GMP equalisation workings - Barclays pension

DT2001

The term anti-franking covers complex rules within GMP legislation, designed to make sure the revaluation provided to GMPs in deferment cannot be offset against a member's other benefits (other than in limited circumstances). 

From MF’s link - pity it does not specify “limited circumstances”

The quotes below are from the supplemental guide referred to in Mike’s link. I have highlighted the wording which might explain why it is so difficult to get a definitive answer. I have only included the 1st method as I think it is the one that applies to Barclays 1964 scheme

In practice, schemes and their administrators adopt different methods for testing anti-franking and formal scheme rules rarely go into detail on the subject. When comparing benefits as part of an equalisation project this will usually be done on the basis of past practice. 

Implementation of whole of service test for equalisation of post 90 benefits.

Anti-franking is defined under legislation as a whole of service test, with no consideration it might be applied to only part of a member's benefits. For members who commenced service prior to 17 May 1990, it’s therefore legislatively unclear how anti-franking should be applied for equalisation purposes. Three potential techniques are explained below, but other techniques are also possible and have been used within the industry. 

A. Ring-fence (90-97) Technique 

The Methodology Guidance published in September 2019 set out the following technique, which ‘ring-fences’ 90-97 benefits:

• Comply with legislation and apply the anti-franking test to the member's whole (unequalised) benefit at the member's GMP Age or later date of retirement

• Compare the benefit of the member relating to service in the period 1990 to 19973 (including relevant anti-franking and revaluation for the member's sex to that 1990 to 1997 pension in isolation as if it were the member’s only benefit) which would’ve been payable to the comparator in respect of the same period (applying anti-franking and revaluation for the opposite sex to that 1990 to 1997 pension in isolation as if it were the comparator’s only benefit). Where the comparator would have a higher benefit an uplift would need to be provided to the member reflecting the difference between the two

We expect this technique to be the starting point used for discussion for many schemes, as it’s relatively simple.

DT2001

I posed the following question to WTW on 1/9/22 

Usually receive an answer within 14 days however …..

Thank you for your reply.

Is it possible that you can advise me of the figures  for the pension accumulated from May 1990 to December 1995 for the ‘alternative’. I am looking for the GMP element and the excess. You have provided details of my GMP split pre and post 1988, as a male, so assume this is possible?

Many thanks

DT2001

My concern relating to GMP is that the methodology ‘agreed’ by WTW in 2018 for the calculation when I reach 65 is not correct. Equalisation implies thé usé of the same rules however if it is not legislatively set out maybe it could be different.
If at 65 the whole of my excess, rather than just the increases since drawdown (13.5 years), were franked my expected pension drops by £4.5k and more importantly (with high inflation) the 1/3rd linked to RPI disappears.

Leading on from this (and Mike’s battle to get the correct step up at 65) I wonder if the correct actuarial calculation was made when I first drew my pension. I understand that the idea is that you get the same total of pension over a period to a specific date however if the assumption at 65 (GMP age) is wrong…..
I know it is policy not to provide details of the calculation so will continue to try and ensure the 2018 method is applied.

DT2001

MikeFloutier said:

DT2001 said:

MikeFloutier said:

I'm still trying to puzzle through this BUT, in the meantime, whilst working out the tax overpayment Barclays have applied to my GMP equalisation payment I started to wonder about the interest element of the payment.

The monthly bank statement entry for our pensions always includes (in the details) our gross pay and our tax code. Having checked, it's clear that the interest isn't included in this figure.

What is not clear, is whether the interest is taxable, AND also, whether it's included in Barclays's tax calculations.

Any ideas?

It is taxable according to HMRC tax manual Saim9115.

It does not qualify as tax on savings interest (annual £1k allowance) https://www.gov.uk/apply-tax-free-interest-on-savings

However WTW does include a letter to send to HMRC to give you the option to spread the payment across the tax years that your GMP compensation related to.

 

I’m still waiting for my tax refund, will chase them again in a couple of weeks, BUT, whilst browsing the subject, I came across this - https://www.pensionsage.com/pa/further-clarity-given-on-GMP-equalisation-tax-guidance.php?utm_source=jsrecent - which you’ll see included the phrase; “it [HMRC] confirmed that the interest element should be covered by the personal savings allowance”

I’ll bear this in mind when checking the workings of the refund.

Is this the part you refer to?
On my online monthly pay slip for June it does differentiate between interest and back GMP pay. The interest has not been taxed as it is not included in gross taxable income.
Just need to remember to include it in next years tax return, if not already onHMRC system.
Might be different for you if they allocate interest over previous years?

In particular, it confirmed that, for the purpose of GMP equalisation and for pensions tax purposes, the interest payment should be treated as interest payment made in respect of a late payment of pension instalments.

It also suggested that the interest was likely to be “yearly interest” for tax purposes and an obligation to withhold income tax is unlikely to arise under section 874 of Income Tax Act 2007, unless the payment falls under s874(1)(d) i.e. to a person whose usual place of abode is outside the UK.

