Pension quote misquoted

Carefulspender1

Carefulspender1 said:

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! 

Hi Xylophone, I’ve had a response back from my old company pension administrators and the reason given for the mistake in quoting is:

“When we assumed responsibility for the administration of the Fund in 2018, we followed initially the practice by the previous administrators that, in your case, the GMP was to increase by 7% per annum until age 60.  Therefore, in the absence of conflicting information, the retirement estimate provided in 2019 was calculated as shown” (figure quoted in 2019)…..

” When we calculated your actual retirement figures in 2022, we cross checked with HMRC and we discovered that the information provided by the previous administrators was not correct and that your GMP should, in fact, increase by what is known as section 148 orders.  These orders are published by the Government each year and are based on the increase in national average earnings over the period of deferment.  This calculation produces the figures shown” (new lower figure quoted in recent correspondence).

Re the excess over GMP they stated “Your deferred pension increases between your date of leaving and your retirement date.  The deferred pension in excess of the GMP revalues by the Consumer Prices Index (CPI) up to a maximum of 5% per annum.” My pension will increase by 3% per annum once in payment.

And finally re the equalisation “Regarding the equalisation of GMPs within the Fund, our preliminary findings indicate that female members are unlikely to receive any additional benefits.  We need to undertake further investigation but I am unable to give any timescale at this stage.

It all seems in order to me - should I query anything?

xylophone

The explanation re fixed rate/S148 orders is clear - you can read the techzone link in my previous for full details of this technicality.

You say that although you could take this pension now, you intend to remain in deferment for another three years.

If you are female (GMP age 60), a late retirement increase on GMP should  be paid from age 60 - if male, from age 65 - see my previous.

Do you actually have any excess over GMP in this pension?

Does the above mean that once in payment, the excess will increase by a fixed 3%?

The GMP must increase by up to 3% CPI.

Carefulspender1

xylophone said:

The explanation re fixed rate/S148 orders is clear - you can read the techzone link in my previous for full details of this technicality.

You say that although you could take this pension now, you intend to remain in deferment for another three years.

If you are female (GMP age 60), a late retirement increase on GMP should  be paid from age 60 - if male, from age 65 - see my previous.

Do you actually have any excess over GMP in this pension?

Does the above mean that once in payment, the excess will increase by a fixed 3%?

The GMP must increase by up to 3% CPI.

Thanks xylophone I think its all clear now.  There is an excess over GMP and my whole pension once in payment will increase by 3% - at least I know where I stand although it's still annoying that the administrators got it wrong.  Thank you for your help on this, it is much appreciated. 

hyubh

” When we calculated your actual retirement figures in 2022, we cross checked with HMRC and we discovered that the information provided by the previous administrators was not correct and that your GMP should, in fact, increase by what is known as section 148 orders.

But what actually should it have been, would be my question. HMRC didn't determine the scheme's GMP revaluation method, the scheme did.

Without wishing to criticise HMRC - GMP reconciliation was a massive undertaking over half a dozen or so years, and HMRC were the sole recipient of queries from many thousands of schemes covering many millions of members - it wasn't unusual to get a 'computer says no' response to a query saying the revaluation method stated was incorrect. In my personal experience, this even happened when acting on behalf of public sector schemes which had no option but to use S148 revaluation, and the HMRC data had quoted fixed rate (so the opposite way round to your predicament).

xylophone

But what actually should it have been, would be my question. HMRC didn't determine the scheme's GMP revaluation method, the scheme did.

  In https://forums.moneysavingexpert.com/discussion/comment/79361018/#Comment_79361018

The OP cited a  scheme booklet  - 

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 "

This was Limited Rate Revaluation

https://techzone.abrdn.com/public/pensions/Tech-guide-guaranteed-min-pen

If this remained the case, then the previous administrator was incorrect in applying Fixed Rate of 7%.

