DB Deferred Member Statement - A bit odd

Attican

Hi,

My first post here and it’s a biggie. I’m looks for some views on the following.

I have recently received a deferred member statement for a defined benefit pension scheme for a company I was employed with in the 1980s-1990s. I had also received a statement from the scheme in 2017. The new statement was in a revised format to “make it easier to read and understand”. For completeness, my pension from this scheme has two parts. The first, starting when I reach 60, is c£5K, the second, starting from 65 relates to a Guaranteed Minimum Pension(GMP) “step up”, is for an additional £5K or so.

This seems to have brought a few issues to life, which it would be good to get any views on.  Viz:
In the 2017 statement there was a single pension figure quoted (annotated as “Pension payable from age 60”) of c. £9K, which reading the notes, is actually the average pension payable for life, not from 60.  On the other hand, the 2020 statement quotes the two pension figures, the one the starts when I’m 60 and the higher one, which I will start receiving  when I’m 65 when the GMP “step up” part starts.  All a little annoying for my retirement income planning.

The second change is more problematic, both letters quote other details – such as the estimated benefits for Lifetime Allowances (LA) purposes (at age 60) , and, separately, an estimated transfer value. On the LA side, the numbers are significantly different. The 2020 statement’s LA is c.40%, or £70,000, lower that that stated in the 2017. Although not mentioned in this 2017 statement, I have found a little more on LA calculations and have worked out that the 2017 figure has been based on the “average pension” quoted.  As this LA is a key element in my pension planning, I find it difficult to understand why the scheme would state a figure that cannot be right and quote this without any notes indicating its dependency on this average pension figure.

Finally, although the 2020 statement now states both the expected pensions at age 60 and 65, it only reports the LV at age 60. Delving into the world of Benefit Crystallisation Events (BCEs), I am thinking that the pension increase at age 65 (due to the GMP “step up”) will be classed as a BCE 3 increase to a scheme pension in payment. This thinking is based, in part, on the HMRC Pension Tax Manual (PTM088630), which has “It is therefore likely to be the case that an increase to a pension resulting from a revaluation of contracting-out rights, such as a ‘step-up’ for GMP, based on the particular circumstances of a single member, will not meet the conditions.”, i.e. the conditions to be excluded from a BCE 3. As such, I would expect the statement to include an additional LA figure for the age 65 increase (for about the same amount as the original LV – as the pensions parts are similar). 

In summary, I’m thinking that the aim of a deferred member benefit statement is to give the person information to enable them to include theses scheme benefits in the person’s overall retirement planning activities. For this, I would expect this information to be clear, accurate and complete.   I will go back to the scheme on the above points but it would be good to get any views and if I have the wrong end of the somewhat tricky stick  etc.

xylophone

When you left the scheme, were you given a statement of deferred benefits showing 
pre 88 GMP
post 88 GMP
Excess?

The Normal Scheme Pension Age is 60?

Do you still have your Scheme Booklet ( or can you obtain one from the internet)?

What does it say about increases to benefits in deferment and in payment?

What does it have to say about a "step up" at GMP age (65 for a male)?

You may find this post of interest - https://forums.moneysavingexpert.com/discussion/comment/63406494/#Comment_63406494
as the Barclays Scheme operates  a "step up" at GMP age.

Attican

Xylophone,

Thank you for the post.
I have indeed some earlier figures on the GMP element, there are the pre/post 6 April 1988 values along with a quoted revaluation amount that is to be added to the started/age 60 pension value once I reach 65. I also read with interest that forum post link, it is quite extensice..

However, the more I consider this, I think the main issue is around the position that my earlier pension statement has the wrong Lifetime Allowance stated without any qualifications (it being based on some estimated "lifetime average" figure). It could reasonably be expected that the pension trustee (and delegates) should state the actual applicable Lifetime Allowance figure(s) correct knowing that members, especially deferred ones, of the scheme would rely on its accuracy for pension planning.  

