Calculation method changed on db pension for early retirement

xylophone

As I suggested previously, obtain a copy of the scheme rules. 

hyubh

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 

If anything, a lack of historic concerns about solvency may have led to underfunding of the pension fund by contemporary standards.

Pat38493

Albermarle said:

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.

OK but I guess there is no particular reason that's in the interest of the pensioners (or prospective pensioners) not to offer an early retirement option unless the scheme has relatively short term solvency issues.

The last quotation I requested on my old DB scheme - the total amount that would be paid out if I lived to the typical age would be significantly more if I retire at NRA than if I took it at age 57 (calculated on today's money so not taking into account potential differing inflation rates in different periods).

Therefore unless the scheme is in trouble isn't it more of a question of what the theoretical CETV value should deliver?

The only other reason would be if the trustees think they can predict wildly different inflation rates across different decades or they are expecting big increase in life expectancy to suddenly arrive? 

To put it another way - surely outside of solvency issue, altering the % discount for early retirement should be based not on the current cash position of the scheme, but on the current truthful assessment of the fair value of the pensioner's entitlement at any time.

hyubh

Pat38493 said:

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 capitalism - 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.

The rules won't change because the factors to use typically won't be in the rules in the first place. Instead, the rules will say if and when an ERF or LRF is applicable, and maybe the method, but no more than that. As a publicly-available example, here's from the LGPS regs:

(4) A member who starts to receive payment of a retirement pension from a date after that member's normal pension age is entitled to enhancement of the pension by the amount shown as appropriate in actuarial guidance issued by the Secretary of State.

5) A member who has not attained normal pension age but who has attained the age of 55 or over, may elect to receive immediate payment of a retirement pension in relation to an employment if that member is not an employee in local government service in that employment, reduced by the amount shown as appropriate in actuarial guidance issued by the Secretary of State.

https://lgpsregs.org/schemeregs/lgpsregs2013/timeline.php#r30

For a private sector scheme, replace 'actuarial guidance issued by the Secretary of State' with some wording about factors being reviewed from time to time by the scheme actuary.

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?

The accrual rate will highly unlikely have a discretionary element, revaluation might (though generally not, mainly because most private sector schemes just do statutory revaluation in the first place), and increases once in payment might, depending on scheme rules (e.g. if increases on pre-97 pension are discretionary, the rules will state that).

sevenhills

toolateforsums said:

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!

toolateforsums said:

For confidentiality purposes I will not reveal the sponsoring company. However , there position is very strong. It is extremely unlikely they will 'go bust' anytime in the long term future(over 10 years away). Always a possibility though!

You have many posters on here trying to help you, but because you are not giving the full information, you are giving a confused picture.

Why not just spill the beans, fear of someone recognising your handwriting?

toolateforsums

sevenhills said:

toolateforsums said:

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!

toolateforsums said:

For confidentiality purposes I will not reveal the sponsoring company. However , there position is very strong. It is extremely unlikely they will 'go bust' anytime in the long term future(over 10 years away). Always a possibility though!

You have many posters on here trying to help you, but because you are not giving the full information, you are giving a confused picture.

Why not just spill the beans, fear of someone recognising your handwriting?

I'm sorry, but I don't see how revealing the company in question will help answer the question any more accurately with the information already supplied that should be sufficient? If there is any more info required let me know what it is and i will endeavour to supply!

Dazed_and_C0nfused

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?

Pat38493

I have to admit after reading this thread again I am even more scratching my head.

As I understand, we are talking here about a scheme that was closed to new members and deferred quite some years back.

There is a rule in the scheme that says that pensions are calculated by applying a % working back from the NRA.

The actuaries and at least one of the trustees (and according to other posters, other pension schemes as well), are now seeming to claim that this rule is irrelevant, and that the correct way to calculate the pension is to calculate forward from the member's deferred pension at the date of deferral, to the early retirement date, completely ignoring the NRA and the reduction rule altogether.

Am I missing something there?

I am guessing they are doing this because if you work forward to the NRA and then go back again, the forward counting is compounded over the years whilst the backward % calculation is not compounded, so taking this new approach leads to the member getting a substantially less pension if they decide to retire early.

However, if I was the OP's legal advisor I would be putting a couple of points:

- How can the trustees ignore rules in the pension scheme that they themselves wrote, and why would they write in a rule about counting back from the NRA if they didn't intend it to be used?  I'm actually struggling to thnk of a situation where this rule would ever come into play except a few edge cases, based on what these actuaries are claiming.

- This also appears to render the entire concept of the NRA irrelevant once the pension is deferred?  The same method would be used to calculate your pension regardless of your retirement age?  In other words they try to treat this as a kind of pseudo DC scheme?

I'm sure I must be missing something because if not, I would be asking the OP if he can afford a lawyer (and other pensioners from other companies if they have been stitched up in the same way).

The other question I would have is -  when these calculations for the estimates and for the real pension are done, is the growth of the pension payable calculated up to today's date using real data, and then an forecast is used to go into the future years, or is the entire calculation based on theoretical averages?  Could this also be a factor that when you ask for an estimate, "fake" estimates are used whereas when you decide to really take your pension it's calculated based on real growth rates for each year?

Shimrod

toolateforsums said:

sevenhills said:

toolateforsums said:

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!

toolateforsums said:

For confidentiality purposes I will not reveal the sponsoring company. However , there position is very strong. It is extremely unlikely they will 'go bust' anytime in the long term future(over 10 years away). Always a possibility though!

You have many posters on here trying to help you, but because you are not giving the full information, you are giving a confused picture.

Why not just spill the beans, fear of someone recognising your handwriting?

I'm sorry, but I don't see how revealing the company in question will help answer the question any more accurately with the information already supplied that should be sufficient? If there is any more info required let me know what it is and i will endeavour to supply!

If it is a large company, you may find someone else on here has experience of the pension scheme and be able to give you more complete information. It is not clear what confidentiality you think you would be breaking by naming a company.

On what you have described so far it sounds like an administration error at the least as the calculation for early retirement doesn't make any sense and you need to challenge this with the administrators, using the complaints process if necessary. Request a copy of the trustee rules if you don't already have them.

xylophone

Before you register a complaint, obtain a copy of the scheme rules and (if relevant) any amendments.