According to

https://www.gov.uk/guidance/how-to-calculate-your-scheme-members-guaranteed-minimum-pension#:~:text=Limited rate revaluation,-This option was&text=The GMP amount calculated at date of leaving should be,age, or death if earlier

Limited rate revaluation

This option was withdrawn from 6 April 1997, however limited rate revaluation can remain for those members who left contracted-out employment before 6 April 1997.

Limited rate revaluation is 5% compound for each relevant tax year after the tax year in which the member’s contracted-out employment terminated.

However, to calculate the GMP due at GMP payable age, or death if earlier, a comparison is made with section 148 revaluation. 

The GMP amount calculated at date of leaving should be increased by:

• 5% compound for each relevant tax year after the tax year that the member left contracted-out employment, up to and including the tax year before GMP payable age, or death if earlier
• the percentage relevant to the tax year of leaving as shown in the section 148 order issued in the last complete tax year before the tax year in which GMP payable age is reached, or death if earlier

The lower amount is the amount of GMP payable.

Presumably this is what the new administrator was told when the OP's GMP was cross checked with HMRC?

Carefulspender1

xylophone said:

But what actually should it have been, would be my question. HMRC didn't determine the scheme's GMP revaluation method, the scheme did.

  In https://forums.moneysavingexpert.com/discussion/comment/79361018/#Comment_79361018

The OP cited a  scheme booklet  - 

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 "

This was Limited Rate Revaluation

https://techzone.abrdn.com/public/pensions/Tech-guide-guaranteed-min-pen

If this remained the case, then the previous administrator was incorrect in applying Fixed Rate of 7%.

According to

https://www.gov.uk/guidance/how-to-calculate-your-scheme-members-guaranteed-minimum-pension#:~:text=Limited rate revaluation,-This option was&text=The GMP amount calculated at date of leaving should be,age, or death if earlier

Limited rate revaluation

This option was withdrawn from 6 April 1997, however limited rate revaluation can remain for those members who left contracted-out employment before 6 April 1997.

Limited rate revaluation is 5% compound for each relevant tax year after the tax year in which the member’s contracted-out employment terminated.

However, to calculate the GMP due at GMP payable age, or death if earlier, a comparison is made with section 148 revaluation. 

The GMP amount calculated at date of leaving should be increased by:

• 5% compound for each relevant tax year after the tax year that the member left contracted-out employment, up to and including the tax year before GMP payable age, or death if earlier
• the percentage relevant to the tax year of leaving as shown in the section 148 order issued in the last complete tax year before the tax year in which GMP payable age is reached, or death if earlier

The lower amount is the amount of GMP payable.

Presumably this is what the new administrator was told when the OP's GMP was cross checked with HMRC?

I've just received the administrator's answer relating to deferment after 63 and how the GMP increases:

Excess over GMP	The pension will be increased to reflect the period of deferment by such amount as the Trustees decide, having taken the advice of an Actuary.  The increase is subject to periodic review and amendment.  The current increase for a deferment period of three years is 20.9%.
Guaranteed Minimum Pension (GMP)	Your GMP will be increased in line with statutory requirements which has two elements: 1/7% for each complete week of deferment past age 60 plus The GMP Increase Orders which provide increase of up to 3% per annum, in line with the increase in the Consumer Prices Index

xylophone

how the GMP increases:

 The Administrator confirms information in   link https://techzone.abrdn.com/public/pensions/Tech-guide-guaranteed-min-pen  mentioned in  previous post

https://forums.moneysavingexpert.com/discussion/comment/79361192/#Comment_79361192

As the Administrator specifically mentions age 60, I assume that you are female?

If a member leaves the scheme before retirement, their accrued GMP entitlement is still revalued each year up to age 60/65. 

In your case the revaluation was based on LR as previously explained.

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.

Increases in payment

Increases provided by the scheme
The level of increase that the pension scheme itself is responsible for providing depends on when the GMP was built up:

• GMP built up between 6 April 1988 and 5 April 1997 must increase in line with prices, capped at 3%

The excess over GMP is revalued according to statutory requirements or (as in your case) scheme rules.

Thanks for coming back with the information as to how it was all sorted out in the end.