GMP and deferred pension

xylophone

You have not included the State Pension Reduction

You don't cover the GMP "step up" at ERD?

DT2001

I could add SPD as it happens 14 months after GMP.

Is it a GMP step up at ERD? The explanation from WTW on 6/7 said

in order to calculate an early retirement pension, your excess, or non-GMP, benefits are revalued to the date the calculation is produced and then assumed future increases are applied up to your Normal Retirement Age (NRA) of 60. Your GMP (as at your date of leaving) is then added to this value and an early retirement reduction factor is then applied to these benefits. This gives you your Total Pension amount (at your early retirement date)

As we do not know and WTW will not give me the figures I am not sure what to put in?

xylophone

I could add SPD as it happens 14 months after GMP.

You might add as a footnote and it is mentioned on P10 and you have already queried it?

Is it a GMP step up at ERD? The explanation from WTW on 6/7 said

in order to calculate an early retirement pension, your excess, or non-GMP, benefits are revalued to the date the calculation is produced and then assumed future increases are applied up to your Normal Retirement Age (NRA) of 60. Your GMP (as at your date of leaving) is then added to this value and an early retirement reduction factor is then applied to these benefits. This gives you your Total Pension amount (at your early retirement date)

But WTW also say


However, as your GMP benefits could receive a large increase when you reach age 65, a test is carried out to determine whether your benefits are entitled to receive a "step-up";. This test involves comparing the increases applied to your pension between your actual retirement date and age 65 against the increase in the GMP. If the increase in the GMP is higher, then the difference is given to you as a "step-up" in your benefits. The example in page 10 of the "What happens to your pension when you leave Barclays" booklet is demonstrating a "step-up".

An early retirement calculation does this "step up" test immediately at your actual retirement age. It projects the future increases applied to your pension based on assumptions provided by the Scheme Actuary and then compare this to the GMP that will come into payment at age 65, which is known as it revalues at a fixed rate. If the value of your GMP is higher than a "step-up" will be given at your retirement date.It projects the future increases applied to your pension based on assumptions provided by the Scheme Actuary and then compare this to the GMP that will come into payment at age 65, which is known as it revalues at a fixed rate. If the value of your GMP is higher than (then?) a step-up will be given at your retirement date.

Your retirement date was your early retirement date - you seem to have indicated that you received more than you expected at that date (having taken into account the actuarial reduction) - was this the "step up"?

What is your take on Mike's calculations here?

https://drive.google.com/file/d/1ZSjpCNC7RvuSw7EmCuRYRI7L3RlpPeqr/view

He refers to an amount of £1058.08 as both a non GMP related step up and a GMP related step up.

Incidentally, concerning franking,I was looking at the reply from TPAS you received (post 27) and I note that they say

however, there are still common scenarios where full franking is permitted for post 1985 leavers.

They do not, however, detail what these these may be.

DT2001

Will add SPD.
I did query it as if full franking was applicable then the whole of my pension would be made up of GMP.
From my research of the rules and govt. websites I think, in this case, I would get £9525 p.a. with no increases until the CPI increases on the post 88 portion exceeded the SPD (4/5 years at 3%).

Playing devil’s advocate, how could you have a GMP step up before 65?

Whilst I share your concern (?) about the potential of full franking I cannot see anything to contradict Mike’s reading of the scheme rules. The 2nd WTW para above refers to comparing forecasting increases in the drawn pension to the GMP revaluation implying (?) partial franking.

We still have too many unknowns but maybe we will get another piece of the jigsaw if we manage to ask the ‘right’ questions.

Will rejig table tomorrow.

Thanks for the input it is invaluable as I regularly question my understanding of this.

xylophone

From my research of the rules and govt. websites I think, in this case, I would get £9525 p.a. with no increases until the CPI increases on the post 88 portion exceeded the SPD (4/5 years at 3%).

I don't understand this - if you were to receive only your revalued GMP at age 65, it would still be split into pre and post 88 GMP.

You reach GMP age earlier than SPA, and would reach a Barclays PI date before SPA.

The scheme would have to increase your post 88 GMP by up to 3% CPI?

