Notification of changes - actuarial reductions

bjorn_toby_wilde

Hi Folks

Quick question - Are pension administrators obliged to notify you of changes to actuarial reductions?

I asked for an illustration on one of my defined benefit pensions in 2019 which valued it at £14,700 at age 60 (there was no reduction for early retirement at age 60).  The company then offered a transfer out figure in 2020 and, after taking their offer of paid financial advice, I left it where it was.

Now I'm approaching 60 I asked for an estimate and they have changed their actuarial reduction.  It's now seemingly reduced by around 30% for retirement at 60.  With the benefit of a crystal ball, I would have transferred out, or taken the pension in 2019, which still would have been a higher annual pension than it will now at age 60.

I know these reductions can change and I probably just have to suck it up, but do I have any grounds for complaint because I wasn't informed?

Tommyjw

No they are not under any obligation to advise you of any changes.

The odd part though is to go seemingly from unreduced to quite a hefty reduction. We aren't just talking about a change of 5% per year to 6% per year for example. As normally unreduced benefit age would be written in the rules, or a chance for example your normal pension age is 65, the company at their discretion previously let people go at 60 with no reduction but have now removed that discretion.

It may be worth a query to the administrator to be sure there's no mistake with the calculation itself

bjorn_toby_wilde

Thanks Tommy.  I suspect that's exactly what's happened.  It looks like I may need to replan to fill the hole.

This pension was from a previous company which was taken over by a big American firm.  I was offered the chance to move the pot into the new company's scheme but left it where it was because they had swingeing reductions for early retirement for deferred pensioners.  There were a lot of redundancies in the industry at the time so I figured my chances of retiring from active service were very low. My plan was always to go at 60. Ironic that they should move my pot onto the same terms as I thought I'd avoided just as I come up to 60.

I will have a couple of questions for the administrators when they open this morning though.  I've been asking for a valuation since March and this has only arrived after the third time of asking, so my suspicious mind wonders whether they delayed sending it out.  I'll be interested to know when the actuary made the changes.

No mention was made of this as a potential risk in the financial advice they paid for when they offered me a transfer out value either.

Dazed_and_C0nfused

I was offered the chance to move the pot into the new company's scheme

If there was a "pot" it would be a DC pension and actuarial reductions wouldn't be a factor.

bjorn_toby_wilde

Apologies - wrong language.

It's a DB scheme.

Dazed_and_C0nfused

bjorn_toby_wilde said:

Apologies - wrong language.

It's a DB scheme.

Irrespective of that though it does seem odd.

However if it's this pension from them years ago could it be that the current figures are correct and the ones from 2-3 years ago were wrong?

My last company covered pension contributions until the end of April but I didn't want to augment that pension with my redundancy because the scheme has big reductions for early retirement after leaving.

DT2001

Have you a copy of the DB pensions rules. If it states that the actuarial reduction is variable, which most are (but I think on the basis of changing life expectancy etc) I’d suspect you will have no recourse.
I asked for an estimate for taking a deferred pension early and 6 months later decided to follow up. The new quote was 15% lower as the administrator had decided that the treatment of GMP had previously been too generous! When asked why I had not been advised I was told legal advice had been taken and it was thought a letter would confuse more deferred pensioners than it would enlighten!
I took the new figure, partly because I wondered what else they could tweak!

bjorn_toby_wilde

I didn't get an answer from Capita unfortunately. They just have lines staffed by people who pass the queries on to the real Administrators.

Dazed and Confused - no, the figures aren't wrong. They repeated the higher number in their transfer out offer last year. I have an email from them confirming the early retirement factors at the end of 2019 with no mention of them being discretionary, although I don't have a copy of the scheme rules.

I believe they have simply changed the early retirement factors, but I won't know for sure until they get back to me.  The change is pretty savage though.

There's not a hint that this might or even could happen in any of the information Capita sent me.  The dossier from the financial adviser speaks throughout about there being no reduction for early retirement at 60 and they noted that this was my goal.  It's not mentioned as a potential risk either.

