Help Understanding Pension Statement

Secret2ndAccount

I worked for a large British company for several years, up until the early 90’s, during which I made contributions to the company pension scheme. Here is some info from my most recent statement

Total Member Contributions:  £5933

Total Guaranteed Minimum Pension    at date of leaving   £539/yr    increased to Apr 2019  £2735/yr
+Increase relating to Scheme membership    at date of leaving   £2152/yr    increased to Apr 2019  £3920/yr
Total deferred Pension    at date of leaving   £2691/yr    increased to Apr 2019  £6655/yr

The balance of your IPA at 5 April 2019 was   £51190
The estimated balance of your IPA at NRD is   £57300
This could give you an estimated pension at NRD of £1400/yr

My NRD is 2029
The first set of numbers implies that by the time I reach 67  I could see upwards of 10k/yr (from 6k paid in!?). The second set tells me £1400/yr. What’s going on here?
Thanks

xylophone

Did your scheme offer both a Defined Benefit and a Defined Contribution element (perhaps an AVC)?

balbs

It sounds very much like a guaranteed minimum plan which is why you are amazed - dont be - if it is (so just ask the company)you are just reaping the benefit of past plans and how they worked. The clue is in the word guaranteed - so whatever you do dont  transfer it or cash it in without advice and you probably wont be able to anyway without advice as it is so valuable! 

It bears no relation to the second figure, which is your  6K investment  in the late 80's to early 90's with plenty of time to accumulate and now will get that pension of 1400, but of course is nowhere near that guaranteed figure.

xylophone

The first part looks like a standard DB deferred pension.
The Scheme was contracted out of SERPS and therefore had to provide a Guaranteed Minimum Pension.
On leaving the scheme, the OP should have received a Statement of Deferred Benefits showing
Pre 88 GMP
Post 88 GMP
Excess over GMP
The deferred pension revalues in deferment.
https://www.barnett-waddingham.co.uk/comment-insight/blog/revaluation-for-early-leavers/#:~:text=The%20revaluation%20period%20for%20GMPs,Aprils%20between%20the%20two%20dates.
The second part ( Individual Pension Account?) has the appearance  of some additional element, perhaps an AVC?

Secret2ndAccount

Okay, I think I’ve got to the bottom of it, and balbs is spot on.

GMP is, as we know, the minimum requirement for the scheme to pay out so that I am not worse off than if I had remained contracted in. When I joined my scheme, there were benefits offered over and above the guaranteed minimum. Both GMP and the extra benefits have grown considerably over time. So it does look like my available pension at age 67 will be somewhere between 10-11k/yr.  Best 6 grand I ever spent!

The second set of numbers is nothing to do with AVC’s – I never made any. The scheme keeps a second calculation, unrelated to the guaranteed benefits. They just take your contributions, grow them in line with the fund, project that to retirement age, and convert that value to an annual pension. That’s the 1400/yr figure.  I get whichever is the larger of the two figures.

This can serve as an illustration of the value of a DB scheme vs a DC scheme – about 7-8 times the payout!

Thanks to those who replied.

 

 

minty777

I would think the company pension pays out at 65

Secret2ndAccount

The calculations in my statement are aimed at age 65. This scheme allows a pension to be taken any time from age 50 to 75.  Just for grins, I got a quote if I was to retire now (age 55).
Option 1: 5100/yr
Option 2: 26k tax free + 3900/yr
Option 3: 7500/yr until age 67, then 3700/yr

At age 65
9950/yr or 47700+7160/yr

At age 67
11360/yr or 53k + 8000/yr

xylophone

The scheme keeps a second calculation, unrelated to the guaranteed benefits. They just take your contributions, grow them in line with the fund, project that to retirement age, and convert that value to an annual pension. That’s the 1400/yr figure.  I get whichever is the larger of the two figures.

 Then you have a hybrid scheme - DC with DB underpin?

Secret2ndAccount

Bear in mind that I joined this scheme in 1985. I don't think those terms were widely used back then, and it wasn't sold that way. It was all about DB back then, but it wasn't described as DB - that was just how company pensions worked. I just knew that if your company offered a pensoin scheme, it was almost invariably a good idea to join it. Beyond that, there was very little advice about. We weren't offered any time with an adviser. You couldn't Google anything. I read a few articles, put my head together with a few other people who had done the same, and a couple whose dads were receiving pensions from the same scheme, and we all opted in. It's possible they introduced the IPA calculation later, when DC pensions became the norm, just to make sure nobody was worse off.