Old DB pension query

gerdo

Hello all, I have an old DB pension from a company that I left in 1998. I have received an estimated retirement option from them this week stating a full pension of £5,753 at aged 60 (next year)
Now, I have a Preserved Pension Certificate from when I left the company which states the following details
GMP                            (at date of leaving)  £767.00       (at aged 60)  £2908.88
Balance of pension      (at date of leaving)  £1363.36     (at aged 60)  £3988.20
Transferred in pension (at date of leaving) £330.67        (at aged 60)  £330.67
Total annual pension    (at date of leaving) £2461.03      (at aged 60)  £7227.75

There is no explanation as to how they came to the figure of £5,753  so should I be asking for a more detailed breakdown or is that value likely to be correct?

Thanks.

garmeg

gerdo said:

Hello all, I have an old DB pension from a company that I left in 1998. I have received an estimated retirement option from them this week stating a full pension of £5,753 at aged 60 (next year)
Now, I have a Preserved Pension Certificate from when I left the company which states the following details
GMP                            (at date of leaving)  £767.00       (at aged 60)  £2908.88
Balance of pension      (at date of leaving)  £1363.36     (at aged 60)  £3988.20
Transferred in pension (at date of leaving) £330.67        (at aged 60)  £330.67
Total annual pension    (at date of leaving) £2461.03      (at aged 60)  £7227.75

There is no explanation as to how they came to the figure of £5,753  so should I be asking for a more detailed breakdown or is that value likely to be correct?

Thanks.

When you left in 1998 the amount of your GMP at 60 was known as it would be revalued presumably at 6.25% per annum.

The non GMP at 60 would not be known as revaluation is RPI / CPI capped at 5% per annum.

Inflation has averaged less than 5% pa since 1998 hence the non GMP at 60 is likely to be a lot less than £3,988.20

£1,363.36 x 1.05^22 = £3,988.18 is within 2p of your figure.

The revaluation order for 1998 is 68.6%

So £1,363.36 x 1.686 + £2,908.88 + £330.67 = £5,538.18.

This is within £200 of your figure so I may have missed something - probably an unknown revaluation for next year. If we assume 5% for that then we have

£1,363.36 x 1.686 x 1.05 + £2,908.88 + £330.67 = £5,653.11 closer

Brynsam

gerdo said:

Hello all, I have an old DB pension from a company that I left in 1998. I have received an estimated retirement option from them this week stating a full pension of £5,753 at aged 60 (next year)
Now, I have a Preserved Pension Certificate from when I left the company which states the following details
GMP                            (at date of leaving)  £767.00       (at aged 60)  £2908.88
Balance of pension      (at date of leaving)  £1363.36     (at aged 60)  £3988.20
Transferred in pension (at date of leaving) £330.67        (at aged 60)  £330.67
Total annual pension    (at date of leaving) £2461.03      (at aged 60)  £7227.75

There is no explanation as to how they came to the figure of £5,753  so should I be asking for a more detailed breakdown or is that value likely to be correct?

Thanks.

Look again at the old statement - I think you'll find the figures for age 60 are likely to have a caveat such as 'maximum payable' or 'depending on the rate of inflation'. 

gerdo

Thanks for the replies. I just thought a pension, presumably invested in stocks and shares, would have grown more than that over 22 years.

garmeg

gerdo said:

Thanks for the replies. I just thought a pension, presumably invested in stocks and shares, would have grown more than that over 22 years.

You have a defined benefit that only depends on inflation and fixed GMP valuation.

It would cost over £150,000 to buy the pension that you have and you dont have to worry about share prices or anything. It is always good to have some DB on top of the (eventual) state pension.

xylophone

Have you obtained a state pension forecast?
https://www.gov.uk/check-state-pension

gerdo

Yes have done that and  I also have a DC pension so when all combined, it should be enough.

dunstonh

gerdo said:

Thanks for the replies. I just thought a pension, presumably invested in stocks and shares, would have grown more than that over 22 years.

Is it invested in stocks and shares?  You say presumably but pensions can have cash deposit funds earning a pittance, gilts and fixed interest or property as well as equity funds.    Just because it is a pension, does not mean 100% of it is invested in equities.

AlanP_2

dunstonh said:

gerdo said:

Thanks for the replies. I just thought a pension, presumably invested in stocks and shares, would have grown more than that over 22 years.

Is it invested in stocks and shares?  You say presumably but pensions can have cash deposit funds earning a pittance, gilts and fixed interest or property as well as equity funds.    Just because it is a pension, does not mean 100% of it is invested in equities.

The OP was talking about a deferred DB so no investments.

xylophone

The OP was talking about a deferred DB so no investments.

The  DB Scheme funds will be invested.
Example
https://www.spenceandpartners.co.uk/archives/what-can-we-learn-from-the-bank-of-england-pension-scheme/

The return on Scheme funds will be used to provide the defined benefit pension.
In the case of the B of E, the use of index linked gilts made sense because the benefits in excess of GMP are linked to May RPI.

garmeg

xylophone said:

The OP was talking about a deferred DB so no investments.

The  DB Scheme funds will be invested.
Example
https://www.spenceandpartners.co.uk/archives/what-can-we-learn-from-the-bank-of-england-pension-scheme/

The return on Scheme funds will be used to provide the defined benefit pension.
In the case of the B of E, the use of index linked gilts made sense because the benefits in excess of GMP are linked to May RPI.

But the OPs benefits do not (directly) depend on the return on those investments.