If I'd known this was a possibility when I had the illustration I'd have taken the transfer.  Mind you, I don't imagine I would have been allowed to, as the FA advised against it.

Tommyjw

Reading threads like this always makes me wonder if where I work is the golden goose of DB admins. You ring us, you speak to the person (or their similarly placed colleagues) who did your calculations and sent your letter , it would take me 2 minutes to answer this question to someone who called.

Changing factors is allowed, but unfortunate no doubt for those unaware. However as in my first point your financial adviser stating there's "no reduction" would be very different than there is a "current discretion to allow no reduction from age 60" for example. As an example, one client I work on removed ability to go from age 62 unreduced with NRA of 65 a couple of years ago, prior to this it was in every quotation etc sent that it's a discretion, it could change at any moment, and it did. One of many examples of something that isn't a requirement, but a very easy way to help reduce the impact.

Marcon

DT2001 said:

Have you a copy of the DB pensions rules. If it states that the actuarial reduction is variable, which most are (but I think on the basis of changing life expectancy etc) I’d suspect you will have no recourse.
I asked for an estimate for taking a deferred pension early and 6 months later decided to follow up. The new quote was 15% lower as the administrator had decided that the treatment of GMP had previously been too generous! When asked why I had not been advised I was told legal advice had been taken and it was thought a letter would confuse more deferred pensioners than it would enlighten!
I took the new figure, partly because I wondered what else they could tweak!

The administrators don't make decisions; the trustees do, based on the advice of their scheme actuary. 

bjorn_toby_wilde said:

Hi Folks

Quick question - Are pension administrators obliged to notify you of changes to actuarial reductions?

No.

bjorn_toby_wilde said:

Dazed and Confused - no, the figures aren't wrong. They repeated the higher number in their transfer out offer last year. I have an email from them confirming the early retirement factors at the end of 2019 with no mention of them being discretionary, although I don't have a copy of the scheme rules.

I believe they have simply changed the early retirement factors, but I won't know for sure until they get back to me.  The change is pretty savage though.

There's not a hint that this might or even could happen in any of the information Capita sent me.  The dossier from the financial adviser speaks throughout about there being no reduction for early retirement at 60 and they noted that this was my goal.  It's not mentioned as a potential risk either.

Essential you ask what the rules of the scheme say - and also ask your financial adviser where they got their information from to make the statement that there is no early retirement factor applied for those retiring at 60.

If you need a spot of hands-on help to clarify, https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-problems gives free, impartial and expert assistance to members of the public with just this sort of query/confusion.

bjorn_toby_wilde

Thanks Tommy and Marcon,

You're so right about communication Tommy. I wish I'd been dealing with a company like yours.  The administrators don't legally have to inform pensioners, so they didn't. If they had done, this situation might have been avoided. Pensions aren't easy to understand for many of us and we rely on good communication to understand our options.

I have two issues really.

1. Communications from the administrators when I specifically sought to make sure the pension was payable in full at 60 as part of my pre-retirement planning.  I have two recent emails from the administrators confirming that it is, but not mentioning that it was discretionary. I also have a whole file of previous comms, including the scheme booklet, again with no mention of it being discretionary.  I don't doubt that the rules allow the factors to be changed, but I've never seen a copy and they're not even available on the company's pensions website.

2. Advice from the FA that the administrators appointed. I reread their report and they definitely didn't make me aware of the possibility. If they had, I may have made different choices

Thanks Marcon - I called moneyhelper and they were very helpful. They mentioned pursuing this via an IDRP, which may be the next step, depending on what I get back from the administrators. The other avenue is the financial advice, which was potentially incomplete.

In the meantime, some replanning is definitely needed!  I need to decide whether to take the offered pension at 60, delay for a couple of years until the factors are more favourable or look to fill the gap until 65 in some other way.