Final Salary Pension - Reducing Projcetion

Dannybhoy

Thank you for reading and in anticipation of any responses.

I am around 18 months short of taking benefits from of a Final Salary Pension at age 60.  It's not a lot of money and was only built up during a 6.5 year employment from 1995 to 2002.  For the first time in 5 years I have recently received a projection of benefits at Normal Retirement Age 60.  It appears that the projection has reduced from around £2950 in 2015 per annum to around £2650 pa just now.    Now this is the part were I feel I might be a bit thick.  My thoughts were that a Final Salary Scheme Pension generally continued to grow in time with the economy/cost of living/RPI etc, rather than fall backwards?  Is there anyone who can confirm that my myth has been blown?
Thank you.

NottinghamKnight

You'll need to contact the scheme to find out. If you are taking the pension early, ie before the normal age, then a reduction will normally be applied, often around 5% per year. 

sandsy

Projections are not certain. The benefits you accrued carry in increasing each year, roughly in line with inflation, after you ceased membership. The projection assumes a certain level of future inflation. If actual inflation is lower than assumed and/or the scheme assumes a lower level of inflation now than it did previously, your projection will be lower.

Dox

Dannybhoy said:

Thank you for reading and in anticipation of any responses.

I am around 18 months short of taking benefits from of a Final Salary Pension at age 60.  It's not a lot of money and was only built up during a 6.5 year employment from 1995 to 2002.  For the first time in 5 years I have recently received a projection of benefits at Normal Retirement Age 60.  It appears that the projection has reduced from around £2950 in 2015 per annum to around £2650 pa just now.    Now this is the part were I feel I might be a bit thick.  My thoughts were that a Final Salary Scheme Pension generally continued to grow in time with the economy/cost of living/RPI etc, rather than fall backwards?  Is there anyone who can confirm that my myth has been blown?
Thank you.

Benefits in a final salary scheme revalue between the time a member leaves active membership of a scheme (and becomes a 'deferred' pensioner) until they time they start to draw benefits from the scheme. Only in exceptional cases such as a period of negative inflation, and then only where scheme rules permit, would those benefits decrease. 

All projections are just that: projections. They are based on the best assumptions available at the time and those assumptions may now have been slightly lowered.

Were you in a 'contracted out' pension scheme, and thus you built up some benefits in lieu of the state additional pension? Is there a breakdown on the projection showing something described as Guaranteed Minimum Pension (GMP)? If so, and the GMP is lower on this projection than on the last one, it could be the scheme has reconciled the figures with the DWP and the earlier GMP was incorrect - very common indeed - and that has impacted on the revaluation process.

xylophone

Do you have a statement of deferred benefits on leaving showing post 88 GMP  and the excess?

What does the scheme booklet have to say about how GMP revalues in deferment? And the excess?

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

NowhereGirl12

It could be something similar to what happened to mine from a similar time period. I was confused as to how the overall pension projection I received in 2020 had hardly increased since  the last statement I had previously received in 2008 - but those early statements were based on a 7% yearly increase on the GMP part of the pension. They subsequently changed the rules and this 7% increase was no longer applied, only RPI, so the GMP part of the pension was indeed reduced from what it had been estimated to be in 2008.
It's worth checking with the pension administrators what rules are now being applied - even the FAQ I was sent initially was incorrect/out-of-date. I don't know exactly when the change was made on mine but I was told the revaluation rates had been "recently reviewed" by the trustees so assume it was in the last couple of years.

Dannybhoy

Thank you everyone for your kind responses.
Good explanation Dox and probably correct.  
Yes Xylophone, I have had a state pension forecast, thank you.
NowhereGirl12, I think you are spot on.  I worked in Group Personal Pensions back in the day and the projections were wild at that time, 5, 7 and 9% increases were widespread.  That all seems like light years away from the current day.

tigerspill

Mine has done this as well.  Mine is based on the formal published indexation in a rolling 2 year window.  This can go down and up as it moves.