Calculation method changed on db pension for early retirement

toolateforsums

I have a db pension which I received a quotation for retiring at 55 and the methodology for calculation.The quotation was received last year ,February 2021.the calculation states my pension as calculated will be my pension at 65 (NRA) and then discounted by 4% pa for early retirement. Pension quote was for a pension of 35k at 65 , reduced to 21k at 55. Sounded reasonable to have a guaranteed income with some degree of index linking , not subject to any stock market fluctuations.

On the basis of the quotation , i stopped paying as much into my current dc scheme as I believed I had sufficient pension provision (db+dc+sp would give around 40k for 15 years dropping to 30k at age 70 (db+sp)). This sounded like a good plan. So good , that when I was offered redundancy I jumped at the chance as it meant i could now retire even earlier than 55 , around 53 , living off the redundancy payment until the db+dc pension kicks in.

So I stopped paying ridiculous amounts of pension payments at the age of 51 so we could live a bit better , and then left work at 53.

Then the fun starts. I then asked for a new db quotation to take in just over a years time , and am told that they have changed the calculation. I would now only receive a pension of 14k PA as they have changed pension administrators who didn't like the way early retirement was calculated.

is this a)Possible and legal

          b)Ethical

I now need to find another job after walking away from an extremely well paid one , and can no longer afford to retire at 55!

your comments/thoughts please will be appreciated.

toolateforsums

Sorry , quotation received in 2019 not 2021!

Brie

Get them to double check their current figures and give reference to their previous quote.  

My DB pension has a NRA of 60.  My OH was in the same scheme but has a NRA of 65.  This is due to the difference of when we joined and left the companies - I was there about 15 years earlier so the rules changed in between.  I've only clocked this recently as a couple of years back when I got a quote I was told my NRA was 65 due to the change of rules.  Turns out the admin who was providing the info didn't use the correct set of rules.  

Dazed_and_C0nfused

Then the fun starts. I then asked for a new db quotation to take in just over a years time , and am told that they have changed the calculation. I would now only receive a pension of 14k PA as they have changed pension administrators who didn't like the way early retirement was calculated

Do you really mean they changed the calculation or was it that the original calculation is now believed to be wrong?

This sort of thing will be set by the scheme rules - have you checked those?

Thrugelmir

toolateforsums said:

is this a)Possible and legal

          b)Ethical

The trustees are legally bound to treat all scheme members equally. If the scheme is underfunded. Then early retirees cannot benefit disportionately.  As by drawing the pension early you are crystalising the scheme's liability. The figures previously quoted to you weren't guaranteed. This would have been clearly stated. There's no one to blame. It is what it is. 

Marcon

toolateforsums said:

I have a db pension which I received a quotation for retiring at 55 and the methodology for calculation.The quotation was received last year ,February 2021.the calculation states my pension as calculated will be my pension at 65 (NRA) and then discounted by 4% pa for early retirement. Pension quote was for a pension of 35k at 65 , reduced to 21k at 55. Sounded reasonable to have a guaranteed income with some degree of index linking , not subject to any stock market fluctuations.

On the basis of the quotation , i stopped paying as much into my current dc scheme as I believed I had sufficient pension provision (db+dc+sp would give around 40k for 15 years dropping to 30k at age 70 (db+sp)). This sounded like a good plan. So good , that when I was offered redundancy I jumped at the chance as it meant i could now retire even earlier than 55 , around 53 , living off the redundancy payment until the db+dc pension kicks in.

So I stopped paying ridiculous amounts of pension payments at the age of 51 so we could live a bit better , and then left work at 53.

Then the fun starts. I then asked for a new db quotation to take in just over a years time , and am told that they have changed the calculation. I would now only receive a pension of 14k PA as they have changed pension administrators who didn't like the way early retirement was calculated.

is this a)Possible and legal

          b)Ethical

I now need to find another job after walking away from an extremely well paid one , and can no longer afford to retire at 55!

your comments/thoughts please will be appreciated.

It's not for the administrators to like or dislike anything. They need to apply the rules of the scheme. Virtually every pension scheme has a provision in its rules for the early retirement factor to be amended at any time (usually with a proviso along the lines of '...the trustees, after taking advice from the scheme's actuary...'). There is no statutory requirement to advise members when such factors are amended.

a) Yes. Factors are reviewed on a regular basis and it isn't praticable or legally necessary to tell members each time something changes. All sorts of things can have an impact 
b) It's a standard practice, and there is likely to be a warning in the scheme booklet/online/in the paperwork you received alerting you to this possibility. If you are saying that none of these sources of information gave you such a warning, then you may (only 'may') have grounds for complaint - but don't expect the previous calculation basis to be used unless the current one is objectively wrong. You might get a modest payment for 'distress and disappointment' but if the rules of the scheme are being correctly applied, then the trustees and administrators are doing their job.

