RHM pension valuation fallen

RSVP2000

Thrugelmir,
Seven years to being 65.
Also for further information, RHM also sent her earlier figures, these for her to start drawing her pension in July 2017. These figures were lower than the 2018 figures but higher than the ones she has just received.

xylophone

https://www.yumpu.com/en/document/read/6341903/rhm-pension-plan-35-and-plan-45-rhm-pension-scheme-ukcom  Is this booklet relevant to the scheme in question and if so does it throw any light?

DairyQueen

OP doesn't mention when his/her partner reached/will reach the scheme's NRA. Historical valuations may have been the subject of early or late retirement factors which could vary over time. The pension sharing may be a red herring.

For example:

Until 3 years prior to reaching scheme NRA, the annual statement for Mr DQ's deferred DB pension consistently projected annual income of circa £30k at age 62 (scheme NRA). The late retirement factor increased the projection to circa £32k at age 63 and to circa 36k at age 65. 

During the 4 years leading up to NRA (2015-2019) the projected pension decreased annually. it had reduced to £25k by the time Mr DQ reached NRA. Reason given: recent valuations used revised inflation figures that were well below the assumptions made on historic projections.

Mr DQ had always planned to retire 'late' (at age 65), and deferred taking payment in 2019, at NRA, on the basis of the then stated late retirement factor. He was less than impressed when this year's valuation revealed - first the first time since 2004 - a reduction in the late retirement factor. Adding insult to injury, the reduced factor had been retrospectively applied to the date he reached NRA.

Moral to this tale:

Don't rely on DB projections unless the valuations are based on fixed values stated in scheme rules. Schemes that use projected inflation rates, or 'discretionary' variables, can and do revalue downward, and can do so close to NRA. Early/late retirement factors can and do change.

(Mr DQ has now put his DB pension into payment in order to prevent further uncertainty).

RSVP2000

Hi all,
Just an update, the pension administrators have got back in touch and have admitted sending out the wrong figures and apologised. They have now sent new figures which are in line with what my partner was expecting.
We are glad this has been resolved, but it did lead to a couple of weeks of unnecessary worry.
Thanks to everyone for their input.

Sandtree

If you are doing anything other than retiring at the stipulated age you are subject to early or late retirement factors which consider matters like longevity and investment return. Depending on the scheme/insurer, these factors are typically not intended to be punitive but will factor in some prudency. 

Longevity assumptions change at least annually, and things you do (eg move address) can impact these, and investment returns can be updated as frequently as daily (though more commonly its monthly). As others have said, there can be other changes that have happened in the 2 years between quotes and there is always the risk of human error. The amount of swing is fairly high but I've certainly seen larger swings over a shorter period. 

AlanP_2

Sandtree said:

If you are doing anything other than retiring at the stipulated age you are subject to early or late retirement factors which consider matters like longevity and investment return. Depending on the scheme/insurer, these factors are typically not intended to be punitive but will factor in some prudency. 

Longevity assumptions change at least annually, and things you do (eg move address) can impact these, and investment returns can be updated as frequently as daily (though more commonly its monthly). As others have said, there can be other changes that have happened in the 2 years between quotes and there is always the risk of human error. The amount of swing is fairly high but I've certainly seen larger swings over a shorter period. 

How can a DB pension amount decrease when the actruarial reduction that would be applied is for 18-24 months less as in this case?

Not strictly relevant to this situation as the figures supplied to the OP by the scheme administrators were wrong anyway but I'm just struggling to picture what DB scheme(s) you have seen larger swings over shorter periods in.

ffacoffipawb

AlanP_2 said:

Sandtree said:

If you are doing anything other than retiring at the stipulated age you are subject to early or late retirement factors which consider matters like longevity and investment return. Depending on the scheme/insurer, these factors are typically not intended to be punitive but will factor in some prudency. 

Longevity assumptions change at least annually, and things you do (eg move address) can impact these, and investment returns can be updated as frequently as daily (though more commonly its monthly). As others have said, there can be other changes that have happened in the 2 years between quotes and there is always the risk of human error. The amount of swing is fairly high but I've certainly seen larger swings over a shorter period. 

How can a DB pension amount decrease when the actruarial reduction that would be applied is for 18-24 months less as in this case?

Not strictly relevant to this situation as the figures supplied to the OP by the scheme administrators were wrong anyway but I'm just struggling to picture what DB scheme(s) you have seen larger swings over shorter periods in.

They could increase the factor from 3% per year early to 5% per year early, or any such values that would result in lower figures nearer to retirement.

Sandtree

AlanP_2 said:
How can a DB pension amount decrease when the actruarial reduction that would be applied is for 18-24 months less as in this case?

Not strictly relevant to this situation as the figures supplied to the OP by the scheme administrators were wrong anyway but I'm just struggling to picture what DB scheme(s) you have seen larger swings over shorter periods in.

Because of a significant change in longevity estimates, market movements or calculation methodology.

So the example in question, which was looking at deferred annuities across multiple schemes, went from a single longevity basis for all (only split by gender) to a scheme specific basis on a much more granular basis (so winners and losers though overall neutral), discounting went from a SII best estimate to an IFRS best estimate (which is more optimistic so reduces settlements) and there were negative movements in the investments.  The overall net impact was a circa 9% reduction in the space of a quarter but the individual impacts could be + or - 30% on top of that depending mainly on where you came out on the longevity aspect. 

Admittedly the impact of the changes were much more acutely felt on TCDLS than ERF because not only does life expectancy change if you move from an "average" longevity curve to a more granular segmentation but the shape of the curve has a much more rapid drop off for the "blue collar"/lower socio-economic scheme -v- say personal pensions or those in more affluent categories.