Calculation method changed on db pension for early retirement

DT2001

Pat38493 said:

DT2001 said:n

In your case do you have a GMP element or does the scheme provide a ‘bridge’ and then a reduction at SPA?

My scheme originally revalued your GMP to ERD and then applied ERF but changed as it was considered too generous! Legal advice was taken to confirm the change. It probably only was considered when redundancies were offered with pension being available between 50 and 60 - if you resigned no option for early drawing was possible.

I wrote a whole reply to this but when I pressed "post comment", it all disappeared!

I don't have time to re-type it all now so I will have to come back later but quickly:

- Not sure what you mean what is SPA?

- Last estimates I have were seemed to be having GMP and contracted out according to the pension factsheet.

- I went through documents - actually, in late July last year, the pension GMP was converted to non GMP, and I now have a table showing "before and after" for all the values.  However this happened after I received the last estimates and factsheet, so the numbers I posted above are based on GMP vs XS calculations as far as I understood.

The table appears to show the pension split into 3 different categories with different retirement ages (!), different post retirement growth rates.  The pre-retirement revaluation appears to be now based on stautory RPI to 2010 then CPI capped 5%.
It appears to show that for a significant portion of my deferred pension, my retirement age is 60, which I suppose is a nice surprise!

This is the new info - I would have to post you some data from the July factsheet for the old info as this is what the last pension estimate at 57 of 18K was based on.

SPA = state pension age
It looks like your pension scheme is sorting the GMP ‘problem’ quickly and will hopefully make your options easier to understand.

My pension NRD was 60. I drew, with ERF at 51. At the moment it will increase at 65 when my GMP element is revalued and then split into 3 parts increasing (or not for 1/3) by RPI and CPI. At SPA my XS will reduce by an amount calculated on date of leaving the scheme which related to the old state pension. Maybe by 65 my scheme will have implemented the GMP equalisation and working out the future payments will be easier.

Pat38493

DT2001 said:

Pat38493 said:

DT2001 said:n

In your case do you have a GMP element or does the scheme provide a ‘bridge’ and then a reduction at SPA?

My scheme originally revalued your GMP to ERD and then applied ERF but changed as it was considered too generous! Legal advice was taken to confirm the change. It probably only was considered when redundancies were offered with pension being available between 50 and 60 - if you resigned no option for early drawing was possible.

I wrote a whole reply to this but when I pressed "post comment", it all disappeared!

I don't have time to re-type it all now so I will have to come back later but quickly:

- Not sure what you mean what is SPA?

- Last estimates I have were seemed to be having GMP and contracted out according to the pension factsheet.

- I went through documents - actually, in late July last year, the pension GMP was converted to non GMP, and I now have a table showing "before and after" for all the values.  However this happened after I received the last estimates and factsheet, so the numbers I posted above are based on GMP vs XS calculations as far as I understood.

The table appears to show the pension split into 3 different categories with different retirement ages (!), different post retirement growth rates.  The pre-retirement revaluation appears to be now based on stautory RPI to 2010 then CPI capped 5%.
It appears to show that for a significant portion of my deferred pension, my retirement age is 60, which I suppose is a nice surprise!

This is the new info - I would have to post you some data from the July factsheet for the old info as this is what the last pension estimate at 57 of 18K was based on.

SPA = state pension age
It looks like your pension scheme is sorting the GMP ‘problem’ quickly and will hopefully make your options easier to understand.

My pension NRD was 60. I drew, with ERF at 51. At the moment it will increase at 65 when my GMP element is revalued and then split into 3 parts increasing (or not for 1/3) by RPI and CPI. At SPA my XS will reduce by an amount calculated on date of leaving the scheme which related to the old state pension. Maybe by 65 my scheme will have implemented the GMP equalisation and working out the future payments will be easier.

I guess I will request another estimate in 6 months or so.  

I think this explains why my pension estimate for retiring at 57 was 18k and not 15k - about a third of my pension has a retirement date of 60 so the ERF on that part will bu much higher more like 0.8xx.   

I am not totally clear why that is, but it seems to be related to court cases about pension equalisation rather than GMP.

