Non-incremental pension

tortoise84

At 24 years of age (in 1970) I started a new job with a major brewery company.

Within weeks of joining, all staff were summoned to a presentation on pension scheme proposals. The company had put in place a pension via Norwich Union (now Aviva) and everyone was encouraged (pressured) into signing an “opt-out” form. I worked for the company for 15 years.

I am now 75 and have received the Aviva pension, based on my 15 years employment, since 2007. However, it is non-incremental – I have received the same amount each month since 2007 – so in real terms my income is receding with each year.

Because I “opted out” my state pension is considerably reduced (if only I had known the implications back then!).

Do I have any claim for a higher state pension because of the non-incremental nature of my Aviva pension? Your advice would be appreciated.

Kevin S

Albermarle

Presumably you are referring to opting out of SERPS ? Which was the scheme that meant higher paid people accrued a higher state pension ? Normally opting out was not a bad decision. You need to supply more details about your current state pension, and the Aviva pension ( did you buy an annuity with it ?) 

Linton

State Pension is not dependent on means so there is no ability to get extra SP because of the situation with your employer's pension.  However the benefits system may help - have you looked into "pension credit"?  https://www.gov.uk/pension-credit

At the time you were working for the brewer there was no requirement for employer's pensions to be index linked.  Opting out of SERPs was probably a requirement of the brewery pension scheme so if you had not opted out you could well have been worse off.  SERPs was intended as an employer's pension replacement for those people employed in the private sector who did not have one, which would have been about half the total.  People who were receiving a company pension may not have been happy if they also had to pay for a government one.

One detail - SERPs did not start until 1978 with Barbara Castle's revamp of the state pension system.

xylophone

At 24 years of age (in 1970) 

everyone was encouraged (pressured) into signing an “opt-out” form.

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

In 1970, the only form of additional state pension available was Graduated Retirement Benefit (Scheme ran from 1961 - 1975).

Is any shown on your state pension statement?

However, this would not form part of the Contracted Out Deduction  that  is seen on a state pension statement if the recipient was in a "contracted out" pension scheme between 1978 and 1997 (when SERPS was in operation).

You can confirm that your Scheme was "contracted out" of SERPS?

 If so, was this the only contracted out scheme of which you were a member between 1978 and 1997?

When you receive your annual statement from the Brewery Pension Scheme, does it show Guaranteed Minimum Pension and excess?

In 1985, a person who  was an "early leaver" from a contracted out salary related pension scheme was entitled to preserved benefits if he was aged over 26 and had been a member of the scheme for at least five years.

Part of those preserved benefits was the Guaranteed Minimum Pension - the balance (if any) was the excess.

At that date, the scheme was not obliged to revalue the excess over GMP (though some schemes did) - it was however obliged to revalue the GMP up to GMP age (60 F/65 M), by (at the Scheme's choice) Fixed Rate, Full Rate or Limited Rate.

When the pension came into payment, the scheme was not obliged to pay any increase on GMP accrued between 1978 and 1988.

Any increase on the excess would depend on Scheme Rules.

It would appear that in your particular case, you have a non-increasing GMP and a non-increasing excess.

When you look at your state pension statement, what is shown  as your pre 97 ASP and what is shown as the COD?

Do I have any claim for a higher state pension because of the non-incremental nature of my Aviva pension?

No - however, it is possible  ( though unlikely if your GMP was revalued at Fixed Rate) that you are receiving an increase on the GMP through your SP - this could be clarified.if you answer the question above.

Depending on your income and personal circumstances, Pension Credit may be available.

https://www.ageuk.org.uk/globalassets/age-uk/documents/factsheets/large-print-factsheets/fs48-lp-pension-credit.pdf

dunstonh

Because I “opted out” my state pension is considerably reduced (if only I had known the implications back then!).

It isn't opted out but contracted out.  Opting out means something different but it is a common error.

The company had put in place a pension via Norwich Union (now Aviva) and everyone was encouraged (pressured) into signing an “opt-out” form. I worked for the company for 15 years.

Contracting out of SERPS in defined contribution plans wasnt possible in 1977.   Only Defined Benefit pensions.  The option to contract out in defined contribution schemes only came in 1988.  So, from your information posted and assuming you are correct, you must have been in a defined benefit scheme.

You wouldn't have had a contracting-out choice.   The scheme itself would have been contracted out.  The choice would be to either join the contracted-out defined benefit scheme or opt-out of the scheme altogether. 

Between 1978 and 1997, the scheme would have had a Guaranteed Minimum Pension (GMP) intended to provide at least what the individual would have got had they remained contracted in. From 1997, contracted-out defined benefit (DB) schemes had to satisfy a ‘reference scheme test’, intended to achieve broadly the same result.

Do I have any claim for a higher state pension because of the non-incremental nature of my Aviva pension? Your advice would be appreciated.

April 1978 to 5 April 1988 is known as Pre-88 GMP and service from 6 April 1988 until 5 April 1997 is known as Post-88 GMP.

GMP built up between 6 April 1988 and 5 April 1997 must increase in line with inflation but capped at 3%GMP built up before 6 April 1988 does not have to be increased.

On the plus side, you would have paid lower national insurance by being contracted out with a defined benefit scheme.