Government Pension Protection Fund New Calculation Formula

Sharpcol

Hello Can the Government really change the Pension Protection fund Calculation Formula for Pension compensation.   Note they have already stole a Full 10% of my pension Pot for entering the PPF.  They now have announced that they are going to take another chunk of all the pension pots in the fund from 1st March 2023.  This works out to another 7% lost.  Is this Legal?   I am due to retire in May 2023 but now lose 7% of my pension fund due to the New Calculations.  Note i am 55 in May so cannot retire before March 1st when this comes into force.

Marcon

Sharpcol said:

Hello Can the Government really change the Pension Protection fund Calculation Formula for Pension compensation.   Note they have already stole a Full 10% of my pension Pot for entering the PPF.  They now have announced that they are going to take another chunk of all the pension pots in the fund from 1st March 2023.  This works out to another 7% lost.  Is this Legal?   I am due to retire in May 2023 but now lose 7% of my pension fund due to the New Calculations.  Note i am 55 in May so cannot retire before March 1st when this comes into force.

You say you are 'due to retire' at 55, but that is presumably early retirement - i.e. well before your original scheme's normal retirement date?

Early retirement factors can be changed at any time (as indicated on the PPF website), and the sharp changes in interest rates are driving the change. However unwelcome this is, it is indeed legal, and many ongoing private sector schemes are also changing their factors.

molerat

I haven't seen anything about a general reduction in protection or are you referring to the new tables for early retirement from March ?  If so a reduction has always been in place for early retirement, the PPF is unusual in that it publishes the figures rather having to wait for an individual calculation, and reviews those tables regularly to reflect the cost to the fund of you retiring early.  The change from the October 2022 figure for a 55/65 retirement factor is from .869 to .823 so for every £100 of age 65 pension you will receive £82.30 compared to £86.90 previously.  If you had retired on the same basis in 2006 the factor was .724 receiving only £72.40 so you are far better off now than you would have been back then. And yes it is perfectly legal, all pensions do it.  On the plus side, if we had still been in the days of Maxwell et al you would be receiving nothing.

[Deleted User]

From what I see the PPF is projecting to be less generous to those accessing the fund before the failed pension scheme's NPA.  So if your original scheme NPA was 65 and you plan to access it 10 years sooner, the calculation is becoming less favourable in the long run.

NedS

Actuarial calculations are not designed to be more favourable or less favourable to an individual or the underlying scheme, but are designed to be cost neutral and fair to all parties involved, taking into account a large number of economic and demographic assumptions. The calculations are carried out to determine that you would receive the exact same benefits, regardless of whether you took those benefits at the scheme's NRA or if you took a lower pension early, assuming you live to the average age.

All else being equal, as interest rates and gilt yields rise, actuarial reduction rates will generally increase (a greater reduction) as you (the OP) have observed.

Sharpcol

Marcon said:

Sharpcol said:

Hello Can the Government really change the Pension Protection fund Calculation Formula for Pension compensation.   Note they have already stole a Full 10% of my pension Pot for entering the PPF.  They now have announced that they are going to take another chunk of all the pension pots in the fund from 1st March 2023.  This works out to another 7% lost.  Is this Legal?   I am due to retire in May 2023 but now lose 7% of my pension fund due to the New Calculations.  Note i am 55 in May so cannot retire before March 1st when this comes into force.

You say you are 'due to retire' at 55, but that is presumably early retirement - i.e. well before your original scheme's normal retirement date?

Early retirement factors can be changed at any time (as indicated on the PPF website), and the sharp changes in interest rates are driving the change. However unwelcome this is, it is indeed legal, and many ongoing private sector schemes are also changing their factors.

Hi Marcon

The reduction effects Normal Retirement Dates not just Early.

Due to recent changes in financial markets, we've needed to review our factors again and have made some changes which will come into effect for anyone retiring on or after 1 March 2023. Depending on when you retire, the new factors will have a different impact on what you receive:

Normal Pension Age

Starting your payments at your normal pension age with a tax-free lump sum will result in a smaller lump sum for the same amount of annual compensation given up.

Early Retirement

Taking early retirement, before your normal pension age, will result in a lower level of compensation each year than using the current factors.

If you plan to take a tax-free lump sum alongside early retirement, the new factors will result in a smaller lump sum and a lower level of compensation each year.

Sharpcol

Hi Molerat   The reduction affects normal retirement dates not just early retirement.  
Basically per every pot of £1000 per annum at normal retirement age is a reduction of £203 in lump sum and also a reduction of £31 per year in remaining Compensation.   (early retirement will be a lot more)  

Due to recent changes in financial markets, we've needed to review our factors again and have made some changes which will come into effect for anyone retiring on or after 1 March 2023. Depending on when you retire, the new factors will have a different impact on what you receive:

Normal Pension Age

Starting your payments at your normal pension age with a tax-free lump sum will result in a smaller lump sum for the same amount of annual compensation given up.