I think they have not updated all their documentation yet as they sent me a CETV valuation for nearly 800K in January and the accompanying fact sheet was identical to the one from pre GMP equalisation and said it had not been equalised, even though they sent me a letter in November saying it had been equalised in July last year .

toolateforsums

Dazed_and_C0nfused said:

toolateforsums said:

Chris_English said:

toolateforsums said:

Thrugelmir said:

toolateforsums said:

Thrugelmir said:

toolateforsums said:

Thrugelmir said:

hyubh said:

toolateforsums said:

From the trustee secretary: -

'On checking your file and reworking the calculations, done when XXXXXXXX were the administrator, it is clear that they based the Early retirement pensions on your estimated pension at Normal Retirement Date and then reduced it by the 4%.

 

YYYYYYYY, as the new administrators, have challenged this method and their administration and calculation system was set up under instruction from the Actuary to revalue only to the early retirement date. The rules of the scheme are not clear but do imply that that revaluation is to normal retirement date which is most unusual.'

 

Clearly a change in the calculation method and a significant one since changing scheme administrators.

It appears this trustee secretary has been taking tips from recent defenders of Boris Johnson. What the new administrator thinks would save money on implementing the scheme is neither here nor there, ditto whether the rules of the scheme are 'most unusual' or not. I'd ask the trustee to reconsider, and if they don't, raise a formal complaint (IDRP) about the (apparently acknowledged) recalculation contrary to established understanding of scheme rules...

Not a question of saving money. More a question of the solvency of the scheme at the current time to meet it's projected future liabilities. Future funding being entirely dependent upon on the scheme sponsor . 

https://www.thepensionsregulator.gov.uk/en/document-library/codes-of-practice/code-3-funding-defined-benefits-/#3b9aa4771dbb428f8bde6e829c3d3a6c

The scheme sponor is very solvent and has a repayment plan to fill the pension defecit over 10 years , reviewed every three years when a full valuation is done.

If the scheme sponsor was very solvent there'd be no need for a 10 year plan to address the deficit that already exists. High levels of inflation aren't going to make addressing the deficit any easy. 

The scheme is in defecit , but with a very solvent company who are required to provide a defecit reduction plan by the PPF I believe? They may be insolvent in 10 years!

Simply looking at the matter from a macro level and the scheme as a whole. Very different to your micro view where you want the biggest share of the available pie possible. 

I want what i signed up for when I joined the scheme 30 years ago and is promised according to the schemes rules.The same as other coleagues who have retired earlier than me . Nothing more , and as per my original quotation from the original administrators!

What were the terms regarding early retirement when you joined the scheme?

The same calculation for working out your pension at NRD (accrued +RPI to 65), but you could retire at 60 with no penalty , or retire at a 3% reduction before then pa to the age of 50!. So only a 15% reduction for retiring at 55 from a calculated pension at the age of 65.

Not sure if this has been confirmed in previous posts but is it possible that the first calculation assumed you would be building up more pension (not just getting RPI increases) till you were 65 and the new quote is taking what you have accrued so far and applying the actuarial deduction to that?

No , everyone was deferred as trhe db scheme was closed. No future accrual was possible

toolateforsums

Dazed_and_C0nfused said:

toolateforsums said:

Dazed_and_C0nfused said:

This may be a red herring but as the op said this in the first post 

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. 

On the basis of the quotation , i stopped paying as much into my current dc scheme

Is it possible that the original quote assumed (for whatever reason) that benefits were continuing to accrue in the DB pension and would continue till age 65 and then when the new quote was generated this was based on the actual amount accrued to date in the deferred DB pension with the same 4%/year actuarial reduction applied to the current amount of deferred pension?

Yes , I believe that is exactly how they have recalculated for the latest quotation. It makes a massive difference. Not how calculations were done according to the scheme rules or to previous pensioners using the same rules.

As stated in my above post an earlier generation , when i signed up for the pension , had significantly better pensions, all of it spent in a db scheme. For the last 10 years or so we were put into a dc scheme which is obviously significantly harder to achieve the same pension , and with no guarantees!

So do you accept that the second calculation is factually correct?

If you haven't accrued the service why would you expect the pension to include benefits you haven't earned?

Or maybe I'm missing something obvious?

As stated earlier the scheme rules stated:-

 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 second calculation is factually incorrect. i.e not according to the scheme rules above

toolateforsums

Tommyjw said:

Pat38493 said:

DT2001 said:

toolateforsums said:

From the original scheme administrators when I asked for a quotation

'The estimated pension at 65 is £35,327.69 pa. At 55 you would get 60% of this, ie £21,196.61 pa. '

It is very clear above how the rules are applied . I was 53 at the time . The 4% pa reduction has not changed since my enquiry.

