Pension questions

ccluedo

Hi,  pensions are most definitely not my forte and I have some things I am unsure of.
I'm female.  My State Pension forecast is full pension at age 66.

Every year I get pension info thru the post about a pension I had many years ago.  I decided that at the age of 63, I should really try to get some understanding of it so last month asked for an up to date pension quote from the Trustees which I actually sat down and read this time!

In summary:
It is a Defined Benefit pension plan which I joined in 1982 and left in 1993. 
Plan pension at date of leaving was £4720 per year.  It states it will increase annually tho I'm not what measure is used to determine the increase. Possible CPI.
It states my normal retirement date was in Oct 17 (my 60th) 

It offers 3 options:
Regular income c £20k per year for life.
25% tax free lump sum c £100k & c £15k per year for life.
Transfer out, which I have no interest in.

My questions:
Being a DB plan, are the above figures guaranteed minimums or could they drop?

Could this type of plan get into serious trouble as I believe some others have over the years?

Given that I am currently in good health - as far as I know anyway-  and thankfully have no financial pressures would there be any good reasons not to leave it til until 2022?  (end of plan date I think I read somewhere).

I realise the lump sum tax free element is current and not guaranteed to continue but assume the govt would have to give advance notice of any tax changes and not introduce them overnight.  Going down that route at all wouldn't exactly be a vote winner......

Would there be any benefit of actually adding to my pension at this late stage given the almost zero savings interest rates I currently "enjoy"? Would this even be allowed? If so, how would I do this as I no longer work?

My state pension forecast says COPE is £46.70 per week. Does that mean that my state pension will be reduced by that amount as it's already included in what I would get from the DB plan?

Thanks in advance for reading and for any replies.
 

Albermarle

ccluedo said:

Hi,  pensions are most definitely not my forte and I have some things I am unsure of.
I'm female.  My State Pension forecast is full pension at age 66.
This is a good govt website https://www.pensionsadvisoryservice.org.uk/

Every year I get pension info thru the post about a pension I had many years ago.  I decided that at the age of 63, I should really try to get some understanding of it so last month asked for an up to date pension quote from the Trustees which I actually sat down and read this time!

In summary:
It is a Defined Benefit pension plan which I joined in 1982 and left in 1993. 
Plan pension at date of leaving was £4720 per year.  It states it will increase annually tho I'm not what measure is used to determine the increase. Possible CPI.( better if it was RPI) 
It states my normal retirement date was in Oct 17 (my 60th) 

It offers 3 options:
Regular income c £20k per year for life.
25% tax free lump sum c £100,00 & c £15k per year for life.
Transfer out, which I have no interest in.

My questions:
Being a DB plan, are the above figures guaranteed minimums or could they drop? They are guaranteed and normally they increase each year with inflation ( you should check this as it is a big benefit)

Could this type of plan get into serious trouble as I believe some others have over the years? Yes it is possible. These schemes are very expensive to operate for the employer. If it does collapse you will get most of it still via the Pension protection fund. https://www.ppf.co.uk/

Given that I am currently in good health - as far as I know anyway-  and thankfully have no financial pressures would there be any good reasons not to leave it til until 2022?  (end of plan date I think I read somewhere).If you would get a better pension by leaving it , then that would be your decision. If the pension would be the same better to take it now

I realise the lump sum tax free element is current and not guaranteed to continue but assume the govt would have to give advance notice of any tax changes and not introduce them overnight.  Going down that route at all wouldn't exactly be a vote winner......Due to your last sentence it is very unlikely to happen.

Would there be any benefit of actually adding to my pension at this late stage given the almost zero savings interest rates I currently "enjoy"? Would this even be allowed? If so, how would I do this as I no longer work? This would not be possible with a DB scheme .

My state pension forecast says COPE is £46.70 per week. Does that mean that my state pension will be reduced by that amount as it's already included in what I would get from the DB plan?

Thanks in advance for reading and for any replies.
 

Worth noting that all DB schemes have different rules so worth getting hold of them ( usually there is a scheme booklet ) and having a read,

ccluedo

Thanks Albermarle, I'll check out those links and also whether it's CPI or RPI.

molerat

With a DB pension the amount will not drop but should increase each year in line with the measure laid down in the scheme rules.  Post scheme normal retirement age you need to ask them what increases are in place whilst in deferment.

Any DB scheme could get into difficulties but you are to a major extent protected by the existence of the PPF

You will not be able to add to an old DB scheme.

The tax free element is unlikely "25%" as there is no pot to take 25% of  but will be a figure laid down by the scheme rules and it is unlikely that benefit can be removed or changed as it is contractual in the same way as some were allowed to retire at 50 after the rules changed to 55.

COPE wil not be deducted from your SP. It was only used in the 2016 starting amount calculation, what you see on the forecast is what you will get as long as you comply with the statements alongside each figure

ccluedo

Just checked and definitely CPI, as it says : 

"When preparing a retirement quote the appropriate factors and consumer price index (CPI) issued by the Department Work and Pensions are used to calculate the accrued benefit entitlement from age 60 to 65."

ccluedo

molerat said:

With a DB pension the amount will not drop but should increase each year in line with the measure laid down in the scheme rules.  Post scheme normal retirement age you need to ask them what increases are in place whilst in deferment.

Any DB scheme could get into difficulties but you are to a major extent protected by the existence of the PPF

You will not be able to add to an old DB scheme.