I think there is a possible second issue, again in connection with planning. In detail, the pension trustee etc will be aware, as part of its general pension processing obligations, that due to the known GMP "step up", this pension will be subject to two benefit crystallisation events (one at 60 and one at 65). Quoting only the age 60//lower Lifetime Allowance in the statement is misleading and may mean that the member will find, at age 65, that he has suddenly, and unexpectantly, breached the overall Lifetime Allowance limit, with all the associated tax implications. The primary purpose of having lifetime allowances on the statements would appear to be to allow members to undertake effective pension planning, having just the one and not the other would only seem to lead to problems.

Am I missing something?

xylophone

I cannot comment on the BCE/LA question.

GMP revalues in a different way from excess pension https://www.barnett-waddingham.co.uk/comment-insight/blog/revaluation-for-early-leavers/

However, I do find the way your pension is to be paid/split rather odd.
It appears that you worked for the company between some point in 1980 and some point in 1990.

The company offered a Contracted Out Salary Related Pension Scheme.

You were an "early leaver" so have a deferred Defined Benefit Pension.

Is the proposal that age 60, you will receive only your revalued excess - you will receive none of the GMP portion until age 65?

What also seems odd is that what appears to be a modest pension uses up so much of the LTA.

It also seems odd that the revalued GMP  appears to give a pension equivalent to that produced by the revalued excess.

Is it worth a discussion with the  Administrator/The Pensions Advisory Service?

Brynsam

Attican said:

Hi,

My first post here and it’s a biggie. I’m looks for some views on the following.

I have recently received a deferred member statement for a defined benefit pension scheme for a company I was employed with in the 1980s-1990s. I had also received a statement from the scheme in 2017. The new statement was in a revised format to “make it easier to read and understand”. For completeness, my pension from this scheme has two parts. The first, starting when I reach 60, is c£5K, the second, starting from 65 relates to a Guaranteed Minimum Pension(GMP) “step up”, is for an additional £5K or so.

The reference to GMP 'step up' suggests that your scheme is trying to tackle the thorny issue of equalising GMPs. Explaining this to pension professionals is tough enough, so trying to get the message over to scheme members is almost certainly a recipe for confusion, and that certainly seems to be the case here.

Don't go off the deep end at the scheme because they've not managed the impossible. As suggested above, have a chat with TPAS for free, clear and impartial input: https://www.pensionsadvisoryservice.org.uk . I doubt you'll be the first call they will have received on this topic!

xylophone

The reference to GMP 'step up' suggests that your scheme is trying to tackle the thorny issue of equalising GMPs.

Not necessarily - see link to thread in my post above

Attican

Thanks for the follow-up posts. 

I have been in contact with the Pension Advisory Service (via the web chat). The person was a bit surprised about the reason why the Lifetime Allowance figure (at 60) had changed in the two statements and suggested I progress further with the scheme trustee/administrators. Seperatly, the web chat person was unable to say if the stepped up pension at 65 would be deemed a benefit crystallisation event (type 3) or if the benefit statement should have the corresponding lifetime allowance figure quoted.  I'm now checking via the Service's on-line query form on this.

On the overall GMP step up situation, the new statement did include more detail on this and the rational as to why the pension would increase, which seemed to make sense. The potential problem is more along the lines of the earlier, 2017, benefit  statement quoting  quite incorrect Lifetime Allowance figure for age 60 and neither the  new or old one including a Lifetime Allowance figure for age 65.

What the impact of this is difficult to say but using the age 60 figures I have potentially underutilised my pension allowances on the  basis that I was going to hit the £1 million or so overall allowance figure. Further, going forward, if  I now contribute morer to my  SIPP, based on the correct age 60 figure, will I get a surprise if, at age 65, the step up is a BCE with a higher lifetime allowance that puts me over the overall limit?  Either way, I’m suspecting this not a good basis for my pension planning.