Having said all that, the reduction from £21K to £14K sounds highly unlikely, so I'd certainly ask them why.

Albermarle

Still to go from a 4% pa reduction ( pretty typical ) , to a 6%pa reduction ( very high by usual standards) is a big change .
If I was the OP I would also feel pretty aggrieved .
On the other hand if a drop of £7Kpa is enough to wreck retirement plans then probably there was not enough of a safety buffer in the plans, and the early retirement at 53 was maybe  a bit premature anyway,

toolateforsums

Dazed_and_C0nfused said:

Then the fun starts. I then asked for a new db quotation to take in just over a years time , and am told that they have changed the calculation. I would now only receive a pension of 14k PA as they have changed pension administrators who didn't like the way early retirement was calculated

Do you really mean they changed the calculation or was it that the original calculation is now believed to be wrong?

This sort of thing will be set by the scheme rules - have you checked those?

They have changed the calculation method. The trust deed and rules state :

'The Deferred Member’s pension under this Rule 4.9A shall be the deferred pension to which he or she would have been entitled to on Normal Retirement Date under Rule 4.8 (Deferred Pension) reduced by the Early Retirement Discount.  '

'The Early Retirement Discount which will apply initially, on and from 1 October 2011, until the Trustees determine otherwise (having had regard to the Actuary’s advice), will be 4% for each complete year that the payment of the deferred pension precedes Normal Retirement Date'

That is how my original quotation for 21k pa was calculated. Very clear in the rules.

toolateforsums

Albermarle said:

Still to go from a 4% pa reduction ( pretty typical ) , to a 6%pa reduction ( very high by usual standards) is a big change .
If I was the OP I would also feel pretty aggrieved .
On the other hand if a drop of £7Kpa is enough to wreck retirement plans then probably there was not enough of a safety buffer in the plans, and the early retirement at 53 was maybe  a bit premature anyway,

Surely a guaranteed pension of 30k for life (db +sp) will do very nicely. Much better than 23k . My wife also has pension provision. We have no debt or mortgage . No dependents. My calculations show a very comfrotable lifestyle on the 30k pa.

I don't intend to holiday in the Bahamas three times a year. I never have.

Dazed_and_C0nfused

toolateforsums said:

Dazed_and_C0nfused said:

Then the fun starts. I then asked for a new db quotation to take in just over a years time , and am told that they have changed the calculation. I would now only receive a pension of 14k PA as they have changed pension administrators who didn't like the way early retirement was calculated

Do you really mean they changed the calculation or was it that the original calculation is now believed to be wrong?

This sort of thing will be set by the scheme rules - have you checked those?

They have changed the calculation method. The trust deed and rules state :

'The Deferred Member’s pension under this Rule 4.9A shall be the deferred pension to which he or she would have been entitled to on Normal Retirement Date under Rule 4.8 (Deferred Pension) reduced by the Early Retirement Discount.  '

'The Early Retirement Discount which will apply initially, on and from 1 October 2011, until the Trustees determine otherwise (having had regard to the Actuary’s advice), will be 4% for each complete year that the payment of the deferred pension precedes Normal Retirement Date'

That is how my original quotation for 21k pa was calculated. Very clear in the rules.

So what was the calculation used for the second quote?

toolateforsums

Dazed_and_C0nfused said:

toolateforsums said:

Dazed_and_C0nfused said:

Then the fun starts. I then asked for a new db quotation to take in just over a years time , and am told that they have changed the calculation. I would now only receive a pension of 14k PA as they have changed pension administrators who didn't like the way early retirement was calculated

Do you really mean they changed the calculation or was it that the original calculation is now believed to be wrong?

This sort of thing will be set by the scheme rules - have you checked those?

They have changed the calculation method. The trust deed and rules state :

'The Deferred Member’s pension under this Rule 4.9A shall be the deferred pension to which he or she would have been entitled to on Normal Retirement Date under Rule 4.8 (Deferred Pension) reduced by the Early Retirement Discount.  '

'The Early Retirement Discount which will apply initially, on and from 1 October 2011, until the Trustees determine otherwise (having had regard to the Actuary’s advice), will be 4% for each complete year that the payment of the deferred pension precedes Normal Retirement Date'

That is how my original quotation for 21k pa was calculated. Very clear in the rules.

So what was the calculation used for the second quote?

I'll need to ask the question how they have reduced it by a third. I do know the trust deeds and rules above were active at the time of my quotation and the 4% is still valid and I believe typical for many schemes to allow for early retirement.