COPE wil not be deducted from your SP. It was only used in the 2016 starting amount calculation, what you see on the forecast is what you will get as long as you comply with the statements alongside each figure

Thank you Molerat.

squirrelpie

ccluedo said:

It offers 3 options:
Regular income c £20k per year for life.
25% tax free lump sum c £100k & c £15k per year for life.
Transfer out, which I have no interest in.

That sounds like a very worthwhile income - well done!

Could this type of plan get into serious trouble as I believe some others have over the years?

Given that I am currently in good health - as far as I know anyway-  and thankfully have no financial pressures would there be any good reasons not to leave it til until 2022?  (end of plan date I think I read somewhere).

It's possible but not likely that your pension plan will get into trouble - if you read the annual report it should state whether the plan is in surplus or has a deficit. In the latter case it should state what is being done to correct it. You can use that information to form an opinion as to how likely problems are.

If it does get into trouble, it will probably be put into the PPF. If so, I think the way it works is that if you're already receiving pension payments the PPF will continue to pay them. But if you haven't started to get payments, the PPF will multiply your entitlement by 95% before starting to pay you. So it's advantageous to already be in payment if problems arise.

My state pension forecast says COPE is £46.70 per week. Does that mean that my state pension will be reduced by that amount as it's already included in what I would get from the DB plan?

No, the amount stated as COPE doesn't change the amount of state pension - it just tells you how it was calculated (if you know all the rules!)

ccluedo

Thank you squirrelpie, yes it was an extremely pleasant surprise as I had originally (in my ignorance of how pensions work) expected just the date of leaving amount of £4720 pa!

xylophone

My state pension forecast says COPE is £46.70 per week. Does that mean that my state pension will be reduced by that amount as it's already included in what I would get from the DB plan?

No, the COPE was used once, in establishing your "starting amount" for new state pension.

Two calculations were done 6/4/16.

NI years/30 x £119.30 + (Additional State Pension - Contracted Out Deduction)

(NI years/35 x £155.65) - Contracted Out Pension Equivalent.

Your starting amount was the higher of the two.

It may have been equal to a full new state pension, less than a full new state  pension or more than  a full new state pension.

If less, there was the opportunity to increase it up to a full NSP by contributions or credits up to State Pension Age.

When you left the DB Pension Scheme, were you given a statement of Deferred Benefits

showing pre 88 GMP, post 88 GMP and excess?

https://www.barnett-waddingham.co.uk/comment-insight/blog/revaluation-for-early-leavers/

https://techzone.adviserzone.com/anon/public/pensions/Tech-guide-guaranteed-min-pen

It states my normal retirement date was in Oct 17 (my 60th) 

This was the age at which you could have drawn the pension without actuarial reduction?

It was also your GMP age - see second link above concerning statutory increases on GMP where retirement is delayed beyond GMP age.

Does your scheme pay late retirement increases on the excess pension?

Is there a reason why you have not drawn the pension?

Once in payment, how does the pension increase?

Bear in mind  that the scheme has no obligation to increase pre 88 GMP and post 88 GMP only up to a maximum of 3% CPI.

ccluedo

xylophone said:

My state pension forecast says COPE is £46.70 per week. Does that mean that my state pension will be reduced by that amount as it's already included in what I would get from the DB plan?

No, the COPE was used once, in establishing your "starting amount" for new state pension.

Two calculations were done 6/4/16.

NI years/30 x £119.30 + (Additional State Pension - Contracted Out Deduction)

(NI years/35 x £155.65) - Contracted Out Pension Equivalent.

Your starting amount was the higher of the two.

It may have been equal to a full new state pension, less than a full new state  pension or more than  a full new state pension.

If less, there was the opportunity to increase it up to a full NSP by contributions or credits up to State Pension Age.

Thank you.

When you left the DB Pension Scheme, were you given a statement of Deferred Benefits

showing pre 88 GMP, post 88 GMP and excess?

https://www.barnett-waddingham.co.uk/comment-insight/blog/revaluation-for-early-leavers/

https://techzone.adviserzone.com/anon/public/pensions/Tech-guide-guaranteed-min-pen

It was back in 1993 so I am afraid I don't recall.

It states my normal retirement date was in Oct 17 (my 60th) 

This was the age at which you could have drawn the pension without actuarial reduction?

I'll assume by the punctuation that is a question but again I have no idea I'm afraid.

It was also your GMP age - see second link above concerning statutory increases on GMP where retirement is delayed beyond GMP age.

Does your scheme pay late retirement increases on the excess pension?
again, sorry no clue.

Is there a reason why you have not drawn the pension?
Yes, my pensions knowledge was zero and I hadn't read the paperwork so didn't know I could. Other more personal and pressing 24/7 commitments took up my time.
However, then as now, fortunately and thankfully there is no pressing financial reason to draw it early.

Once in payment, how does the pension increase?
Sorry, I only know the CPI I posted above between 60 and 65. When actually in payment I have no idea.

Bear in mind  that the scheme has no obligation to increase pre 88 GMP and post 88 GMP only up to a maximum of 3% CPI.

Thank you xylophone. I appreciate you getting me thinking about the questions u have asked to which I currently have no answer.....however it's a reminder as to why I have always had an aversion to pension talk...it gives me a headache trying to get my head around all the above.
On my way tho...Baby steps 

Albermarle

ccluedo said:

Thank you squirrelpie, yes it was an extremely pleasant surprise as I had originally (in my ignorance of how pensions work) expected just the date of leaving amount of £4720 pa!

Well in reality you will actually get £4720 but adjusted for inflation . So in theory what you could buy in goods and services when you left the company for £4720 , you should still be able to afford the same things now.
The effects of inflation on spending power is often underestimated.