CETV Advice Please

PinkPanda_3

Iwantmycetv said:

PinkPanda_3 said:

Several posts seem to be inferring the transfer value is incorrect, but I have the exact same situation with transfer value 185k but pension around 2400 @ 60.
My provider only does quotes up to 18 months prior to retirement but my quote for 18 months time came back at approx 2200 I think the reduction factor was .93 so seems to tie in.

The other factor is gmp which I confess I do not really understand.  This seems to make up a lot of my transfer value, so OP might want to check that too as given the notes below it could make a significant difference

I was told gmp revalued at 60 might uplift pension to around 6.5k due to difference between increases already received at cpi and  7%, but there has been no mention of this from the provider in the retirement quote and at 2 x the pension sum seems rather optimistic. Also did not fit with the example given in the transfer quote so am not confident of this and will be taking further advice. 

Good luck with the advisor.  

Yay! Someone else with the same problem! At least you understand how frustrating it is.

Assume you haven't been able to transfer your pension out?

It is. I had a session with one of the large companies but wasn't willing to commit to their charges as it was a % of my total pension savings, not just this one, and ongoing charges did not fit with what I wanted. Like yourself I wanted to put the 25% tax free to goid use.  Ex has charge on my property which either needs paying off, or if I can get a low interest mortgage I'd reduce my working days. I know I will probably need  max 20 years pension in payment from 60 and need to make the most of the years between 60 and 70 as after that I will be limited.  I'm waiting to get some free advice just on this specific pension as I get a session paid for by the provider.
Although everyone seems to think that DB pensions are golddust to be held onto at all costs they do not come out so well if the original length of service was short and salary low.

xylophone

OP, this is a deferred DB pension.

When exactly were you an active member of the scheme?

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

Do you have a copy of the scheme booklet?

What does it say about how the pension (GMP/excess) revalues in deferment? If so, is Fixed Rate used for the GMP?

You state that in payment it escalates by RPI - is that uncapped RPI?

With regard to the pension that you are now being offered, is it on grounds of ill health or simply payment post age 55 with an  actuarial reduction?

Is the pension being offered based on revalued excess but unrevalued GMP?

If so, will there be a step up at age 60 (GMP age for a female)?

Have you obtained a state pension forecast?

https://www.gov.uk/check-state-pension

PinkPanda_3

hyubh said:

PinkPanda_3 said:

Several posts seem to be inferring the transfer value is incorrect, but I have the exact same situation with transfer value 185k but pension around 2400 @ 60.

[snip]

I was told gmp revalued at 60 might uplift pension to around 6.5k due to difference between increases already received at cpi and  7%, but there has been no mention of this from the provider in the retirement quote and at 2 x the pension sum seems rather optimistic.

£2400 vs. £6500 is quite a big difference! And £185K for £6.5K pa seems much more plausible.

Sounds like you left quite a while ago and have a chunky GMP revaluing at 'fixed rate' to GMP age (GMP age is 60 for women; the applicable fixed rate for leavers between 93 and 97 is 7%). Where a pension is brought into payment before GMP age, it sounds like the scheme revalues the whole pension from leaving to retirement as one (hence the CPI reference), then there is a correction at GMP age to correctly split the revalued GMP from the revalued excess (hence the 'uplift' reference).

What would then happen however depends on the proportion of pre- to post-88 GMP (assuming the scheme doesn't give above statutory increases on GMP, which I wouldn't expect given fixed rate revaluation). The post-88 GMP would increase at CPI capped to 3% and the pre-88 wouldn't increase at all. Any increases on the 'excess' will down to scheme rules, given you're a pre-97 leaver.

Thanks hyubh. That's clearer. Based on that info and the details in the paperwork it looks like my advisor has not taken account of the increase already applied to the gmp, which was at rpi not cpi, and has based the higher amount on adding the gmp at 7% (4200) to the current value. I am taking further advice so will definitely get this clarified.

Iwantmycetv

xylophone said:

OP, this is a deferred DB pension.

When exactly were you an active member of the scheme?

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

Do you have a copy of the scheme booklet?

What does it say about how the pension (GMP/excess) revalues in deferment? If so, is Fixed Rate used for the GMP?

You state that in payment it escalates by RPI - is that uncapped RPI?

With regard to the pension that you are now being offered, is it on grounds of ill health or simply payment post age 55 with an  actuarial reduction?

Is the pension being offered based on revalued excess but unrevalued GMP?

If so, will there be a step up at age 60 (GMP age for a female)?

Have you obtained a state pension forecast?

Thanks for your input.  I have found the info you have asked about as follows:

I was last an active member of the scheme on 31/12/1992.

Tried to screenshot the GMP info but can't paste in here so if I don't give enough info please just ask.  I haven't got the info from when I left the scheme to hand but this is what was in the TVC report: 

GMP pre 1988  - £96.72 with zero increases
GMP post 1988 - £257.92 with CPI to 3% increases
Excess              - £949.40 increasing by RPI to 5%
Bridging            - £124.20 increasing by RPI to 5%

Estimated pension at 60 is £5730.83  ...... I am 56 at the moment.   They have stated pension at 58 (I don't know why they are saying 58 as wanted it at 56?) will be £2956.16 before lump sum.

RPI capped at 5% which I didn't realise until now.

The scheme info is online but I have the TVC report, etc.

I will get full state pension at state retirement age of 67.

