Deferring Reed Pension seems to give no enhancement?

caveman8006

My wife has a small deferred DB pension with Reed which becomes payable next March at her normal retirement age of 60. WTW have been asked to quote the retirement factor that would apply if she deferred for a year....

Initially they gave this irrelevant reply

Dear Mrs O'Dell 

Thank you for your telephone call on 11 November 2022. 

The Late retirement factors below apply form the age of 65.

No. of years late Factor LRF1 0 1.000 1 1.046 2 1.094 3 1.144 4 1.197 5 1.252 6 1.310 7 1.370 8 1.433 9 1.499 10 1.568

 

When prompted for the factor applying to a deferment from 60 to 61 they replied like this...

Dear Mrs O’Dell, 

Thank you for your email. 

I can confirm that if you were to defer your pension for 1 year (11 March 2024),  your pension would be increased by RPI or 5% which ever is lower in respect of your excess pension and 3% or CPI which ever is lower in respect of your Post 88 gmp.

Aren't I right I thinking this is just the normal indexation that would apply in deferment anyway so, effectively, there is  no enhancement and any deferment for the next 5 years will just be throwing the pension away? Is this normal?  

sheslookinhot

From the information in your post it appears that the scheme may only have a Late Retirement Factor from age 65. Are you certain the LRF applies for retirement after age 60 ? Have you verified this from the scheme rules ? Otherwise I would go back to the Pension Administrator and refer to the scheme rules. 

The LRF is quite separate from an annual uplift relative to scheme rules.

SMcGill

Aren't I right I thinking this is just the normal indexation that would apply in deferment anyway so, effectively, there is  no enhancement and any deferment for the next 5 years will just be throwing the pension away? Is this normal?  

Well I don’t know about ‘normal’ but this is exactly what USS do. My USS pension is split between two different retirement ages (half at 60, half at 65) and I would be penalised with an ERF for taking it all at 60 but I do not get any enhancement for taking it at 65. 

caveman8006

sheslookinhot said:

From the information in your post it appears that the scheme may only have a Late Retirement Factor from age 65. Are you certain the LRF applies for retirement after age 60 ? Have you verified this from the scheme rules ? Otherwise I would go back to the Pension Administrator and refer to the scheme rules. 

The LRF is quite separate from an annual uplift relative to scheme rules.

Exactly! It appears there is no LRF until age 65 and therefore no point in deferring beyond 60 as you just lose the pension without any enhancement. I was just asking how common this is, as I certainly had the option to take my DB pension either before or after my NRD of 60 with a symmetrical 4% factor, so I assumed this was the norm...

Marcon

caveman8006 said:

My wife has a small deferred DB pension with Reed which becomes payable next March at her normal retirement age of 60. WTW have been asked to quote the retirement factor that would apply if she deferred for a year....

Initially they gave this irrelevant reply

Dear Mrs O'Dell 

Thank you for your telephone call on 11 November 2022. 

The Late retirement factors below apply form the age of 65.

No. of years late	Factor LRF1
0	1.000
1	1.046
2	1.094
3	1.144
4	1.197
5	1.252
6	1.310
7	1.370
8	1.433
9	1.499
10	1.568

 

When prompted for the factor applying to a deferment from 60 to 61 they replied like this...

Dear Mrs O’Dell, 

Thank you for your email. 

I can confirm that if you were to defer your pension for 1 year (11 March 2024),  your pension would be increased by RPI or 5% which ever is lower in respect of your excess pension and 3% or CPI which ever is lower in respect of your Post 88 gmp.

Aren't I right I thinking this is just the normal indexation that would apply in deferment anyway so, effectively, there is  no enhancement and any deferment for the next 5 years will just be throwing the pension away? Is this normal?  

It's usually a mistake to generalise from 'my scheme does this...' to the assumption that 'all schemes do this...'. 

From the information given, it looks as if the scheme has a Normal Retirement Age of 65, but members have the right to retire at 60 without a reduction for early payment. Are you sure there's no early retirement factor?

Because NRA is 65, it must follow that any late retirement factor only kicks in from age 60.

caveman8006 said:

Aren't I right I thinking this is just the normal indexation that would apply in deferment anyway so, effectively, there is  no enhancement and any deferment for the next 5 years will just be throwing the pension away? Is this normal?  

Given the spike in inflation, it's likely that deferred pensions could see a greater increase for 2023 than pensions in payment (although much depends on when your wife was an active member of the scheme), given that the caps on revaluation in deferment are cumulative over the whole period of deferment. Once a pension is actually in payment, increases are capped on a year by year basis unless a 'discretionary' increase is granted.

Albermarle

 I was just asking how common this is, as I certainly had the option to take my DB pension either before or after my NRD of 60 with a symmetrical 4% factor, so I assumed this was the norm...

