GMP revaluation reduced on statements

veryintrigued

Background:

This is a company DB scheme (which i left employment of in 2011 and haven't reached retirement age) where the requested statement differs from previous annual statements in that:

The GMP revaluation now sits at 4% rather than 6.25% (which it has on every statement since 2011).

The overall leaving pension is the same though as they've increased other elements of the statement.

I'm being told that recent HMRC clarification has resulted in the GMP revaluations and that other members (who don't request the statements) will shortly be made aware of this.

Seems very strange that this 4% figure (for 2007-2012 leavers) has been available from the HMRC for some years but it's never been reflected in my annual statement - which has always stated 6.25%.

Thoughts please

hyubh

veryintrigued said:

Seems very strange that this 4% figure (for 2007-2012 leavers) has been available from the HMRC for some years but it's never been reflected in my annual statement - which has always stated 6.25%.

4% is the correct figure for a leaver between 6/4/07 and 5/4/12; 6.25% was the rate for leavers between 6/4/97 and 5/4/02, so the statements were never right. And as you say, this is quite a basic thing to get wrong - the fixed rate to use is reviewed from time to time, but changes are never retrospective, it's always 'the rate will be such-and-so for leavers from next tax year onwards'.

The overall leaving pension is the same though as they've increased other elements of the statement.

The GMP/excess split is determined on leaving, revaluation concerns what happens between then and drawing the pension. If the excess projected to retirement has changed, then that would need further clarification - basically choosing fixed rate GMP revaluation but only considering the GMP as an underpin at GMP Age (rather than splitting GMP from excess at leaving and revaluing separately) is an unusual combination (one scenario it might apply: the scheme has it's own non-statutory revaluation covering the whole basic pension, so statutory revaluation on excess and GMP only works as an underpin).

Given the administrator messed up something so basic as picking the right GMP fixed rate factor for your date of leaving before, of I were you I'd want to be sure they won't end up reducing the total pension at a later date following some future correction.

veryintrigued

Thanks @hyubh.

It's this 'will they mess up again' worry which I'm progressing with them currently.

Have any redress with them messing up over a decades of previous statements too do you think?

xylophone

I'm being told that recent HMRC clarification 

Hm....more like a scheme auditor (or similar) having noticed the error?

Have any redress with them messing up over a decades of previous statements too do you think?

Can you demonstrate material loss/loss of expectation?

 Were you a member of this scheme between 1990 and 1997? If so, what information has been given you concerning GMP equalisation?

With regard to the calculation of your starting amount for New State Pension, see

https://www.gov.uk/government/publications/new-state-pension-if-youve-been-contracted-out-of-additional-state-pension/the-new-state-pension-transition-and-contracting-out-fact-sheet

18. However, this can change where a person leaves their DB scheme before reaching GMP pensionable age (age 60 for a woman and age 65 for a man). If the pension rights are preserved in the scheme, the GMP has to be revalued up to their GMP pensionable age. Schemes could choose to continue to revalue by earnings but some schemes opted instead for a fixed rate revaluation. This can have a significant impact on a person’s Starting Amount.

I wonder is it worth contacting the Future Pension Centre for guidance as to whether there is any necessity to query your COPE?

Marcon

veryintrigued said:

Thanks @hyubh.

It's this 'will they mess up again' worry which I'm progressing with them currently.

Have any redress with them messing up over a decades of previous statements too do you think?

Highly unlikely. The rules of the scheme require them to pay the correct benefits to members, albeit it seems to have taken them some time to recognise what 'correct' means!

veryintrigued

Reply from scheme administrators:

I can advise that the historical statements you have received regarding the Guaranteed Minimum Pension you hold, and the rate of revaluation, were based on the guidance the Plan was provided by HMRC at that time.

HMRC have recently clarified to us, that the Plan was established with GMP as having fixed rate revaluation as from the point at which the member has left active service (which is the statutory method for revaluing GMP). As such we have amended the methodology of GMP revaluations to fall in line with their updated guidance. An impact assessment is currently being carried out regarding the updated guidance, and there will be future communication for affected members

The GMP figure (and attaching excess pension) has been affected due to the above change in the method of revaluation, as the rate at which it has revalued between the date of transfer-in and the date of leaving has been amended.  This has resulted in the composition of your 'name of old company removed: benefits as having a lower GMP element, but a higher excess element (a change in the separate elements of your pension but no change to the overall pension at date of leaving).

xylophone

HMRC have recently clarified to us, that the Plan was established with GMP as having fixed rate revaluation as from the point at which the member has left active service (which is the statutory method for revaluing GMP). 

How's that again?

It appears that Fixed Rate was already being used as the GMP revaluation method - it is just that the correct rate was not being applied?

