Pension quote misquoted

Carefulspender1

I have a very small final salary pension fund from a former employer and my normal retirement date (aged 63) for this is this month.  About 3 years ago I was given a statement of what the fund would pay at 63 and also at 66 which is my intended retirement age. The fund had, at that time, recently been transferred to new management company but their quote was similar to that quoted by the former management company and gave me no cause for concern. 

This month I have received a letter and papers stating that the assumption of the rate at which the Guaranteed Minimum Pension would increase on their previous quote had been incorrect and that my actual pension would be less than previously anticipated.  It seems the full pension amount is dropping by 25% of the original amount quoted and  if I were to take a pension commencement lump sum that would drop by 17%.  The original quote amounts I'm basing these figures on were based on 0% inflation rate.  I telephoned and spoke to the company who informed me that they had been wrongly informed about some figures by the former management company and they were profusely sorry for the reduced amount, then going on to blind me with a great deal of explanations much of which I have to admit I did not understand. 

I fully understand that companies have disclaimers and that funds go up and down etc however I am a tad miffed that the error in the quote is because they based the figures on what the previous management company had stated and this mislead me for the past three years on the amount of pension I could expect.  I wondered if anyone could advise me if this is this something I should investigate further or is this a normal practice.  Many thanks in advance.

dunstonh

I wondered if anyone could advise me if this is this something I should investigate further or is this a normal practice.  

It isn't normal, but it does happen.   This is particularly true if the old administrator was a bit lax and the new one is more on the ball.   It is a subject that pops up here and in the real world periodically. 

Carefulspender1

dunstonh said:

It isn't normal, but it does happen.   This is particularly true if the old administrator was a bit lax and the new one is more on the ball.   It is a subject that pops up here and in the real world periodically. 

Ahh ok, thank you for replying. So is this something I can take up with them as it's their mistake for misquoting....or do I just have to take the loss and move on?

xylophone

a normal practice. 

One hopes that  errors are not "normal practice" (!) but they happen.

Sometimes they are thrown up when there is a change of administrator but sometimes even where the administrator has been the same throughout, an earlier miscalculation may come to light when it comes time to draw the pension.

It would appear that you have not lost out financially (you will receive your due under statutory/scheme rules) but have suffered a "loss of expectation."

You could make a formal complaint but I doubt there would be much in the way of compensation.

When you left the employment to which the pension relates, were you given a statement of deferred benefits showing

pre 88 GMP

post 88 GMP

Excess over GMP?

What did your scheme guide have to say about revaluation in deferment of GMP and excess?

And in payment?

And concerning any "late retirement increases"?

Have you obtained a State Pension Forecast?

https://www.gov.uk/check-state-pension

https://techzone.abrdn.com/public/pensions/Tech-guide-guaranteed-min-pen may be of interest.

Carefulspender1

xylophone said:

a normal practice. 

One hopes that  errors are not "normal practice" (!) but they happen.

Sometimes they are thrown up when there is a change of administrator but sometimes even where the administrator has been the same throughout, an earlier miscalculation may come to light when it comes time to draw the pension.

It would appear that you have not lost out financially (you will receive your due under statutory/scheme rules) but have suffered a "loss of expectation."

You could make a formal complaint but I doubt there would be much in the way of compensation.

When you left the employment to which the pension relates, were you given a statement of deferred benefits showing

pre 88 GMP

post 88 GMP

Excess over GMP?

What did your scheme guide have to say about revaluation in deferment of GMP and excess?

And in payment?

And concerning any "late retirement increases"?

Have you obtained a State Pension Forecast?

https://www.gov.uk/check-state-pension

https://techzone.abrdn.com/public/pensions/Tech-guide-guaranteed-min-pen may be of interest.

Thank you for asking this xylophone...I've just looked through my paperwork and all I was sent was a certificate of preserved benefits with a quote of projected figures for my retirement date which aren't guaranteed...however the projected figures were close to those given by the former administrators.