I thought that deferment increases were the exception, rather than the norm. However not 100% sure either way .

Secret2ndAccount

The retirement age (State Pension Age) used to be 65 for men, and 60 for women. Then it was equalised at 65, and has gradually increased since. This created issues for pension schemes. They had promised to pay women from age 60, but they were probably breaking the law if they didn't treat men equally. Many schemes decided the easiest thing to do was to allow anyone to claim their pension at age 60 or 65 or anywhere in between. So, for pensions dating back to these times, there are many schemes which allow the pension to be claimed at 60 without actuarial reduction. Increases for deferring don't come in until age 65. 

Marcon

Albermarle said:

 I was just asking how common this is, as I certainly had the option to take my DB pension either before or after my NRD of 60 with a symmetrical 4% factor, so I assumed this was the norm...

I thought that deferment increases were the exception, rather than the norm. However not 100% sure either way .

I think there's some confusion creeping in about terminology being used on this thread.

Late retirement increases are the norm, provided the scheme permits late retirement. If it doesn't, then all that happens is the scheme backdates to NRA when the pension is put into payment (if the member waits more than 6 years to do this, many schemes have rules which mean they lose their entitlement to any instalment of pension which is more than 6 years 'overdue').

Secret2ndAccount said:

The retirement age (State Pension Age) used to be 65 for men, and 60 for women. Then it was equalised at 65, and has gradually increased since. This created issues for pension schemes. They had promised to pay women from age 60, but they were probably breaking the law if they didn't treat men equally. 

It's not the change in State Pension Age which created problems; it was the infamous Barber Judgement, which was in 1991 - long before SPA started to be equalised.

Secret2ndAccount said:

Many schemes decided the easiest thing to do was to allow anyone to claim their pension at age 60 or 65 or anywhere in between. So, for pensions dating back to these times, there are many schemes which allow the pension to be claimed at 60 without actuarial reduction. Increases for deferring don't come in until age 65. 

The cost of allowing everyone to take their pension unreduced at 60 was frequently prohibitive. The Barber Judgement was not backdated, so a more typical approach was to allow members to take pensions built up in respect of post-Barber service at a different age (some schemes reduced the age to 60 for men, others increased it to 65 for women, some met in the middle, thus annoying everyone), with pre-Barber service keeping the original retirement age. The administrative complexities, let alone trying to explain that to members, will stay in the minds of all those who had to grapple with the issue!

Secret2ndAccount said:

Increases for deferring don't come in until age 65. 

It's not deferring - it's 'late retirement' that's relevant here. A deferred pension is simply one where the member left active membership and has yet to claim their benefits - and revaluation in deferment is a statutory requirement, depending on when the member left active membership.

SarahB16

caveman8006 said:

sheslookinhot said:

From the information in your post it appears that the scheme may only have a Late Retirement Factor from age 65. Are you certain the LRF applies for retirement after age 60 ? Have you verified this from the scheme rules ? Otherwise I would go back to the Pension Administrator and refer to the scheme rules. 

The LRF is quite separate from an annual uplift relative to scheme rules.

Exactly! It appears there is no LRF until age 65 and therefore no point in deferring beyond 60 as you just lose the pension without any enhancement. I was just asking how common this is, as I certainly had the option to take my DB pension either before or after my NRD of 60 with a symmetrical 4% factor, so I assumed this was the norm...

I definitely know of pension schemes that allow a person (both men and women) to draw their pension at 60 and it would be the same amount as if they were to draw it at 65.  It therefore makes sense if you are lucky enough to be in one of those schemes to draw your pension at 60 otherwise you lose out on those five years of pension income.   

I cannot comment on how common they are but they definitely still do exist.   

NoMore

SarahB16 said:

caveman8006 said:

sheslookinhot said:

From the information in your post it appears that the scheme may only have a Late Retirement Factor from age 65. Are you certain the LRF applies for retirement after age 60 ? Have you verified this from the scheme rules ? Otherwise I would go back to the Pension Administrator and refer to the scheme rules. 

The LRF is quite separate from an annual uplift relative to scheme rules.

Exactly! It appears there is no LRF until age 65 and therefore no point in deferring beyond 60 as you just lose the pension without any enhancement. I was just asking how common this is, as I certainly had the option to take my DB pension either before or after my NRD of 60 with a symmetrical 4% factor, so I assumed this was the norm...

I definitely know of pension schemes that allow a person (both men and women) to draw their pension at 60 and it would be the same amount as if they were to draw it at 65.  It therefore makes sense if you are lucky enough to be in one of those schemes to draw your pension at 60 otherwise you lose out on those five years of pension income.   

I cannot comment on how common they are but they definitely still do exist.   

My DB pension is like this, I can take it at 60 unreduced but normal retirement age for it is 65. It's to do with protected rights when we were transferred in I think. AIUI for us LRF's don't apply until after 65.