DB Pension Statement. Total Pension Input

cloud_dog

hugheskevi said:

NedS said:

The closing amount is based on the value at the end of the tax year, 5/4/2023. However, on 1/4/2023, a few days prior, the pension is revalued by CPI inflation from the previous Sept (Sept 2022). Some schemes are uncapped and the full CPI figure will be used (maybe ~10%), others may be capped at 2.5% or 5% or some other value set by the scheme.

Just to note that this is very scheme-specific, and every scheme will be different.

At one extreme, if a scheme is final salary and is only based on salary over last 12 months, then it would be unaffected by inflation and just track salary. Whereas a public sector career average scheme will be fully affected. Other schemes will be affected in different ways depending on exactly what their rules say.

This may be quite difficult to find, as unfortunately a lot of scheme literature is simplified, whereas the calculation of pension input is based on the precise scheme rules. So you have to research in some detail exactly how your individual scheme calculates benefits. To make things worse, Annual Benefit Statements may use simplifications, eg, in the Civil Service the figures for final salary pensions on statements are simply based on service and salary as at 31 March. That is not how benefits are calculated under the scheme rules though, so anyone relying on figures from their statements to calculate their pension input will be incorrect.

Hi... am very interested in your comment.

My DB scheme is still a FS scheme, running at 1/80th accrual (started at 1/60th, then 1/70th).  My 'pensionable salary' is limited to 1% salary increases, so if my salary increases by 3%, my 'pensionable salary' on which the pension is calculated only increases by 1%.  I appreciate ordinarily 'pensionable salary' has different meaning, but in this instance I am simply talking about the component of my overall salary my company / scheme administrator uses to calculate the benefit, and is referred to as my 'base salary'.  This currently sits at £47486 (May increase), and was £46555 last year.  In essence I think my accrued benefit (£29004 April 2022) will increase by approx £600(?).

* SIDE NOTE:  This whole 1% increase restriction is another thing I keep wanting to investigate further, to see if I would achieve the same/better pension benefit if I were to become a deferred member and switch to the DC version my company offers.  Thought for another day perhaps.

My annual statements do not include a PIA calculation.  I usually email the administrators after the release of the September inflation figures and request they add 1% to my salary, and as we know the maximum variance (salary / benefit increase and inflation) ask them to calculate the PIA for that FY (which they are happy to do).

What I would say is that my PIA figure has varied over the course of the last few years, ranging from £0 to nearly £10k, so I am going to assume the probability of a high(ish) inflation figure in September will in all likelihood impact me. 

NedS

cloud_dog said:

hugheskevi said:

NedS said:

The closing amount is based on the value at the end of the tax year, 5/4/2023. However, on 1/4/2023, a few days prior, the pension is revalued by CPI inflation from the previous Sept (Sept 2022). Some schemes are uncapped and the full CPI figure will be used (maybe ~10%), others may be capped at 2.5% or 5% or some other value set by the scheme.

Just to note that this is very scheme-specific, and every scheme will be different.

At one extreme, if a scheme is final salary and is only based on salary over last 12 months, then it would be unaffected by inflation and just track salary. Whereas a public sector career average scheme will be fully affected. Other schemes will be affected in different ways depending on exactly what their rules say.

This may be quite difficult to find, as unfortunately a lot of scheme literature is simplified, whereas the calculation of pension input is based on the precise scheme rules. So you have to research in some detail exactly how your individual scheme calculates benefits. To make things worse, Annual Benefit Statements may use simplifications, eg, in the Civil Service the figures for final salary pensions on statements are simply based on service and salary as at 31 March. That is not how benefits are calculated under the scheme rules though, so anyone relying on figures from their statements to calculate their pension input will be incorrect.

Hi... am very interested in your comment.

My DB scheme is still a FS scheme, running at 1/80th accrual (started at 1/60th, then 1/70th).  My 'pensionable salary' is limited to 1% salary increases, so if my salary increases by 3%, my 'pensionable salary' on which the pension is calculated only increases by 1%.  I appreciate ordinarily 'pensionable salary' has different meaning, but in this instance I am simply talking about the component of my overall salary my company / scheme administrator uses to calculate the benefit, and is referred to as my 'base salary'.  This currently sits at £47486 (May increase), and was £46555 last year.  In essence I think my accrued benefit (£29004 April 2022) will increase by approx £600(?).

To work through your figures, at least to give you a ball park estimate:

0. Determine the benefits you had built up at the end of the previous Pension Input Period (April 2022)

1. Multiple the figure from step 0 by 16

2. Add any lump sum amount to the amount calculated in step 1.

3. Adjust the amount from step 2 in line with inflation, using 3.1% as the CPI inflation from Sept 2021. This is your starting value for the Pension Input Period 2022/23

4. Determine the benefits you have built up at the end of the Pension Input Period (April 2023) and multiple by 16

5. Add any lump sum amount to the amount calculated in step 4.

6. Deduct the value calculated in step 3 from the value calculated in step 5. This is your Pension Input Amount

So for a Final Salary Scheme, the PIA is going to increase by your extra years accrual plus any pay rise you may have got. If your pensionable salary increases are limited to 1%, then the current high inflation figures should not affect you (your inflationary amounts are effectively capped at 1%) and your PIA should be mostly driven by new accrual.