Changing scheme administrators should not allow for this change to happen surely?Not without changing the scheme rules?

My origiinal post mentioned about the fact i had reduce my contribution level for around 2 years and taken redundancy without looking for alternative positions with the company which i could have done. Hence my original questions.

I’ve just reread part of this thread and cannot see how the bold statement above could be correct.
The scheme has closed so there are no benefits accruing and so the only change to the value of the pension would be any inflationary increases in deferment. 

WTW actuaries for Barclays wouldn’t even estimate the GMP element of my pension when it is due to increase by a fixed rate until 65 on the basis that rules could change.
My pension was taken early on the basis of - value at deferment date plus annual increases to early retirement date less actuarial reduction (just under 40% for 9+ years).

If you add in future estimated increases you cannot then increase in deferment.

Maybe my brain has gone haywire but to me this cannot be right. You cannot revalue the deferred pension amount only to the early retirement date, and then further apply the rule about reduction from NRA.  This is negative double counting because it was never calculated forward to the NRA

This is the "standard" approach.

Pension when you left multipled by known inflation up to now (e.g 55) . 10 year ERF then applied. 

Some (less than the above) Schemes will instead go - Pension when you left multiplied by known inflation up to now PLUS add on (e.g.) 2.5% per year for each year left til NRD, then apply ERF.

My experience is only mine, but of the Schemes i have and do work on, the first method is overwhelimgnly the most common.

From the deeds and rules:-
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.  '--Is this not the second method and clearly stated as such?

toolateforsums

Shimrod said:

bolwin1 said:

It's also worth pointing out that comparing total pension drawn starting at 55 compared to total pension starting to be drawn at 65 does not show the full picture. 

Shimrod's numbers - 

age 55

£21,196 = £958,000

age 65

£35,327 = £974,500

The £958,000 figure is worth much more than the £974,500 as a significant chunk of it is drawn 10 years earlier pre inflation.  

 

I think the 'total cash' difference between the £14K and £21K is too large even allowing for pre-inflation. The same exercise on my pension using the scheme calculation would give a difference of £120K total between retiring at 55 and 65. My scheme has a higher penalty for early retirement which would explain most of that increased difference.

if @toolateforsums would share pension value at the point the pension closed to accrual and the year it closed, it should be easy to check the figures using statutory revaluation to see which one is in the ballpark.

My accrued pension was around 21k and the scheme closed around 2009 from memory

Thrugelmir

toolateforsums said:

Shimrod said:

bolwin1 said:

It's also worth pointing out that comparing total pension drawn starting at 55 compared to total pension starting to be drawn at 65 does not show the full picture. 

Shimrod's numbers - 

age 55

£21,196 = £958,000

age 65

£35,327 = £974,500

The £958,000 figure is worth much more than the £974,500 as a significant chunk of it is drawn 10 years earlier pre inflation.  

 

I think the 'total cash' difference between the £14K and £21K is too large even allowing for pre-inflation. The same exercise on my pension using the scheme calculation would give a difference of £120K total between retiring at 55 and 65. My scheme has a higher penalty for early retirement which would explain most of that increased difference.

if @toolateforsums would share pension value at the point the pension closed to accrual and the year it closed, it should be easy to check the figures using statutory revaluation to see which one is in the ballpark.

My accrued pension was around 21k and the scheme closed around 2009 from memory

Are you still the original OP under another guise? 

toolateforsums

Thrugelmir said:

toolateforsums said:

Shimrod said:

bolwin1 said:

It's also worth pointing out that comparing total pension drawn starting at 55 compared to total pension starting to be drawn at 65 does not show the full picture. 

Shimrod's numbers - 

age 55

£21,196 = £958,000

age 65

£35,327 = £974,500

The £958,000 figure is worth much more than the £974,500 as a significant chunk of it is drawn 10 years earlier pre inflation.  

 

I think the 'total cash' difference between the £14K and £21K is too large even allowing for pre-inflation. The same exercise on my pension using the scheme calculation would give a difference of £120K total between retiring at 55 and 65. My scheme has a higher penalty for early retirement which would explain most of that increased difference.

if @toolateforsums would share pension value at the point the pension closed to accrual and the year it closed, it should be easy to check the figures using statutory revaluation to see which one is in the ballpark.

My accrued pension was around 21k and the scheme closed around 2009 from memory

Are you still the original OP under another guise? 

Still the original OP!