Basic State Deduction and impact on DB scheme

xylophone

It is mine.


In a scheme with no clawback is it fair that the lower paid get a higher percentage of their occupational pension as state pension (despite lower NI contributions by the employer) than the higher paid?. 

We must agree to disagree.

The design of the NI/BSP system is the creation of the state.

The design of the scheme is the creation of the employer.

You will note (read links) that the public service schemes and a number (possibly the majority) of private schemes removed clawback.

You will also note (study links) that the way the clawback is implemented (and thus the amount deducted varies between schemes and has been adjusted  by some (note Barclays) to achieve a fairer result for scheme members - this recognises the inequity of the practice.

xylophone

It has been looked at by various IFA's over the years and she has received occasional statements from the administrator. However, there has been NO MENTION of and deductions up until now when she has decided to take it.  

Did these IFAs ever read the Scheme Rules or even the Scheme Guide?

See my previous posts for examples.

HandyMandy

My DB pension with Standard Life also has a “State Pension Scheme Deduction”. I believe it was something to do with being opted out for NI purposes. 

xylophone

My DB pension with Standard Life also has a “State Pension Scheme Deduction”. I believe it was something to do with being opted out for NI purposes. 

No - you are getting confused.

The "State Pension Scheme Deduction" from your SL DB has nothing to do with the fact that your Scheme was "contracted out" of SERPS/S2P.

See https://committees.parliament.uk/writtenevidence/9758/pdf/

1975 Midland Bank took this anachronistic pension practice and imposed it on their Defined Benefit Pension Scheme, as a cost saving measure. The scheme members prior to 1975 (who are closer to the creation of this new act) do not suffer a reduction. Midland Bank chose to call the reduction, a State Deduction, instead of using the terms used in the original Act of Integrated Pension, or Bridging Pension, or indeed the term Clawback which has been more commonly used in the media and Parliament. The term State Deduction has caused confusion, with many members believing it related to the scheme opt-out of SERPS (the State Pension top-up scheme now incorporated within the current Full State Pension – the scheme members only receiving the Basic State Pension (if that)). It is easy to see how and when the confusion commenced and continued throughout the scheme member’s careers. A State Deduction would imply that any reduction is imposed by the government. Ian Stuart CEO, HSBC Bank UK, stated in an email ‘The meaning and the application of State Deduction is fully explained in the information available to the members of the Scheme. Whilst we regret that this term has caused confusion for some of our members, it has been clearly and consistently communicated within the Scheme ‘ The ‘some members’ he refers to will be the ten thousand scheme members and former loyal employees that have joined our campaign and who strongly dispute the claim that clawback, or indeed the full details of the pension scheme, were ever fully explained. For most they were simply told they had a non-contributory 2/3rd final salary scheme, with scheme booklets available from Regional Head Office.

HandyMandy

xylophone said:

My DB pension with Standard Life also has a “State Pension Scheme Deduction”. I believe it was something to do with being opted out for NI purposes. 

No - you are getting confused.

The "State Pension Scheme Deduction" from your SL DB has nothing to do with the fact that your Scheme was "contracted out" of SERPS/S2P.

Thanks for clearing that up xylophone, I guess it really doesn’t matter the reason other than I know there will be a reduction when I hit state pension age 😁. 

segovia

Update

I asked my wife to call the pension administrators with three questions

1, The currently quoted figures for the deduction are an estimate, why ?

2, Will the deduction go up/down or is it a fixed figure?

3, How have they arrived at the calculations for the deduction ?

The response as follows

1, They said the exact deduction would be calculated when she starts to receive her state pension in 7 years time 

2, They could not answer, they didn't know

3, They said the deduction is calculated by HMRC and not the pension administrators

 Are the responses acceptable ?

Regards

J

eskbanker

segovia said:
Are the responses acceptable ?

It's impossible to say without visibility of the scheme rules - has she located these yet?

If they're the same as, or similar to, those posted by @xylophone on the previous page, then they seem to be broadly what would be expected for questions 1 and 3, although they should have been able to answer 2 better....

xylophone

https://forums.moneysavingexpert.com/discussion/comment/79168347/#Comment_79168347

Did you see the post above?

Does the Aviva system mirror the CU arrangement?

3, They said the deduction is calculated by HMRC and not the pension administrators

I am mystified by this.  Are you sure that there is not some confusion with GMP/COD?

See this post

https://forums.moneysavingexpert.com/discussion/6353625/basic-state-deduction-and-impact-on-db-scheme/p3

segovia

xylophone said:

https://forums.moneysavingexpert.com/discussion/comment/79168347/#Comment_79168347

Did you see the post above?

Does the Aviva system mirror the CU arrangement?

3, They said the deduction is calculated by HMRC and not the pension administrators

I am mystified by this.  Are you sure that there is not some confusion with GMP/COD?

See this post

https://forums.moneysavingexpert.com/discussion/6353625/basic-state-deduction-and-impact-on-db-scheme/p3

The scheme is the old Commercial Union scheme, now Aviva

I suspect the person she is speaking to is reading from a script and know very little or nothing about the questions we are asking. 

In summary all we know is...............

1, My wife's DB pension will be reduced when she receives her state pension

2, We don't know by how much it will be reduced

3, We don't know if the deduction is fixed or if it will increase / decrease as each year passes

J

 

segovia

Maybe I should add, my wife started when she was 16 and left CU when she was 30. 

She only has 14 years contributions.

Regards

John