As for the statutory method,  Fixed Rate  is one of the statutory methods

https://www.gov.uk/guidance/how-to-calculate-your-scheme-members-guaranteed-minimum-pension

GMPs can be revalued using section 148 orders (full) revaluation, fixed rate revaluation or, where the date of termination is before 6 April 1997, limited rate revaluation.

hyubh

veryintrigued said:

Reply from scheme administrators:

I can advise that the historical statements you have received regarding the Guaranteed Minimum Pension you hold, and the rate of revaluation, were based on the guidance the Plan was provided by HMRC at that time.

HMRC have recently clarified to us, that the Plan was established with GMP as having fixed rate revaluation as from the point at which the member has left active service (which is the statutory method for revaluing GMP). As such we have amended the methodology of GMP revaluations to fall in line with their updated guidance. An impact assessment is currently being carried out regarding the updated guidance, and there will be future communication for affected members

The GMP figure (and attaching excess pension) has been affected due to the above change in the method of revaluation, as the rate at which it has revalued between the date of transfer-in and the date of leaving has been amended.  This has resulted in the composition of your 'name of old company removed: benefits as having a lower GMP element, but a higher excess element (a change in the separate elements of your pension but no change to the overall pension at date of leaving).

I interpret this as saying the following (it actually makes sense, if you get past the first few sentences, and include the inferences I've made):

• You were a member of a contracted out pension scheme - let's call it Scheme A -, where you accrued a GMP. You left Scheme A some time between 6/4/97 and 5/4/02. Scheme A chose fixed rate GMP revaluation, so at that point your GMP was revaluing at 6.25%.
• You then joined another contracted out pension scheme - let's call it Scheme B - and transferred your benefits from Scheme A into it. Scheme B also uses fixed rate GMP revaluation, and the administrator did not convert (or did not think they converted) it to full rate/S148 while you were an active member of scheme B.
• Ergo, in your later statements, the transferred in GMP was shown revaluing by 6.25% while you were active.
• The transfer itself bought you reckonable years in Scheme B (assuming Scheme B was a final salary scheme), ergo the total pension bought with it (determined when you leave) was not dependent on the GMP/excess split at the point of the transfer. Rather, the excess is only determined at the end, after calculating your total basic pension with Scheme B and subtracting the revalued transferred in GMP + any revalued Scheme B GMP (which for you would have been nil, because you only joined Scheme B after GMP accrual ceased).
• Back in the present however, the current administrator of Scheme B believes the scheme converts transferred in GMP to full rate whilst the member is active in Scheme B, only switching back to fixed rate (with a revised revaluation start date) on leaving Scheme B.
• (Full rate/S148 is basically how non-transferred in GMP revalues whilst an active member, so this treatment simplifies administration slightly. Or rather would simplify administration slightly - your statements show the administrator at the time must have maintained transferred in and scheme GMP separately in order to show the former having revalued by 6.25%.)
• Since the excess from the transfer in is only determined on leaving, this change in the treatment of the transferred in GMP has no impact on your total pension on leaving.
• However, it likely will have an impact between Scheme B date of leaving and retirement, to your detriment: since you've left, GMP and excess now are independent from one another, and the GMP is revaluing at the slower rate than it would have done. (My guess is that is what the 'impact assessment' bit is alluding to.)

The last point caries the same caveat I gave before - it is technically possible the scheme gives non-statutory revaluation on the whole pension, with statutory excess + fixed rate on the GMP serving as an underpin. I would confirm this with the administrator.

xylophone

https://www.gov.uk/guidance/transfer-your-scheme-members-contracted-out-pension-rights#transfer-gmp-rights

GMP revaluation on transfer

The receiving scheme must revalue the GMP rights accrued up to 5 April 1997. There are no restrictions as to whether fixed, limited or Section 148 revaluation can be applied, unless:

• a transfer has previously taken place, but the rules of the transferring and receiving schemes may impose restrictions
• the termination date is on or after 6 April 1997, in which case limited rate revaluation is not an option

Previous transfer with Section 148 revaluation

If a transfer has previously taken place with section 148 revaluation and GMP rights are transferred again, the periods linked by section 148 transfers are treated as one. The later transfer can be treated as a first transfer.

OP, can you clarify the situation.

You say that you have a  deferred pension from an employment  which you left in 2011.

This is a defined benefit pension from a contracted out salary related scheme?

Did you transfer a deferred DB pension from another COSR into this pension?

If so, when exactly were you a member of the previous scheme and when did you join the scheme which you left in 2011?

Are you affected by GMP equalisation and if so what does the administrator have to say on this point?

Has the fixed rate revaluation used had any effect on the calculation of your COPE on 6/4/16?