States benefits will only be revalued from date of leaving to date of retiring

The pension is based on ill health so is not supposed to be reduced but their is conflict in the recommendation report to this which I have asked for clarification on but haven't received it.

jimi_man

Iwantmycetv said:

xylophone said:

OP, this is a deferred DB pension.

When exactly were you an active member of the scheme?

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

Do you have a copy of the scheme booklet?

What does it say about how the pension (GMP/excess) revalues in deferment? If so, is Fixed Rate used for the GMP?

You state that in payment it escalates by RPI - is that uncapped RPI?

With regard to the pension that you are now being offered, is it on grounds of ill health or simply payment post age 55 with an  actuarial reduction?

Is the pension being offered based on revalued excess but unrevalued GMP?

If so, will there be a step up at age 60 (GMP age for a female)?

Have you obtained a state pension forecast?

Thanks for your input.  I have found the info you have asked about as follows:

I was last an active member of the scheme on 31/12/1992.

Tried to screenshot the GMP info but can't paste in here so if I don't give enough info please just ask.  I haven't got the info from when I left the scheme to hand but this is what was in the TVC report: 

GMP pre 1988  - £96.72 with zero increases
GMP post 1988 - £257.92 with CPI to 3% increases
Excess              - £949.40 increasing by RPI to 5%
Bridging            - £124.20 increasing by RPI to 5%

Estimated pension at 60 is £5730.83  ...... I am 56 at the moment.   They have stated pension at 58 (I don't know why they are saying 58 as wanted it at 56?) will be £2956.16 before lump sum.

RPI capped at 5% which I didn't realise until now.

The scheme info is online but I have the TVC report, etc.

I will get full state pension at state retirement age of 67.

States benefits will only be revalued from date of leaving to date of retiring

The pension is based on ill health so is not supposed to be reduced but their is conflict in the recommendation report to this which I have asked for clarification on but haven't received it.

So, £5730 (is there a lump sum as well?) per year or £161k. That seems to make it around 28x which is lot more realistic compared with others on here, though at under 30 it doesn't seem that stellar a swap now. 

Iwantmycetv

jimi_man said

So, £5730 (is there a lump sum as well?) per year or £161k. That seems to make it around 28x which is lot more realistic compared with others on here, though at under 30 it doesn't seem that stellar a swap now. 

The £161K is the transfer value as at now but the £5730 is the pension at age 60 so in 4 years.  There would be a lump sum of around £29K at age 60 too apparently

jimi_man

Iwantmycetv said:

jimi_man said

So, £5730 (is there a lump sum as well?) per year or £161k. That seems to make it around 28x which is lot more realistic compared with others on here, though at under 30 it doesn't seem that stellar a swap now. 

The £161K is the transfer value as at now but the £5730 is the pension at age 60 so in 4 years.  There would be a lump sum of around £29K at age 60 too apparently

Ah OK. I don't know what the commutation rate is, bit if it was 20:1 then that's effectively an extra £1450 on top of the £5730 - £7180. Drops the CETV multiple to the low 20's - maybe 22, which is now sounding extremely poor. 

Personally I'd stick with the pension, seems a fairly straightforward decision now.  

Linton

Iwantmycetv said:

jimi_man said

So, £5730 (is there a lump sum as well?) per year or £161k. That seems to make it around 28x which is lot more realistic compared with others on here, though at under 30 it doesn't seem that stellar a swap now. 

The £161K is the transfer value as at now but the £5730 is the pension at age 60 so in 4 years.  There would be a lump sum of around £29K at age 60 too apparently

Taking these figures I think you will see that whether a transfer is in your best interest is at best a marginal matter:

If you transfer and take a £29K lump sum that would leave you with £132K.  Assuming you are of average life expectancy for £132K at 60 you could:

 - buy an annuity guaranteed for your lifetime which increases by 3%  per year (perhaps equivalent to inflation with a 5% cap) for about £3400.  So you would be £2300/year down.

or
 - invest the money and hope to get about £4600/year matching inflation.  However there would be no guarantees and you would have to manage the investments or pay someone else to do so.


My conclusion is that your DB pension is a very good offer unless perhaps your ill health is seriously life shortening.

Note that other people, including your IFA, would undoubtedly come  up with slightly different numbers but the general conclusion seems clear to me.

QrizB

Iwantmycetv said:

Estimated pension at 60 is £5730.83  ...... I am 56 at the moment.   They have stated pension at 58 (I don't know why they are saying 58 as wanted it at 56?) will be £2956.16 before lump sum.

That seems quite a big reduction for taking your pension early. It's usually 4% or 5% per year, but that's almost a 50% reduction!

Your original goal was to take a £40k lump sum to cover a new roof, new car and clear some CC debt. A £40k mortgage might be a better bet?

xylophone

GMP pre 1988  - £96.72 with zero increases
GMP post 1988 - £257.92 with CPI to 3% increases
Excess              - £949.40 increasing by RPI to 5%
Bridging            - £124.20 increasing by RPI to 5%

The GMP at date of leaving service must be revalued in deferment up to GMP age (60 for a female) by either fixed or full rate, depending on scheme rules.

Under your scheme's rules, the excess revalues by capped RPI.

See https://www.barnett-waddingham.co.uk/comment-insight/blog/what-is-a-gmp/

It so happens that your scheme's pension age is the same as female GMP age.

At age 60, the revalued pension is split out into pre 88 GMP/post 88 GMP/excess.

The pre 88 GMP receives no increase, the post 88 GMP is increased by CPI up to 3% and the excess increases by capped RPI as before.