Thinking of taking my ICI Pension early - any thoughts

tacpot12

So I retired from my job five years ago, aged 53. I used some cash savings to get me to 55 and then started to drawdown from my (DC) Personal Pension. 

I took independent finacial advice from a Pensions Specialist before I retired about the idea of transfering two DB pensions to my DC pension; one of these pensions was from a couple of years work I did for ICI at the start of my career. The advice at the time was to leave both these DB pensions where they were. I took this advice.  

The ICI Pension has just moved to a new administrator, and I recently receive login details for the administrator's site where there is a Benefits Illustration Calculator. Playing with the calculator produced an unexpected result. If I retired at age 62 (the normal retirement age for the scheme), the pension payable was £1563 pa. If I retired tomorrow (aged 58 and a couple of months), the pension payable was £1823 pa. Perplexed, I called them up and asked them to explain. They weren't able to do so over the phone, but have sent me an explanation via their secure messaging. They also sent me two illustrations, one taking the pension immediately and one at age 62. The headline numbers in the illustrations are identical to those provided by the Calculator. 

The explanation is that there is some Guaranteed Minimum Pension (GMP) included in my ICI pension, and if I take the pension now, they have to do a GMP check now, and this results in the pension payable being £1823. If I wait until I am 62 and take the pension then, they don't have to do the GMP check until I am 65 (which would have been my state retirement pension age when I left ICI), so they would pay £1563 pa at age 62, and then it looks like it would rise to about £2200 a year as a result of the GMP check from age 65. I got this figure for the rise after the GMP check from the Benefit Illustation Calculator - they didn't confirm this in the illustration for taking the pension at age 62. 

For a crude comparision of the two options, I imagined that I might live to age 85 and compared the two income streams produced by each option. Taking the pension now results in roughly 5% less income to age 85, so holding out to age 62 is clearly the better option, BUT I have a greater need for income prior to reaching my state retirement age (67). 

My other DB pension kicks in at age 65 and will pay a similar amount to the ICI pension. (There is no GMP in this other DB Pension). My State Pension Forecast is for £185.15 per week (£9,627 pa)and I cannot improve this any more. (I've paid already paid the most voluntary NI contributions I can to increase it to this level).

My current level of drawdown (5.25% pa) from my DC Personal Pension (and some rental income) is sufficient for my day-to-day needs. I think I will make better use of the money now, than I will in later life, so I am inclinded to drawn the ICI pension now and wanted to know whether other forum members thought of this  might be a bit rash. I'm comfortable withthis level of drawdown; simulation with Firesim and cFireSim indicate a 100% chance of success of reaching 95 yo with this drawdown rate (due to my state pensions, two DB pensions, and rental income).  I could drop the drawdown rate once I start to receive by State Pension. 

Also, does anyone think I need to go back to the Adminisrator and ask them what pension they think I would receive at age 65 after the GMP check? I can't see why they can't tell me this today as the rate of increase for the GMP element is set in stone. The only variable seems to be whether you live that long!

thanks

tp

xylophone

When you left ICI, you would have been given a statement of deferred benefits- do you still have it and if so, what does it say?

the rate of increase for the GMP element is set in stone.

Are you sure that ICI use "Fixed Rate Revaluation" for GMP in deferment?

According to the leaflet,

What annual increases are applied to my GMP?

Until you reach GMP age (currently age 65 for men and age 60 for women) any increases to your GMP are normally calculated and applied in the same way as increases to the rest of your pension in the Fund (whether you are a Deferred member or a pensioner).**

Have you downloaded and read this ICI Pension Fund Leaflet on GMP?

https://icipensionfund.org.uk/questions/#:~:text=What is Guaranteed Minimum Pension,Related Pension Scheme (SERPS).

This leaflet explains what having a Guaranteed Minimum Pension means for you and how your pension from the Fund interacts with State benefits.

tacpot12

Answer to xylophone' questions: 

I don't have my original statement of deferred benefits, but both illustrations include the following statement, which I have no reason to doubt: 

"Your total pension at the date you left pensionable service was: £440.76 a year (before tax) payable from age 62."

They go on to provide the following breakdown of this amount: 

GMP for contracted-out service before 5 April 1988: £33.80
GMP for contracted-out service between 6 April 1988 and 5 April 1997: £65.52
Excess pension built up before 6 April 1997: £341.44
Pension built up between 6 April 1997 and 6 April 2005: £0.00

I left ICI and became a deferred member in the pension scheme in July 1989. 

I'm fairly sure that ICI use a fixed rate for revaluing GMP in deferrment. I was aware of the leaflet you provided the link to and agree that it seems to suggest that GMP in deferrment is revalued in line with the rest of the pension, however, the illustrations that I was sent both include the following text: 

"GMPs built up during this period may be increased before and after GMP Age on a different basis to the rest of your Fund pension (see the main part of section 3), but a test is made at GMP Age to ensure your pension for service before 6 April 1997 is at least equal to your GMP increased as described below. GMP increases before GMP Age For each complete tax year for the period from your date of leaving Pensionable Service up to GMP Age, the GMP part of your Fund pension increases at the rate given in the table below. This system of increases is often known as ‘revaluation’" 

It then goes on to provide a table of fixed Revaluation rates depending on when you left service. The rate for my end of service date is 7.5%. They may be just being unclear and mean that these are the rates that are used when a GMP check is performed, but at other times, the GMP element only increases in line with the rest of the pension. This would explain why the pension paid at 62 is lower than the pension now and at 65. 

I didn't notice before, but in the leaflet that you linked to includes the statement: 

"If you retire before your Normal Retirement Age, legislation differs. If you haven’t yet reached your GMP age (currently 65 for a man and 60 for a woman), GMP checks are carried out differently and immediately on retirement.

As a result, instead of receiving a step up in income at GMP age, your GMP is increased immediately by a lesser amount. As an unintended consequence of this difference, some male members may actually get a higher initial pension income and/or lump sum on retirement should they retire early but close to their Normal Retirement Age."  

This seems to be refer to exactly the effect I am seeing. 

tacpot12

I've emailed the Administrator to ask them for an estimate of what my pension might increase to at age 65 if I take it at age 62. On reflection, doing so is the only sensible way to deal with the uncertainty.

If they can't tell me, I might complain about this as I can't make an informed decision without at least a guess as what the increase will be.  

xylophone

 I was aware of the leaflet you provided the link to and agree that it seems to suggest that GMP in deferrment is revalued in line with the rest of the pension, however, the illustrations that I was sent both include the following text: 

It is ambiguous but from the details given in the letter, it seems that the scheme is indeed using Fixed Rate Revaluation.

In which case your situation seems very similar to the case presented by another poster (Mike Floutier) in respect of his deferred pension with Barclays.

You noted

 If I retired at age 62 (the normal retirement age for the scheme), the pension payable was £1563 pa. If I retired tomorrow (aged 58 and a couple of months), the pension payable was £1823 pa.

https://forums.moneysavingexpert.com/discussion/4736856/barclays-final-salary-pension-gmp-excess-revaluation-anti-franking/p1

This was a very, very long thread!

Eventually, however. Mike did manage to get a useful illustration from WTW for taking the pension at his NRD.

https://forums.moneysavingexpert.com/discussion/4736856/barclays-final-salary-pension-gmp-excess-revaluation-anti-franking/p17

You might find the above of interest.

xylophone

And see  Mike's quotation for pension pre NRA (barely!) where GMP revalued to date of taking pension

and at NRA (60) where GMP not revalued at date of taking the pension.

https://forums.moneysavingexpert.com/discussion/comment/79297571/#Comment_79297571