Trying to Project DB Scheme Benefits

YorkshireBoy

Looking to retire 4 years early in October this year age 61, but struggling to try and project deferred member DB scheme benefits payable from age 65. I think I'm suffering paralysis by analysis and need some help from the knowledgeable folk on here! 

To clarify, I have no intention of taking this early, but need to put a figure for the lump sum at 65 in my monthly budget spreadsheet (which factors in inflation at 2.5%, along with rates for savings, investment growth etc).

I've just received a deferred member DB projection, and when comparing it with the one I obtained this time last year (to finish back in October 2020, 5 years early) I have the following:

Jan 2021 Quotation (CETV £412K)

Oct 2021 commencement - £58,796 and £8,819 pa or £11,421 pa with no lump sum 

Oct 2025 commencement - £73,104 and £10,965 pa or £14,813 pa with no lump sum (giving a commutation factor of 19?)

Jan 2020 Quotation (CETV £359K)

Oct 2020 commencement - £55,202 and £8,280 pa or £11,248 pa with no lump sum

Oct 2025 commencement - £68,200 and £10,100 pa or £14,600 pa with no lump sum (giving a *low* commutation factor of 15?)

I'm told by the scheme admin that the commutation factor is currently 19, and that all 3 elements of the pension have a min 3% pa increase once in payment. 

I also have a vague recollection of some scheme rule changes very shortly after I left the employer 18 years ago, including losing 6.5% for every year before NRA if taken early.

A letter offering a 6-figure sum (increased twice further shortly afterwards, including a 4-figure 'back-hander' paid directly to my bank account) back in 2011 if I transferred out gave a NRA projection of £73,585 and £11,038 pa or £16,698 pa with no lump sum. These are the figures I had been using in my spreadsheet, but the increase of nearly £5K in NRA lump sum from last years quote to this years quote has got me confused as that's a 7.19% uplift, and if that continues year on year my current circa £75K figure will be way out!

Notes with the recent quotations say that when giving quotations for the future (in my case 4 years) they don't make any assumptions re inflation beyond the current year, and therefore excess pension has been revalued to the current year and not 65.

Have I over complicated this, and the lump sum will indeed be broadly £73-75K give or take a couple of £K depending on the next 4 years inflation? Because when I projected this through earlier it was £90K plus...and that can't be right can it?

Sorry for the long post but I didn't want to leave any detail out.

Marcon

Forget the CETV - it has no bearing on the pension you will receive under the rules of the scheme and will only serve to confuse!

Before going any further, you might want to double check that the pension carries a minimum 3% increase once in payment. It could, but that would be quite unusual.

You also need to be aware that what you 'vaguely remember' from 18 years back may not have any impact on you if rule changes were made after you left the scheme. The 6.5% per annum reduction for early payment of your pension would have looked high then and will have been reviewed several times since you left, assuming it isn't actually written into the rules (unlikely).

You'll need to go back to the scheme and check, although if you name the scheme here there's a sporting chance someone might be familiar with it and able to help.

YorkshireBoy

Marcon said:

Forget the CETV - it has no bearing on the pension you will receive under the rules of the scheme and will only serve to confuse!

Before going any further, you might want to double check that the pension carries a minimum 3% increase once in payment. It could, but that would be quite unusual.

You also need to be aware that what you 'vaguely remember' from 18 years back may not have any impact on you if rule changes were made after you left the scheme. The 6.5% per annum reduction for early payment of your pension would have looked high then and will have been reviewed several times since you left, assuming it isn't actually written into the rules (unlikely).

You'll need to go back to the scheme and check, although if you name the scheme here there's a sporting chance someone might be familiar with it and able to help.

I mentioned the CETV figures as, when linked to the large uplift in lump sum, it may have had some bearing on whether they were still trying to get rid of me!

Re the 3% increase in payment, I discussed this with them last week on the phone. My initial question was "by how much will it increase once in payment?" I'd expected a simple numerical answer, but when it wasn't I took some notes, and have re-produced exactly as written below:
1. Min @ 65 £3,501 +3%
2. Excess pre-97 3% 20 years
3. Post-97 3% min/5% max 6 years
My father was in the same scheme and his has increased by 3% every since since he 'early retired' in 1992 age 61. This is what prompted my question to the scheme admin.
I joined the 'staff' 1/60ths pension scheme in 1984, and brought with me 1 year and 1 month of equivalent benefit from their 1/80ths superannuation scheme. I left almost exactly 18 years ago 2003.

On any possible changes, I'd have thought any changes to early retirement penalties would have been communicated to deferred members, and I've no record of this. It was only a few weeks after I left they changed the penalty from 4% per year below age 60 (max 40%), to 6.5% per year below age 65 (NRA)...effectively wiping out all benefit to several of my colleagues who'd planned to take it in their early fifties.

I'll call them again this coming week, and for the time being not name the scheme.

Marcon

YorkshireBoy said:

Marcon said:

Forget the CETV - it has no bearing on the pension you will receive under the rules of the scheme and will only serve to confuse!

Before going any further, you might want to double check that the pension carries a minimum 3% increase once in payment. It could, but that would be quite unusual.

You also need to be aware that what you 'vaguely remember' from 18 years back may not have any impact on you if rule changes were made after you left the scheme. The 6.5% per annum reduction for early payment of your pension would have looked high then and will have been reviewed several times since you left, assuming it isn't actually written into the rules (unlikely).

You'll need to go back to the scheme and check, although if you name the scheme here there's a sporting chance someone might be familiar with it and able to help.

On any possible changes, I'd have thought any changes to early retirement penalties would have been communicated to deferred members, and I've no record of this. It was only a few weeks after I left they changed the penalty from 4% per year below age 60 (max 40%), to 6.5% per year below age 65 (NRA)...effectively wiping out all benefit to several of my colleagues who'd planned to take it in their early fifties.

No - no requirement to do so. Schemes review their 'factors' (as these are called) pretty regularly, and constantly writing to members to tell them of the changes would be a huge waste of money, particularly for anyone not yet within striking distance of drawing their pension.

The reduction isn't a 'penalty', although it's understandable that members tend to see it that way. You are drawing your pension earlier than expected and it will be payable for longer, on the assumption that you die on the same date whether or not you take your pension early. If you take it early, the level at which it starts to be paid is 'a best guess' designed to ensure that by the time you die, you will have received the same amount of pension overall whether you retire early or at the scheme's normal retirement date. Needless to say, it's a best guess which is almost invariably wrong!