GMP and Commutation

Parnell

I have a deferred pension for employment with Nat West Bank (now RBS) in the 1970s & 80s that is due this month on my 60th birthday

In August 2017 I got an early retirement quote from RBS of either a full pension £2327/year or lump sum plus reduced pension of £11000 plus £1675/year.

Now the paperwork has come through they quote either £2374/year or a £3900 lump sum and £2143/year which is titled a GMP built up before 6th April 88. Apparently this cannot be commuted to a 25% tax free lump sum.

I would prefer the larger lump sum of the August 17 quote. What has happened here, what are the rules and is their commutation factor of 17 fair?

From previous experience of being mis-sold a pension transfer that took years to resolve, web searches over the last two weeks and several long calls/letters to the administrator Willis Towers Watson I know this is a complex subject.

Thanks in advance for explaining what is the correct position.

xylophone

Are you female?

Is the pension before commutation shown as split between

pre 88 GMP and excess?

xylophone

Have you obtained a new state pension statement?

https://www.gov.uk/check-state-pension

Silvertabby

RBS have to pay you a pension of at least your GMP (guaranteed minimum pension) of £2,143, which is why you can't commute below this figure.

Whoever prepared your estimate last August was remiss in not applying the GMP test then, thereby overquoting your lump sum, but you don't have the right to insist on payment of this incorrect quote instead of your correct benefits.

The commutation factor of 1:17 for the rest isn't bad - it's certainly better than the public sector commutation factor of 1:12.

xylophone

Will "abatement" be applied to your scheme pension when you reach state pension age? If so, to what extent?

Mentioned in

https://rbs.tbs.aon.com/RBS/media/default/PDFs/Current%20Pension%20Plan/G-Group-Pension-Fund-booklet.pdf

p11 and p28

https://www.theguardian.com/money/2017/oct/28/hsbc-pension-income-clawback

xylophone

As Silvertabby says, your pension cannot be reduced below GMP.

If you are female, your GMP age is 60 - for males it is 65.

The scheme has no obligation to pay any pension increase on the pre 88 GMP after GMP age.

Therefore if you are female and pension is split

Pre 88 GMP £2143

excess over GMP £231

the scheme would only be obliged to pay pension increases on the £231.

If you take the lump sum option and reduce the pension to GMP only, the pension will have no annual increases?

You might wish to check with WTW if the above will be the case and check on the abatement situation.

Parnell

Thanks Xylophone and Silvertabby.
I am a female shortly to turn 60.
My August forecast was prepared by RBS pensions online. Clearly they based it on a 25% tax free lump sum. You are now assuring me that the GMP cannot be commuted, is that a new rule? (as a friend of mine, who I worked with at Nat West tells me she got a 25% lump sum when she reached sixty 4 years ago.
Is it certain that RBS don't increase the GMP? (Seems more of a pity it can't be commuted!

Yes they split the pensions as GMP (not commuted) and Fund Pension (over the GMP) built up before 6 April 1997 which they commute to £0.08/year (for some reason, rather than zero)
Yes i've got a state pension forecast and am still working/building up a pension (but not for RBS).

Not heard of abatement, no doubt it will apply!

Thanks, looks like the latest figures from RBS are correct. Pensions are not simple!

xylophone

http://www.telegraph.co.uk/money/special-reports/why-has-contracting-out-affected-my-lump-sum/

http://www.thisismoney.co.uk/money/pensions/article-4187806/What-Guaranteed-Minimum-Pension-Steve-Webb-replies.html

The articles above may be of interest.

You can check your exact situation with WTW.

Silvertabby

My August forecast was prepared by RBS pensions online. Clearly they based it on a 25% tax free lump sum. You are now assuring me that the GMP cannot be commuted, is that a new rule? (as a friend of mine, who I worked with at Nat West tells me she got a 25% lump sum when she reached sixty 4 years ago.

Your friend must have had a much higher excess over GMP to have been able to commute the maximum 25% lump sum. It isn't a new rule - it's been the case for many years.

Is it certain that RBS don't increase the GMP? (Seems more of a pity it can't be commuted!

It depends on the RBS scheme rules, so only they can tell you if they are going to increase your GMP element now that the increase won't be paid with your State pension.