Calculation method changed on db pension for early retirement

toolateforsums

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!

Dazed_and_C0nfused

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?

Thrugelmir

hyubh 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. 

That isn't true, the test for whether a recovery plan is needed or not is in relation to scheme assets vs. scheme liabilities, not the health of the sponsoring employer.

My point was that a highly solvent employer wouldn't require a 10 year plan to rectify the deficit (as it existed at that time, now considerably worse). Majority of companies are themselves highly indebted. More so now because of the impacts of the pandemic and face other challenges too. The recovery plan is going to require revision. 

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, I was a deferred pensioner. everyone was as they had closed down the scheme many years earlier so no further accrual was possible by anyone

Pat38493

hyubh said:

Pat38493 said:

Wait - are you all saying that for the existing benefits in a DB pension scheme, the trustees can alter the discount amount per year for early retirement, and even can do that without informing all the prospective beneficiaries?

Surely the trustees must act in pensioners interest so this should only be possible if the fund is effectively insolvent?

I had always thought this is part of the scheme rules and could not be changed without some kind of consultation process?

ERFs (and if applicable, LRFs) will be reviewed from time to time, that's perfectly normal (and will be in the rules). And acting in the interests of scheme members as a whole has no particular relation to being generous to early retirees specifically.

I actually wasn't aware of that and I thought it should be part of the scheme rules and that pensioners would have to be consulted if these rules should be changed.  At the least, I would think that if such important things are changed, everyone impacted should be notified about it?

At first thought, this would seem to breach what I perceive to be one of the fundamental principles of capitlism - i.e. you make your investments under a set of rules and if those rules are changed, they should only be changed for further investments going forward not retrospectively - or more directly - theoretically someone could have chosen to join a different pension scheme or a different company to work for if they were planning early retirement and had known the rules were going to change unfavourable later.

By the way would this also apply if a DB scheme had been closed to new members and frozen, and then fully funded, and then the assets were mainly insured or even bought out - I assume this would be done based on the current rule set at the time these calculations were made?

Nevertheless, so what else could be changed by the trustees without notification - what about the final amount if you retire at the normal age - could they suddenly decide you will get less pension?

Shimrod

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.

This bit confuses me - if they only had to revalue to the date of early retirement, there would be no need for any early retirement factors to be applied.

I would also expect that if the revaluation was done as described, then the early retirement pension would be more generous, assuming the scheme revalues by CPI or RPI to the retirement date. The 4% per year early retirement factor would be a higher reduction than the factors used to increase the pension.

You are entitled to see a copy of the pension rules which will state how early retirement benefits will be calculated (Although not the actuarial factors used). If the rules are ambiguous you would be able to see that.

The actuary can advise the trustee on changes to the early retirement factors but cannot change the early retirement calculation. I trustee would have to do that and I would expect legal advice prior to the change as well as a deed of amendment to rules to clarify the situation. The trustee is duty bound to act in the best interest of all members, and given the significant change in the value of your pension, I would expect them to be recovering the massive overpayment of pension to other early retirees as they have been over-generous.

If it is a large company then there is no real confidentiality issue in sharing the company name, and you may find someone on here with experience of that pension scheme who could help give more specific advice.

Albermarle

Thrugelmir said:

hyubh 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. 

That isn't true, the test for whether a recovery plan is needed or not is in relation to scheme assets vs. scheme liabilities, not the health of the sponsoring employer.

My point was that a highly solvent employer wouldn't require a 10 year plan to rectify the deficit (as it existed at that time, now considerably worse). Majority of companies are themselves highly indebted. More so now because of the impacts of the pandemic and face other challenges too. The recovery plan is going to require revision. 

I do not agree . My ex employer is very solvent but  funding the deficit in the DB pension over a period of years makes good business sense . Just because a company is  in good shape does not necessarily mean they can just come up with a very  large cash sum out of just one years accounts . In fact could probably even damage the business a lot more than paying over a number of years , so would be undesirable for the company/employees/pensioners in the long run.

Albermarle

Nevertheless, so what else could be changed by the trustees without notification - what about the final amount if you retire at the normal age - could they suddenly decide you will get less pension?

This is a different issue and that would mean they were breaching their liabilities and maybe have to go to the PPF.

ewaste

Pat38493 said:, 

I actually wasn't aware of that and I thought it should be part of the scheme rules and that pensioners would have to be consulted if these rules should be changed.  At the least, I would think that if such important things are changed, everyone impacted should be notified about it?

At first thought, this would seem to breach what I perceive to be one of the fundamental principles of capitlism - i.e. you make your investments under a set of rules and if those rules are changed, they should only be changed for further investments going forward not retrospectively - or more directly - theoretically someone could have chosen to join a different pension scheme or a different company to work for if they were planning early retirement and had known the rules were going to change unfavourable later.

By the way would this also apply if a DB scheme had been closed to new members and frozen, and then fully funded, and then the assets were mainly insured or even bought out - I assume this would be done based on the current rule set at the time these calculations were made?

Nevertheless, so what else could be changed by the trustees without notification - what about the final amount if you retire at the normal age - could they suddenly decide you will get less pension?

I think you've maybe been chugging the Capitalist Kool-Aid, pensions especially defined benefit schemes y'know collective old age insurance as it were... very capitalist 👀

Rules and Investments, that's pretty much polar opposite. Savings have defined rules whereas investments have inherent risks and subject to change but for the probability of greater reward. Rules themselves or contracts are also inherently not very capitalist as they serve to bind both parties. 

Early retirement is at the discretion of the trustees, early as in before the scheme retirement age which is what you signed up for. Therefore they can of course change the benefits payable for early retirement to keep the scheme solvent and fair for the membership as a whole. The fact that the scheme is clearly in deficit will factor into the decision because their legal responsibility is to pay benefits at normal retirement age.

However they can't change the core benefits at scheme retirement age which is what you essentially sign upto. This is why many schemes end up with various sections e.g. NRA of 60, 62, 65 and then SPA. If anyone actually reads and has been stated in this case, the scheme specifically states that ERFs are subject to review and change.

Shimrod

Albermarle said:

Thrugelmir said:

My point was that a highly solvent employer wouldn't require a 10 year plan to rectify the deficit (as it existed at that time, now considerably worse). Majority of companies are themselves highly indebted. More so now because of the impacts of the pandemic and face other challenges too. The recovery plan is going to require revision. 

I do not agree . My ex employer is very solvent but  funding the deficit in the DB pension over a period of years makes good business sense . Just because a company is  in good shape does not necessarily mean they can just come up with a very  large cash sum out of just one years accounts . In fact could probably even damage the business a lot more than paying over a number of years , so would be undesirable for the company/employees/pensioners in the long run.

If the company is very solvent, then with a strong covenant the pensions regulator would really be expecting a recovery plan with a period shorter than ten years, typically seven years or less. If the covenant is weak then the pension frowns on activities such as dividend payments as they may make the covenant even weaker. 

It's also worth noting there are three targets with different levels of deficit:

• Technical Provisions
• Self-sufficiency
• Buy out

Buy out should be the ultimate target for every DB trustee and trustees may adjust recovery plans as they move through each stage of deficit.