I have a fund booklet that states "At your date of leaving the amount of your reduced personal pension equivalent to your GMP will be increased by 5% pa for each complete tax year between the date you leave and your state pension age and the amount the GMP ncreases will be added to your reduced personal pension.  In addition the amount of your reduced personal pension that is in excess of your GMP will be increased at retirement by the lesser of a) increase in prices as per retail price index or b) 5% per annum compound for each year  from the date you leave up to your normal retirement date. "  To be honest I don't really understand this as the new administrators told me quotes were based on 2% inflation even though it is currently a good deal higher and likely to be for a couple of years at least.

I cant see anything regarding deferment of GMP or late retirement increases although I was quoted a slightly higher amount by the former administrators.  Yes I have a state pension forecast and have already paid enough NI to gain full state pension.

Anything I need to look into given the information from the fund booklet?

xylophone

certificate of preserved benefits 

This would normally show pre 88 GMP/post 88 GMP and excess at date of leaving the scheme.

You will see that reference is made to this in your scheme booklet.

You could ask the administrators for these figures.

reduced personal pension 

I find the term "personal pension" very odd as this is a DB Scheme  ("fund/scheme pension" would be more usual).

At your date of leaving the amount of your reduced personal pension equivalent to your GMP will be increased by 5% pa for each complete tax year between the date you leave and your state pension age 

This looks like "Limited Rate Revaluation" - see the link in my post above.

For members who left before 6 April 1997 there was another option, known as limited rate revaluation. Under this option:

• the pension scheme's liability for revaluing the accrued GMP entitlement is capped at 5% for each complete tax year between the member's date of leaving and start of the tax year in which they reach their 60th birthday (women) / 65th birthday (men)
• the State takes on the liability for providing any revaluation above 5% a year needed to match section 148 orders
• the scheme trustees have to pay a limited revaluation premium (LRP) to cover the cost to the State of taking on this liability

Deferring beyond 60/65
If the member retires more than seven weeks later than their 60th birthday (women) / 65th birthday (men), their accrued GMP must be increased by at least 1/7% for each complete week thereafter.

With regard to the reference to the State taking over liability for providing any revaluation above 5% a year needed to match section 148 orders, this would have applied to those reaching SPA pre 6/4/16 (inception of new state pension).

Given what is stated in your scheme booklet "the new administrators told me quotes were based on 2% inflation " does not make sense - you should query this.

You say that you have a new state pension forecast - what exactly does it say?

Is a COPE shown?

Was  this pension your only "contracted out" pension?

Marcon

Carefulspender1 said:

xylophone said:

a normal practice. 

One hopes that  errors are not "normal practice" (!) but they happen.

Sometimes they are thrown up when there is a change of administrator but sometimes even where the administrator has been the same throughout, an earlier miscalculation may come to light when it comes time to draw the pension.

It would appear that you have not lost out financially (you will receive your due under statutory/scheme rules) but have suffered a "loss of expectation."

You could make a formal complaint but I doubt there would be much in the way of compensation.

When you left the employment to which the pension relates, were you given a statement of deferred benefits showing

pre 88 GMP

post 88 GMP

Excess over GMP?

What did your scheme guide have to say about revaluation in deferment of GMP and excess?

And in payment?

And concerning any "late retirement increases"?

Have you obtained a State Pension Forecast?

https://www.gov.uk/check-state-pension

https://techzone.abrdn.com/public/pensions/Tech-guide-guaranteed-min-pen may be of interest.

Thank you for asking this xylophone...I've just looked through my paperwork and all I was sent was a certificate of preserved benefits with a quote of projected figures for my retirement date which aren't guaranteed...however the projected figures were close to those given by the former administrators.

