - but even if I'm wrong I'm sure that they wouldn't allow you to reduce your pension further by taking the tax free lump sum.

grahap

Hi Silvertabby, thanks again for the quick reply....and I meant to say also, thanks for clarifying the COPE stuff, that has cleared a bit of the fog around all this.

Ideally, I guess I need to ask them again exactly what my GMP is at 65 - although I have asked them this before Christmas, and all I got was a letter stating '...your recent retirement quotation includes the GMP...and this is not paid in addition to your main scheme pension'.

Apart from the GMP question, their answer also raises another important query for me, in that it suggests the most I would (possibly) receive is £5000 - whereas my research seemed to suggest I should (at GMP age) receive the GMP + any excess amount of pension (the non GMP element), because the anti franking legislation stopped companies from offsetting GMP increases against the 'normal' or 'excess' pension. If all I'm going to receive is £5000 (or less), then as far as I can tell, I would be better offer taking the transfer value to an annuity (assuming I can find an adviser willing to help at a reasonable rate) - or is there something obvious I am missing?

Thanks again for all your help.

hyubh

grahap wrote: »

I am 62 and my NRD was June 2017. I am a single male, no dependents.
I left the scheme in Sept 1986. At that point they stated pension was as follows –
GMP (pre Apr 88) £345.28 per year (revalued by section 148 orders, up to 5%)
Pension over GMP £1077.84 (revalued by CPI, up to 5%)

With respect to the question in your thread's title, you're right, as a post-85 leaver the scheme cannot just 'frank' (i.e. reduce by offsetting) your 'excess' (i.e. pension over GMP) with the revaluation applicable to your GMP at GMP age.

I sent them an email asking what my GMP would be at 65. They replied that HMRC confirmed it would be £98 per week at 65 - £5096 per year.

There are three ways a scheme might revalue GMP, 'fixed', 'section 148' and 'limited'. Limited rate revaluation is the 'revalued by section 148 orders, up to 5%' one, so given S148 orders track average weekly earnings, the revaluation type of the three it is even possible to provide a future figure for is fixed rate revaluation.

As you left when you did, the applicable fixed rate is 8.5%, which applied to the opening figure of £345.28 comes to the £5096 at GMP age quoted by HMRC. If limited (or just S148) rate revaluation is applied however, I come to a much lower figure, something more like £1282 - add on a bit for whatever the S148 figures will be for the next couple of years, and it still won't come to anywhere near £5096.

So, my guess would be that the pension figures you have been provided by the administrator has assumed limited rate revaluation does apply, yet they haven't cottoned onto the fact that the GMP figure from HMRC assumes a different revaluation type.

Silvertabby

ANTI FRANKING REQUIREMENTSAnti franking legislation requires that statutory indexation of an individual's [Guaranteed Minimum Pension (GMP)] is paid in addition to any amount by which the scheme benefits exceed the GMP, and is not deemed to be covered or "franked" by other scheme benefits.

I would ask to speak to a senior pensions advisor to check that the figures you have been quoted are correct and include the anti-franking protections and that the GMP test has been applied.

Also ask how they have revalued your GMP - the usual method under S148 is 'unlimited' - so if HMRC have applied the increase your GMP could be coming out as higher than with the S148 5% cap that HBOS is using.

I know this sounds a pain, but it's best to get it sorted now - if HBOS overpay you they will want the money back.

As for transferring out, that's not my field I'm afraid - hopefully someone else will pop up with some ideas for you.

Good luck with whatever you do.

hyubh

Silvertabby wrote: »

Also ask how they have revalued your GMP - the usual method under S148 is 'unlimited' - so if HMRC have applied the increase your GMP could be coming out as higher than with the S148 5% cap that HBOS is using.

Limited rate revaluation was removed as an option in 1997, though for the OP's dates, I make it that the 5% gap wouldn't make a difference anyhow (the cap is applied against the whole period, not for each year individually). It's the fact that HMRC are assuming fixed rate revaluation (usual for private sector schemes) that explains the difference, and I'd imagine, the oddity that the administrator apparently thinks the pension figures quoted don't make covering the GMP at GMP age an issue.

grahap

Hi hyubh

Thanks for your reply - I really appreciate your help, as I'm in debt, quite worried, and was all set to take a pension lump sum before all these questions arose from the info HBOS sent me.

Just reading your post, I suddenly remembered something.

HBOS state they do the revaluation under Section 52A. Whilst they say this is capped at 5%, I think I remember seeing somewhere online, that in the case of Section 52A calculations, the employer has also agreed to pay the Government an amount, which means in turn, the government agrees to makes up the difference to standard Section 148 revaluation i.e. the 8.50% you mention. I hope I'm not imagining this (i don't think so), but to be honest, I've been struggling with this for a few days now, and my head is spinning

Thinking this through a little further...I wonder, that if this is the case, do the Government pay me the difference (between HBOS's capped 5% revaluation v an 8.50% revaluation) at GMP age (65)? ...and might this also reconcile Silvertabby's (and my) puzzlement as to how my HBOS's pension figures add up (re the £5000 pension, which they say is indicated by HMRC + a lump sum now).

So in summary, if I've not imagined the section 52A stuff ...

HBOS pay me the pension they have indicated (without a lump sum, or reduced with a lump sum), including the GMP capped at 5%....then at GMP age, the government pays me an additional GMP payment, equivalent to the difference between capped Section 148 and 8.50% revaluation??

This then, might make the figures add up??? Do you think this makes sense??

I've spent the last few days worrying about this, as I need to access a lump sum re debts; so once again, I do really appreciate your, and Silvertabby's help:):).

Before outsourcing, HBOS's pension team were really knowledgeable and I'm sure I could have clarified all this in a single call; now it's not possible to speak to more knowledgeable staff and it takes about a week to have each query answered (and the last communication didn't even answer my questions:( )

grahap

Hi Silvertabby, thanks again for your help - I really do appreciate it.

I've just remembered some additional details whilst looking at Hyubh's post. I may be wrong (although I know the method they use is Section 52A, as I have it in my paperwork). Do you think my reply to him might make sense, and square the circle??

Silvertabby

Hi grahap - happy to help when I can, but I regret not with a S52A revaluation. But I'm sure hyubh will be able to help you with that one.