In addition to this, it confirmed that the interest element should be covered by the personal savings allowance, although it acknowledged that this is primarily a point for individuals and their particular circumstances

MikeFloutier

DT2001 said: 

Mike Floutier said:
I’m still waiting for my tax refund, will chase them again in a couple of weeks, BUT, whilst browsing the subject, I came across this - https://www.pensionsage.com/pa/further-clarity-given-on-GMP-equalisation-tax-guidance.php?utm_source=jsrecent - which you’ll see included the phrase; “it [HMRC] confirmed that the interest element should be covered by the personal savings allowance”

I’ll bear this in mind when checking the workings of the refund.

Is this the part you refer to?
On my online monthly pay slip for June it does differentiate between interest and back GMP pay. The interest has not been taxed as it is not included in gross taxable income.
Just need to remember to include it in next years tax return, if not already onHMRC system.
Might be different for you if they allocate interest over previous years?

Many thanks DT, I seem to have missed this, I can confirm that my interest was, like yours, excluded from the tax calculation; leaving it to me (as you and they mention) to handle it with HMRC.

If only the rest was so simple 😂

MikeFloutier

DT2001 said:

My concern relating to GMP is that the methodology ‘agreed’ by WTW in 2018 for the calculation when I reach 65 is not correct. 

Am I right in thinking that you aren’t sure if WTW’s actual pension calculations (ignoring equalisation) are correct, or have I misunderstood?

DT2001

MikeFloutier said:

DT2001 said:

My concern relating to GMP is that the methodology ‘agreed’ by WTW in 2018 for the calculation when I reach 65 is not correct. 

Am I right in thinking that you aren’t sure if WTW’s actual pension calculations (ignoring equalisation) are correct, or have I misunderstood?

Maybe - not the amount accrued  between 1990 and 1995 but amount Barclays Pension Services (as I think they were still administering it) reduced pension calculation  in 1991 because the GMP ‘effect’ might have been misunderstood.

I calculated, in 1991, that I would be mid 70’s before I was better off not taking my pension until NPA.
The advantage for me was that I expected all of my pension income before SPA to be tax free as I had minimal other income.
What I didn’t understand/wasn’t told was that at SPA I would get a big step up which would mostly not be franked if I waited until NPA. Between the time of getting a quote Summer 91 and taking the pension Nov 91 the interpretation of how to deal with GMP was changed (someone had decided that the rules were being too favourably interpreted). 

Moving forward to 2018 - if the methodology, as agreed by WTW, is correct I’m still happy with my decision (as my crystal ball could not have foreseen the New State Pension and no increase in pre 88 GMP).

The present time - the equalisation appears to allow full franking. If this is correct AND what will happen at 65 to my pension then the crossover point drops, I think, to about 70. 

Is that reasonable?

My concern is the complexity of GMP and knowing the conflicting information received in the past whether the calculation was correct in 1991?

My head hurts just thinking about this…….

MikeFloutier

I’m still not really sure if you’re convinced that your pension is correct or not...

Just to clarify, are you sure about the extent to which your (anticipated) GMP step-up was Franked? If so, can you please confirm which date they used; eg. NRA, or Actual Retirement Age, or even The Whole Step-up.

Assuming it wasn’t NRA, what justification did they give?

The answers would at least give a starting point for checking the calculations to determine if your pension is correct.

Does that make any sense?

DT2001

Sorry I missed the above question however I have been travelling for a couple of months.

Whilst away I tried, unsuccessfully, to get to the bottom of how the GMP equalisation was calculated. My last two questions to WTW were ‘lost’. My concern was the information provided in 2018 was incorrect and my excess would be fully rather than partially franked at 65. I therefore sent a question asking if my methodology in 2018 still applied and have received the following 

I can confirm that between now and your Guaranteed Minimum Pension (GMP) age your pension will be reviewed at the following times;

 

                April – The GMP equalisation adjustment amount will be reviewed to see if an increase is required following the annual post 88 GMP increase

                October – Annual excess scheme increase will be applied. There may also be an increase/decrease of the GMP equalisation adjustment.

 

When you reach age 65 the your pension will be split into the following elements;

 

                Pre 1988 Guaranteed Minimum Pension

                Post 1988 Guaranteed Minimum Pension

                Excess Scheme Pension

                GMP Equalisation Adjustment

 

As you retired before your normal retirement date a step up calculation was done as part of the early retirement quotation. This means that your pension at GMP age will only increase is the value of your excess pension is less than the GMP amount. 

 

If you have any questions please contact us.

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I think this means my excess will be fully franked and the whole of my pension will be GMP so contrary to the information in 2018?

Any suggestions about I how should proceed?

I am tempted to ask if they are fully franking my excess and if so on what basis within the scheme rules

 

MikeFloutier

1. Are you concerned that they will reduce your pension at GMP age; ie. 65? or, is it,

2. You’re concerned that it was fully franked during the calculation of your “Early Retirement Statement” (ERD) figures?

Just to be clear before thinking it through.

One reason for asking is that, if it’s “1.” then my firm feeling is that they will have already included any franking in the ERD statement calculations; which I understand you’re happy with??

The only deduction will be your State Pension Deduction, which was mentioned in your ERD statement.