I have a fund booklet that states "At your date of leaving the amount of your reduced personal pension equivalent to your GMP will be increased by 5% pa for each complete tax year between the date you leave and your state pension age and the amount the GMP ncreases will be added to your reduced personal pension.  In addition the amount of your reduced personal pension that is in excess of your GMP will be increased at retirement by the lesser of a) increase in prices as per retail price index or b) 5% per annum compound for each year  from the date you leave up to your normal retirement date. "  To be honest I don't really understand this as the new administrators told me quotes were based on 2% inflation even though it is currently a good deal higher and likely to be for a couple of years at least.

I cant see anything regarding deferment of GMP or late retirement increases although I was quoted a slightly higher amount by the former administrators.  Yes I have a state pension forecast and have already paid enough NI to gain full state pension.

Anything I need to look into given the information from the fund booklet?

I'm afraid there really isn't much point going into all this detail, when the situation has been neatly summarised by you in your first post. 

A final salary scheme has to pay the benefits set out in the Trust Deed and Rules. If you receive quotations which are incorrect, it is wholly exceptional for the scheme to pay more (usually only if the Pensions Ombudsman requires them to do - but that is vanishingly rare).

Your only claim is likely to be for 'non financial injustice' - see https://www.pensions-ombudsman.org.uk/publication/redress-non-financial-injustice. The starting point if you wish to pursue this route is to go through your scheme's Internal Dispute Resolution Procedure; the PO won't take it until you've exhausted that. You'll need to get details of the IDRP from the scheme's administrators. There's no guarantee such a claim would succeed, and even if it does, as you will note, awards from the PO are modest.

Carefulspender1

xylophone said:

certificate of preserved benefits 

This would normally show pre 88 GMP/post 88 GMP and excess at date of leaving the scheme.

You will see that reference is made to this in your scheme booklet.

You could ask the administrators for these figures.

reduced personal pension 

I find the term "personal pension" very odd as this is a DB Scheme  ("fund/scheme pension" would be more usual).

At your date of leaving the amount of your reduced personal pension equivalent to your GMP will be increased by 5% pa for each complete tax year between the date you leave and your state pension age 

This looks like "Limited Rate Revaluation" - see the link in my post above.

For members who left before 6 April 1997 there was another option, known as limited rate revaluation. Under this option:

• the pension scheme's liability for revaluing the accrued GMP entitlement is capped at 5% for each complete tax year between the member's date of leaving and start of the tax year in which they reach their 60th birthday (women) / 65th birthday (men)
• the State takes on the liability for providing any revaluation above 5% a year needed to match section 148 orders
• the scheme trustees have to pay a limited revaluation premium (LRP) to cover the cost to the State of taking on this liability

Deferring beyond 60/65
If the member retires more than seven weeks later than their 60th birthday (women) / 65th birthday (men), their accrued GMP must be increased by at least 1/7% for each complete week thereafter.

With regard to the reference to the State taking over liability for providing any revaluation above 5% a year needed to match section 148 orders, this would have applied to those reaching SPA pre 6/4/16 (inception of new state pension).

Given what is stated in your scheme booklet "the new administrators told me quotes were based on 2% inflation " does not make sense - you should query this.

You say that you have a new state pension forecast - what exactly does it say?

Is a COPE shown?

Was  this pension your only "contracted out" pension?

Thank you once again xylophone, I really appreciate your help here…I have to say my eyes started to glaze over when I read your reply initially as there is so much to look at however I’ve gone over it all and this is what I’ve found together with my questions:

Yes, my mistake, the certificate of preserved benefits includes a GMP which they state will increase by 5% compound for each complete year from date of leaving to state pension age.  The scale pension in excess of GMP will increase up to normal retirement date in line with retail price index increase up to 5% max. After retirement it increases by 3%. No mention of pre 88 post 88 but then this employment period was 92-97

Regarding the 2% inflation rate quoted I did challenge this and was told that despite the actual inflation rate increases are based on the BoE’s target inflation rate which is 2% - so I was told!

Should I get a fuller explanation in writing?

 The state pension forecast said: “£190.70 is the most you can get You cannot improve your forecast any more. If you’re working you may still need to pay National Insurance contributions until 11 July 2025 as they fund other state benefits and the NHS.” (I don’t have any gaps in my NI record).