DT2001

How does this look
Calculation re P 10
Pension at date of leaving membership of the scheme 31/12/1995
Designated GMP portion £1339
Non GMP portion £4661.32
Total deferred pension £6000.32

Estimated pension at 1/11/2011
Designated GMP portion £1339
Non GMP portion (including annual increases since leaving active membership) £7396

Total deferred pension £8735

Reduced by an actuarial figure of 0.626 £5468

Estimated actuarially reduced value of Non GMP portion at 1/11/2011
£7396 * 0.626 (figure from 2003 quote) £4629

Actual pension paid at ERA (1/11/2011) including an element of step up £6571
less estimated pension just actuarially adjusted £5468
Amount of adjusted non GMP increases step up £1103


Estimated total pension on day before 65th birthday (20/5/2025)
This assumes total pension increases from £7559 (as of today) by 2.5% p.a. £8985

Estimated pension at GMP payment date (21/5/2025)
GMP portion (£1339 revalued at 7% for each complete tax year since
leaving active service) £9529
Non GMP portion (see note 1 below) £4629
estimated total pension in payment from age 65 from the scheme £14158

Estimated pension at SPA (66 and 2 months) = £14158 plus increase since GMP age by £218 (Non GMP portion increased by RPI say 2.5%,
Pre 88 GMP (£4873.67) by 0% and post 88 GMP (£4655.33) by CPI, say 2.2%) less SPD £666 - £13710

Note 1
Increases in pension from retirement date are offset against GMP revaluation therefore non GMP
portion reverts to actuarially adjusted value at drawdown on 1/11/2011
This is also known as a 'step-up' and in this example is £5173

DT2001

The paragraph below is from WTW Barclays home page.
Having re read it following your comments I assume it should read "there will be no increase to the non GMP portion until the RPI increases there to cover the SPD"?
So WTW cannot touch the GMP or any increases?



The pension over and above your GMP continues to increase each year in line with the change in the RPI up to a maximum of 5% a year. The RPI figure used is the most recent figure available each year when the increase review takes place. (N.B. In some cases, following the application of the State Pension Deduction (SPD), pension is reduced to the GMP. This is because the SPD itself is higher than the remaining elements of the pension. Increases will not be received until the total pension (less the SPD) exceeds the statutory GMP. Where this applies to you, you will be advised each year through your pension review letter.)

xylophone

I think that you should try it on WTW - in one sense, the fact that you are using estimates does not matter - what you are after is the methodology to show whether or not the step up over and above any necessary increase to full GMP would apply?

There is a requirement for the scheme to cover increases up to 3% CPI on the post 88 GMP - if there were no excess over GMP (no "remaining element") then there is only statutory GMP?

I have to say that I do lack familiarity with the arcane methods used by WTW because in the schemes with which I am familiar, there is no SPD/claw/ abatement and increases in deferment follow the "public sector style franking" detailed in the om link.

You can check the position again with WTW or TPAS?

RobStaffs

I have a Coop Pension (PACE Complete). It is classed as Contracted Out Defined Benefits Scheme. I left the Coop in 1995. I recently asked for a transfer value statement and they provided one on the basis I would be retiring at 55 which is not the case. There are a few issues I am taking up with them but I am also considering transferring this pension into my main pension to consolidate it as the costs in my main pension are only 0.4%.

Currently the pension is estimating a deferred GMP pension of £330 and a pension for benefits accrued in the former scheme( in excess of GMP ) of £2330. The said they factored in a 30% pension reduction on the basis I will be retiring early.(I wont be) It states a total transfer value of £187024.

Is it considered a risk financial decision to move a defined pension into a lifestyle fund to purchase units and leave myself open to the market fluctuations? Sorry to be vague on this but pensions are not my strong point.

xylophone

https://www.pensionsandannuities.co.uk/The_transfer_value_calculation.htm

https://www.royallondon.com/about/media/news/2018/may/five-good-reasons-to-transfer-and-five-good-reasons-not-to-royal-london/

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/495377/pension-benefits-with-a-guarantee-factsheet-jan-2016.pdf

Read through all the above.