DB pensions projections - how accurate are they?

LV_426

I have a piece of paper from my pension trustees, telling me what my deferred benefits are. This includes a projected pension at NRA., which is 2031.
Question is, how much can I depend on these numbers, for planning purposes?
I left this employer in 2003, so quite some time ago.

If you have a DB pension, did it pay you what they said it would?

Dazed_and_C0nfused

Unless it has fixed inflation proofing, which seems highly unlikely, then it can only ever be a guesstimate.

If you had a projection from say 3 years ago it's highly unlikely that that the 2023 increase would be based on current inflation figures as no one is going to have foreseen the sudden large increase that we've had.

On-the-coast

Ignoring mistakes (in record keeping) which are rare but do happen, then the biggest unknown on future DB pension benefits is inflation.  

Most schemes have an annual inflation uplift, but most private DB schemes will have a cap on that annual uplift.   Many government schemes are uncapped. 

If your scheme is uncapped then what you see is pretty much what you will get. 

Otherwise, in a high inflation (for multiple years) situation it could be considerably less. 

dunstonh

Question is, how much can I depend on these numbers, for planning purposes?

Pretty much perfect in terms of a real-terms figure and planning.  This is why they are called defined benefits.  Most of the variables of what could happen are defined.  

If you have a DB pension, did it pay you what they said it would?

As long as they don't fail, they will pay out what you qualify for under the scheme rules.  If they fail, you get protection to 90%.

Marcon

LV_426 said:

I have a piece of paper from my pension trustees, telling me what my deferred benefits are. This includes a projected pension at NRA., which is 2031.
Question is, how much can I depend on these numbers, for planning purposes?
I left this employer in 2003, so quite some time ago.

Depends on the basis they've used to carry out the projection, and how that stacks up against inflation in the real world. It's nearly 20 years since you left the employer, so asking for an updated projection might be no bad idea. If the scheme simply sends you the same figures they gave you in 2003 with words to the effect that they don't provide updates until you are much closer to retirement, ask for a cash equivalent transfer value (not because I'm suggesting you consider transferring, but because that should include updated details of the current updated value of the pension).

LV_426 said:

If you have a DB pension, did it pay you what they said it would?

Depends how closely the basis used for projections and the actual inflation rates tally. Highly unlikely to be an exact science! The scheme will pay in accordance with the rules of the scheme or (as mentioned already) if the employer fails, you are protected by the Pension Protection Fund https://www.ppf.co.uk.

AlanP_2

As said it's the inflation assumptions they use that are the variable. I noticed over the nearly 30 years one of mine was deferred that the assumptions used changed over time to reflect what the actuaries thought was reasonable.

Using say an 8% inflation estimate when it had been at 2% for the last few years and looked likely to stay that way or vice-versa would distort the projections.

Worth bearing in mind that the nearer you are to taking it the less margin for error there will be in the estimate (with the recent and sudden jump in inflation as a caveat to that).

LV_426

Dazed_and_C0nfused said:

Unless it has fixed inflation proofing, which seems highly unlikely, then it can only ever be a guesstimate.

If you had a projection from say 3 years ago it's highly unlikely that that the 2023 increase would be based on current inflation figures as no one is going to have foreseen the sudden large increase that we've had.

When you say guesstimate, what do you mean? I just want to be sure that the number I have on the report is what I will get, at the NRA. Which from dunstonh's reply I assume it will.

I understand that the projection is based on various factors, which are outlined in the statement, and I won't go into. But of course the real year by year inflation figures are variable. So the cost of living in 2031 may not match the level of income provided by this pension.

Parking_Trouble

In my experience once a DB pension becomes deferred I think it becomes a bit murky what you will actually get at NRA, especially when it became deferred in 19 years ago and still has 9 years until payment.

I had a couple like that. One was small enough for me to transfer out to a SIPP.

The other due for payment next year, I've had to chase to get a forecast out of the administrator - WTW.
I got a forecast out them last year and I assume they'll contact me a month or two before payment with the final figure.

I think the challenge for an accurate forecast is how the pension increases in deferment. However, I believe they should be able to give an accurate annual figure for pension accrued to date. 

LV_426

So there's conflicting advice here. The IFA says it's guaranteed. Other people are saying no.

Is it safe to plug these numbers into my Voyant plan, and rely on that level of income from this pension, or not?

Andy_L

It depends what the projection says

if it says when you reach retirement age in 2031 we will pay a pension of £x plus 9 years of inflation indexation at [whatever the scheme rules say] that's guaranteed. Subject to, as said, the scheme failing



if it says when you reach retirement age in 2031 will will pay £x+y which includes 9 years of inflation indexation [making various assumptions about inflation] then it is only guaranteed if those assumptions are correct - which they probably won't be

Albermarle

Something to look out for, is any reductions for taking the pension early. These are normal, but the amount of reduction can change at short notice according to some other threads, due to changes in the way the actuaries of the pension fund do their calculations. 
This would not affect how the NRA figure is calculated, but a previous poster had a quote for taking the pension x years earlier, only to find this had significantly reduced later. It maybe this a rare issue but obviously could cause problems if it happens.

The other due for payment next year, I've had to chase to get a forecast out of the administrator - WTW.
I got a forecast out them last year and I assume they'll contact me a month or two before payment with the final figure.

I would not assume anything with WTW, or similar pension administrators. My own DB pension was 4 months late with the first payment, and even then only after a lot of pushing and complaining.