I am continuing to pay NI as a self employed person in case I jeopardise my state pension in future if the rules change again – am I doing the right thing?

It also stated I was contracted out and quotes a small amount that will be paid by my other pension schemes.  From this I am assuming it means this small work pension I am querying here, however, I also had a small Equitable life pension that I transferred into a Hargreaves Lansdowne cash account when the pensions were sold to another company.  This was only paid into for about a year as an employee and a year as a self employed person so I imagine the COPE is mainly payable by this queried work pension scheme.  I cannot however see any mention of a contracted out amount being included in the retirement options quotation I received.

Should I query this to confirm the amount of contracted out payment has been included?

There is also a note in with the papers stating that I will be affected by the “GMP equalisation” and that I could choose to defer my decision to take benefits from the fund until the trustees have “adopted a definitive approach to GMP equalisation….however this may be some time.”!! It also states if I take funds now I will be “required to provide discharge to the trustees whereby you waive any claim you may have…for any loss incurred that arises from your PCLS being lower that it otherwise might have been had the GMP been equalised at the point of taking your PCLS.”

I am not taking any benefits for another 3 years so my interpretation of this is my benefits may increase in that time once equalisation has been applied, does this sound correct?

xylophone

Thank you once again xylophone, I really appreciate your help here…I have to say my eyes started to glaze over when I read your reply initially as there is so much to look at

I suspect that many people find the same when they have to deal with questions relating to pensions, particularly when it comes to the interconnection between contracting out and the old/new state pension.

Re state pension.

At 6/4/16, two calculations were done for you

Old Rules

NI years/30  (max) x £119.39 (Full Basic) + ( SERPS/S2P - Deduction for Contracting Out)

New Rules

(NI years/35 (max) X £155.65 (Full NSP)) - Contracted Out Pension Equivalent.

Your "foundation amount" was the higher of the two.

It was higher than a full new state pension by a modest amount and this meant that NI contributions after 6/4/16 would not improve your state pension.

£155.65 of the amount has revalued since then under the "triple/double lock" and the balance by CPI.

See (if you can stand the pace}

https://techzone.abrdn.com/public/pensions/Tech-guide-new-state-pension

xylophone

Yes, my mistake, the certificate of preserved benefits includes a GMP which they state will increase by 5% compound for each complete year from date of leaving to state pension age.  The scale pension in excess of GMP will increase up to normal retirement date in line with retail price index increase up to 5% max. After retirement it increases by 3%. No mention of pre 88 post 88 but then this employment period was 92-97

All your GMP is post 6/4/88 and from what you have said, seems to relate only to your deferred company pension which was "contracted out" of SERPS.

You have a COPE shown in your SP forecast because  you were a member of this contracted out scheme.

https://www.gov.uk/government/publications/state-pension-fact-sheets/contracting-out-and-why-we-may-have-included-a-contracted-out-pension-equivalent-cope-amount-when-you-used-the-online-service

 After GMP age (60 F/65M), the scheme  is only obliged to pay an increase of up to 3% CPI on that part of the pension in payment representing revalued post 88 GMP.

This would mean that only the revalued excess would have to increase  by whatever percentage was specified in scheme rules (for example uncapped RPI/RPI to 5%/CPI to 8% etc).

You might like to check on what increases are applied in your scheme to  the excess over GMP post GMP age.

It is just possible that your scheme might be generous and not split out the GMP until after State Pension Age (which used to align with GMP age) but you'd have to check - I wouldn't bank on it.

I am not taking any benefits for another 3 years so my interpretation of this is my benefits may increase in that time once equalisation has been applied, does this sound correct?

Re  GMP equalisation,  (for those who accrued a GMP between  17 May 1990 (the date of the Barber v GRE judgment) and 5 April 1997} see

https://www.wtwco.com/en-GB/Insights/2019/02/questions-you-are-too-afraid-to-ask-about-gmp-equalisation

Regarding the 2% inflation rate quoted I did challenge this and was told that despite the actual inflation rate increases are based on the BoE’s target inflation rate which is 2% - so I was told!

