GMP pension estimate and revaluation in deferrment

WobblyDog

I have a deferred pension from employment between 1990 and 2000, and am having problems understanding a recent estimate of benefits from the pension scheme. The employment was initially Civil Service, but was privatised about half way through.

I received a letter from the scheme in 2013, saying that on leaving the employer in 2000, the GMP element of pension was £3,113 per year, which revalues during deferrment at 6.25% per year. The non-GMP element of pension was £396 per year.

I've just generated a state pension forecast which says I will get £9,141 per year when I reach 67 in 2036. My COPE estimate is £30.03 a week. I have 34 years of NI full contributions.

I've just received received an estimate from the scheme, saying that I will get a pension of £7,799 a year when I reach 65 in 2034. According to my simplistic calculation, £3113 * (1.0625 ^ 33 years) equals £23,741 per year. I realise that inflation will erode the real value of the 6.25% revaluation, but even so I can't understand the difference between the 2 figures.

I've emailed the scheme asking for clarification, but have I misunderstood something fundamental? Is the state pension deducted from the calculated GMP before the GMP is paid to me? Could the scheme have changed the revaluation mechanism from Fixed to Section 148 without telling me? What questions should I be asking the scheme?

Silvertabby

Type of revaluation apart, your recent estimate will only include all increases up to the date the estimate was produced.

No, your State pension is not deducted from your GMP.

garmeg

WobblyDog said:

I have a deferred pension from employment between 1990 and 2000, and am having problems understanding a recent estimate of benefits from the pension scheme. The employment was initially Civil Service, but was privatised about half way through.

I received a letter from the scheme in 2013, saying that on leaving the employer in 2000, the GMP element of pension was £3,113 per year, which revalues during deferrment at 6.25% per year. The non-GMP element of pension was £396 per year.

I've just generated a state pension forecast which says I will get £9,141 per year when I reach 67 in 2036. My COPE estimate is £30.03 a week. I have 34 years of NI full contributions.

I've just received received an estimate from the scheme, saying that I will get a pension of £7,799 a year when I reach 65 in 2034. According to my simplistic calculation, £3113 * (1.0625 ^ 33 years) equals £23,741 per year. I realise that inflation will erode the real value of the 6.25% revaluation, but even so I can't understand the difference between the 2 figures.

I've emailed the scheme asking for clarification, but have I misunderstood something fundamental? Is the state pension deducted from the calculated GMP before the GMP is paid to me? Could the scheme have changed the revaluation mechanism from Fixed to Section 148 without telling me? What questions should I be asking the scheme?

Have you got the GMP and Non GMP amounts the wrong way round? I ask because GMP is not normally such a high proportion of a deferred benefit. 

Was it quite a low paid job perhaps - seems unlikely given the deferred benefit for 10 years of service.

xylophone

You mention that the scheme uses Fixed Rate revaluation.

If so, because your GMP on leaving is  a known quantity, it is possible for your administrator to state what the GMP portion of your pension will be at age 65.

I wonder is it possible that the £3113 is your GMP revalued to age 65?

Alternatively,  was the GMP on leaving actually £311. 30?

What exactly does your statement of benefits on leaving the scheme have to say?

hemeloid

garmeg and xylophone might be onto something.  £396 (supposed non-GMP element) * (1.0625 ^34) = £3,111.  Strong coincidence.

WobblyDog

Thanks for the replies.

The letter from 2013 says "on leaving the Plan on xx August 2000 your preserved pension amounted to £3509.80 a year. The guaranteed minimum pension element of this pension which amounts to £3113.56 a year increases for each tax year passed between date of leaving and retirement by 6.25%. The remaining pension of £396.24 increases...by up to 5% a year or the rise in CPI if less".

The closest pension statement to leaving was from April 2000, and says I would have a pension of £13308.97 a year if I worked until retirement age. As I left after 10 years, the figure of £3509.80 is in proportion. It didn't mention a GMP/non-GMP split.

The job had a starting salary of about £10K in 1990, rising to £20K in 2000, it was a lowish-level Civil Service job, privatised a few years before I left.

So unless the letter from 2013 is wrong, or the scheme's GMP revaluation has changed from Fixed to Section 148 without telling me, I don't understand where the scheme's latest estimate of £7,799 a year comes from.

Brynsam

WobblyDog said:

Thanks for the replies.

The letter from 2013 says "on leaving the Plan on <redacted> 2000 your preserved pension amounted to £3509.80 a year. The guaranteed minimum pension element of this pension which amounts to £3113.56 a year increases for each tax year passed between date of leaving and retirement by 6.25%. The remaining pension of £396.24 increases...by up to 5% a year or the rise in CPI if less".

That doesn't look right, not least because no further GMPs were accrued from April 1997. Hard to believe that the whole of your pension from then until you left in 2000 only amounted to £396.24.

garmeg

Brynsam said:

WobblyDog said:

Thanks for the replies.

The letter from 2013 says "on leaving the Plan on <redacted> 2000 your preserved pension amounted to £3509.80 a year. The guaranteed minimum pension element of this pension which amounts to £3113.56 a year increases for each tax year passed between date of leaving and retirement by 6.25%. The remaining pension of £396.24 increases...by up to 5% a year or the rise in CPI if less".

That doesn't look right, not least because no further GMPs were accrued from April 1997. Hard to believe that the whole of your pension from then until you left in 2000 only amounted to £396.24.

The £396.24 would include non GMP up to 1997 as well!!

Given that GMP was only accrued in the first 7 of the 10 years service it looks way to high.

If you were on £20,000 then the pension at leaving would have been 10/80 x £20,000 = £2,500 plus a lump sum of 3 times this, i.e. £7,500.

Something has gone wrong somewhere.

Brynsam

OP - did you transfer in benefits from another scheme, or pay voluntary contributions?

garmeg

This is my statement from 1993 when I also left a scheme on a 20k salary after about 5 years in a 60ths scheme - the GMP proportion is quite low ...

That's why I think there is something wrong with your figures.

WobblyDog

Brynsam said:

OP - did you transfer in benefits from another scheme, or pay voluntary contributions?

When I started the job it was a Civil Service post, so I was in the Civil Service pension scheme. When my employer was privatised, my pension was transfered to a private sector DB scheme run by the employer. The pension statement I have dated April 2000 (after privatisation) says "PCSPS Credit: 5years 305days".

I didn't pay voluntary contributions.

I'm beginning to suspect that the person who wrote the 2013 letter transposed the GMP and non-GMP figures. That would give a GMP pension at 65 that's quite close to the £30/week COPE estimate, and I've read that "COPE estimate" should approximately match the GMP pension.

I think I will send a scan of the 2013 letter to the pension scheme asking them if it's correct.