Next year (2023/24), you may even be in the strange position whereby your PIA is zero (or negative) as step 3 may be incremented by ~10% CPI and this may give a starting value that is higher than the closing value which has only risen by the extra years accrual and 1% pay increase.

As usual, I defer to @hugheskevi's superior knowledge if I have made any errors or misleading assumptions

hugheskevi

NedS said:

As usual, I defer to @hugheskevi's superior knowledge if I have made any errors or misleading assumptions

All looks good, except one trivial point:

Next year (2023/24), you may even be in the strange position whereby your PIA is zero (or negative) as step 3 may be incremented by ~10% CPI and this may give a starting value that is higher than the closing value which has only risen by the extra years accrual and 1% pay increase.

A Pension Input Amount cannot be negative, if the calculation produces a negative figure then the Pension Input Amount is recorded as zero.

NedS

hugheskevi said:

NedS said:

As usual, I defer to @hugheskevi's superior knowledge if I have made any errors or misleading assumptions

All looks good, except one trivial point:

Next year (2023/24), you may even be in the strange position whereby your PIA is zero (or negative) as step 3 may be incremented by ~10% CPI and this may give a starting value that is higher than the closing value which has only risen by the extra years accrual and 1% pay increase.

A Pension Input Amount cannot be negative, if the calculation produces a negative figure then the Pension Input Amount is recorded as zero.

Thanks @hugheskevi. I kind of guessed that, hence it was in brackets, but appreciate the confirmation

MoosMum

Sorry to hijack
 I've been in CS Classic and paying into SIPP each year. Always asked for Pensions Savings Statement from my CSP to check annual allowance and carry forward. Also do the maths as outlined above before paying into SIPP as statement doesnt arrive till usually August. 
My question is I have been moved to Alpha now, so this year to work out 22/23 figures will I have to 
Factor in my increased final salary for classic plus increased lump sum
Work out alpha at 2.32 percent plus CPI in Sept 22 to arrive at my increased benefits for the year.
It was relatively simple before with just final salary !!
Many thanks

hugheskevi

MoosMum said:

My question is I have been moved to Alpha now, so this year to work out 22/23 figures will I have to 
Factor in my increased final salary for classic plus increased lump sum
Work out alpha at 2.32 percent plus CPI in Sept 22 to arrive at my increased benefits for the year.

You are an active member of two separate pension schemes (Classic Plus and alpha).

You calculate your pension input in each scheme separately and add the two results together. Ensure you use the correct final pensionable earnings definition when calculating your classic plus benefits, as classic plus uses the best of 3 different measures to determine your final salary, which includes looking at inflation-adjusted past salary over the last 13 years.

MoosMum

Many thanks @hugheskevi I'm actually in classic,  I should have realised the ambiguity before posting 😀

hugheskevi

MoosMum said:

Many thanks @hugheskevi I'm actually in classic,  I should have realised the ambiguity before posting 😀

Ah, that'll teach me to read carefully

The general details are the same, but you have fewer concerns about the calculation of final salary, as it will just be pensionable earnings over the last 12 months in the vast majority of cases. Although that does, unfortunately, mean the accrued pension is being ravaged by inflation if you have not had a big increase to pensionable earnings, which wouldn't happen in any of the other schemes (Premium, Classic Plus, Nuvos or Alpha)..

cloud_dog

@hugheskevi and @NedS, I really appreciate both of your commentary and assistance on this matter.

Running the numbers (as documented previously and calculation above) and adding on the PCLS (approx £130k at April 22), and using a number of £135k for 22/23 calculations, I am getting a negative number (so £0).  I have in the past, around the 2017 time periods, received £0 calculations.

Thanks again, you've helped take a load off.

I think my school person error was that historically, when I have run the calculation (which is why I always asked for confirmation from the administrators I was using the current years September CPI figure (so Sept 22) in my calculation for the current FY.

hara____

hugheskevi said:

MoosMum said:

My question is I have been moved to Alpha now, so this year to work out 22/23 figures will I have to 
Factor in my increased final salary for classic plus increased lump sum
Work out alpha at 2.32 percent plus CPI in Sept 22 to arrive at my increased benefits for the year.

You are an active member of two separate pension schemes (Classic Plus and alpha).

You calculate your pension input in each scheme separately and add the two results together. Ensure you use the correct final pensionable earnings definition when calculating your classic plus benefits, as classic plus uses the best of 3 different measures to determine your final salary, which includes looking at inflation-adjusted past salary over the last 13 years.

Thanks for the helpful and informative thread.

Does the pension input calculation really use 'final pensionable earnings' rather than something closer to the 'simple' pensionable earnings used by the annual benefit statement?

I ask because the guidance on the PSS gives the impression it's something closer to the simpler view.

civilservicepensionscheme.org.uk/your-pension/yearly-pension-update/pension-saving-statement/

The pension figures on your Annual Benefit Statement are an illustration of your benefits using your pensionable earnings (salary including pensionable allowances and bonuses) as at the statement date (31 March 2022).

The pension figures used to calculate your Pension Input Amount shown on your PSS are your pensionable earnings (salary including pensionable allowances and bonuses) for the PSS period (6 April 2021 to 5 April 2022) and can be different to those in your Annual Benefit Statement.