I still don't understand the above - does it relate to increase on pension in payment?

I am continuing to pay NI as a self employed person in case I jeopardise my state pension in future if the rules change again – am I doing the right thing?

Your NI payments are not increasing your state pension - see above., but a person who was under SPA, employed and earning the relevant amount would still be required to pay NI.

I know little about self employment but you can see

https://www.moneyhelper.org.uk/en/work/self-employment/tax-and-national-insurance-when-youre-self-employed

Carefulspender1

xylophone said:

Yes, my mistake, the certificate of preserved benefits includes a GMP which they state will increase by 5% compound for each complete year from date of leaving to state pension age.  The scale pension in excess of GMP will increase up to normal retirement date in line with retail price index increase up to 5% max. After retirement it increases by 3%. No mention of pre 88 post 88 but then this employment period was 92-97

All your GMP is post 6/4/88 and from what you have said, seems to relate only to your deferred company pension which was "contracted out" of SERPS.

You have a COPE shown in your SP forecast because  you were a member of this contracted out scheme.

https://www.gov.uk/government/publications/state-pension-fact-sheets/contracting-out-and-why-we-may-have-included-a-contracted-out-pension-equivalent-cope-amount-when-you-used-the-online-service

 After GMP age (60 F/65M), the scheme  is only obliged to pay an increase of up to 3% CPI on that part of the pension in payment representing revalued post 88 GMP.

This would mean that only the revalued excess would have to increase  by whatever percentage was specified in scheme rules (for example uncapped RPI/RPI to 5%/CPI to 8% etc).

You might like to check on what increases are applied in your scheme to  the excess over GMP post GMP age.

It is just possible that your scheme might be generous and not split out the GMP until after State Pension Age (which used to align with GMP age) but you'd have to check - I wouldn't bank on it.

I am not taking any benefits for another 3 years so my interpretation of this is my benefits may increase in that time once equalisation has been applied, does this sound correct?

Re  GMP equalisation,  (for those who accrued a GMP between  17 May 1990 (the date of the Barber v GRE judgment) and 5 April 1997} see

https://www.wtwco.com/en-GB/Insights/2019/02/questions-you-are-too-afraid-to-ask-about-gmp-equalisation

Regarding the 2% inflation rate quoted I did challenge this and was told that despite the actual inflation rate increases are based on the BoE’s target inflation rate which is 2% - so I was told!

I still don't understand the above - does it relate to increase on pension in payment?

I am continuing to pay NI as a self employed person in case I jeopardise my state pension in future if the rules change again – am I doing the right thing?

Your NI payments are not increasing your state pension - see above., but a person who was under SPA, employed and earning the relevant amount would still be required to pay NI.

I know little about self employment but you can see

https://www.moneyhelper.org.uk/en/work/self-employment/tax-and-national-insurance-when-youre-self-employed

Ok I think I’ve got it re the state pension – so I just need to keep paying NI to cover costs of using NHS etc.

Re the equalisation of the GMP – I’ve read the link you referred to and my goodness that’s complicated, hopefully there will be a final ruling in the next 3 years so that schemes generally can clarify what people are entitled to.

I’m going to drop a line to the administrators to get in writing their explanation of the rate at which inflation is calculated and what this is applied to.  I understood it to be the rate at which future estimates of pension benefits payable are made.  When I said to the administrator that the rate quoted was 2% yet inflation is rising rapidly therefore my estimated pension at 66 would be higher she said that wasn’t the case and that the estimate would be based on what the target inflation rate is ie currently 2%. Totally confusing!

I’ll also ask them what increases are applied in the scheme to  the excess over GMP post GMP age and whether it’s split out after state pension age. 

Thank you so much for your help xylophone – as soon as I’ve got some clear answers I’ll pop a line on this thread…hopefully their response won’t cause even more confusion!