I will update when I hear back  from the Pension Advisory Service but again would appreciate any views from anyone in the interim.

Brynsam

Attican said:

Thanks for the follow-up posts. 

I have been in contact with the Pension Advisory Service (via the web chat). The person was a bit surprised about the reason why the Lifetime Allowance figure (at 60) had changed in the two statements and suggested I progress further with the scheme trustee/administrators. Seperatly, the web chat person was unable to say if the stepped up pension at 65 would be deemed a benefit crystallisation event (type 3) or if the benefit statement should have the corresponding lifetime allowance figure quoted.  I'm now checking via the Service's on-line query form on this.

On the overall GMP step up situation, the new statement did include more detail on this and the rational as to why the pension would increase, which seemed to make sense. The potential problem is more along the lines of the earlier, 2017, benefit  statement quoting  quite incorrect Lifetime Allowance figure for age 60 and neither the  new or old one including a Lifetime Allowance figure for age 65.

What the impact of this is difficult to say but using the age 60 figures I have potentially underutilised my pension allowances on the  basis that I was going to hit the £1 million or so overall allowance figure. Further, going forward, if  I now contribute morer to my  SIPP, based on the correct age 60 figure, will I get a surprise if, at age 65, the step up is a BCE with a higher lifetime allowance that puts me over the overall limit?  Either way, I’m suspecting this not a good basis for my pension planning.

I will update when I hear back  from the Pension Advisory Service but again would appreciate any views from anyone in the interim.

I don't think anyone can add anything useful (although I'm sure some will try) - it sounds as if you may have been given incorrect information, so there's no real point in speculating until you've resolved that issue with the scheme administrators.

DT2001

I had a thread about GMP increases and received help from Xylophone and Mike F. So I’ll be interested to see what you find out. My scheme is run by Willis Towers Watson and each time I submitted a query a different person answered and on more than more occasion contradicted previous information. Eventually we got there and TPAS confirmed the last explanation so you may need to persevere.
I took my deferred pension early and when I reach 65 the excess pension will reduce back to the amount on 1st payment. Added to the 1st payment was an amount for GMP as at the day I left the scheme. The GMP at 65 will be 2/3 rds of the new total. So with low inflation and a high (7%) increase in GMP I’ll be subject to a increase in my DB’s LTA figure. In addition at SPA the pension reduces by a preagreed figure so maybe the DB LTA amount will change again.
I reached 50 in May 2010, a month after the rules changed to drawing pensions at 55. Initially I was told I couldn’t take it before 55 and then it was agreed as a pre existing contract.
I am just trying to show how complex these situations can be and was told at one stage when I queried a change in quoted benefits that the interpretation of the rules had changed and after legal advice they (the in-house administrators) had not written out to the members as “it would confuse more than it enlightened”. I do agree with the quote but not the inaction.
Final thought, are you possibly subject to GMP equalisation as I know we have been told that most cases the impact is small but is it greater for those with long deferred pensions.

Attican

All,

Just a small update on this for those interested and, in particular, the query on whether a GMP pension step up (at age 65) would be classified as a benefit crystallisation event (and would have an associated increase in the benefits for Lifetime Allowance purposes).

I had a reply from the Pension Advisory Service that suggested I ask the Scheme administrators. The administrators have now come back to say, in effect, we'll let you know when you're 65. The actual wording was "For members with a GMP step up, a test will be carried out at 65 and in some cases there may be an additional benefit crystallisation event.  If this is the case you will be contacted by the Scheme administrators and the LTA value of your step up will be confirmed."

Whilst I appreciate there is a level of estimation, primarily around annual increments/inflation, when calculating future pension values and benefit crystallisation events, looking at the HMRC Tax Manuals, it is difficult to see how an almost doubling of my pension when I reach 65 would not be subject to such an event.

I suspect I will have to go back and check this again, thinking that waiting to see isn't really the best approach to pension planning, but good to get any views from the forum.