Early Retirement

Taking early retirement, before your normal pension age, will result in a lower level of compensation each year than using the current factors.

If you plan to take a tax-free lump sum alongside early retirement, the new factors will result in a smaller lump sum and a lower level of compensation each year.

Sharpcol

[Deleted User] said:

From what I see the PPF is projecting to be less generous to those accessing the fund before the failed pension scheme's NPA.  So if your original scheme NPA was 65 and you plan to access it 10 years sooner, the calculation is becoming less favourable in the long run.

Hi Scarum

My NPA is 60.  If i was 2 months older I could take Early Retirement in Feb 2023 with no reduction on the original scheme tables and would advise anyone over 55 thinking of early Retirement to look into it quickly and seriously and do it before March.

Due to the reductions in the new tables you are loosing out a lot of Money even if you wait till normal retirement Date IF?  you want the Tax free lump sum.

Sharpcol

molerat said:

I haven't seen anything about a general reduction in protection or are you referring to the new tables for early retirement from March ?  If so a reduction has always been in place for early retirement, the PPF is unusual in that it publishes the figures rather having to wait for an individual calculation, and reviews those tables regularly to reflect the cost to the fund of you retiring early.  The change from the October 2022 figure for a 55/65 retirement factor is from .869 to .823 so for every £100 of age 65 pension you will receive £82.30 compared to £86.90 previously.  If you had retired on the same basis in 2006 the factor was .724 receiving only £72.40 so you are far better off now than you would have been back then. And yes it is perfectly legal, all pensions do it.  On the plus side, if we had still been in the days of Maxwell et al you would be receiving nothing.

Maxwell pension scheme wouldn't of got near acceptance into the PPF.  Govt SCHEME is not financially supporting broken schemes. ALSO IF all the other pensions decided to burn their money does it make it right for the government to do it? As long as its legal. 

Marcon

Sharpcol said:

molerat said:

I haven't seen anything about a general reduction in protection or are you referring to the new tables for early retirement from March ?  If so a reduction has always been in place for early retirement, the PPF is unusual in that it publishes the figures rather having to wait for an individual calculation, and reviews those tables regularly to reflect the cost to the fund of you retiring early.  The change from the October 2022 figure for a 55/65 retirement factor is from .869 to .823 so for every £100 of age 65 pension you will receive £82.30 compared to £86.90 previously.  If you had retired on the same basis in 2006 the factor was .724 receiving only £72.40 so you are far better off now than you would have been back then. And yes it is perfectly legal, all pensions do it.  On the plus side, if we had still been in the days of Maxwell et al you would be receiving nothing.

Maxwell pension scheme wouldn't of got near acceptance into the PPF.  

The PPF didn't exist when Maxwell made his contribution to pensions history. Rather less well publicised is the fact that virtually all the missing money was recovered, although sadly it came too late for some pensioners who had died, and of course all pensioners had a protracted period of ghastly uncertainty.

Sharpcol said:

Govt SCHEME is not financially supporting broken schemes. 

Until the PPF was set up, if employers went bust and their DB pension schemes were underfunded, many members received massively reduced benefits, or in some cases nothing at all. If a scheme is accepted into the PPF, then members receive a decent proportion of their benefits. Obviously it would be preferable if they received everything they'd anticipated, but given the way the PPF is funded (by a levy on existing DB schemes), that's simply not affordable.

Sharpcol said:

ALSO IF all the other pensions decided to burn their money does it make it right for the government to do it? As long as its legal. 

Nobody is burning money. The PPF has to pay out to many members of different schemes, and they need the funds to do so - and reacting to market conditions is unavoidable to ensure that they can continue to pay everyone as benefits fall due.

zagfles

Sharpcol said:

Hi Molerat   The reduction affects normal retirement dates not just early retirement.  
Basically per every pot of £1000 per annum at normal retirement age is a reduction of £203 in lump sum and also a reduction of £31 per year in remaining Compensation.   (early retirement will be a lot more)  

Due to recent changes in financial markets, we've needed to review our factors again and have made some changes which will come into effect for anyone retiring on or after 1 March 2023. Depending on when you retire, the new factors will have a different impact on what you receive:

Normal Pension Age

Starting your payments at your normal pension age with a tax-free lump sum will result in a smaller lump sum for the same amount of annual compensation given up.

The cost of converting a lump sum to an annual income has reduced, the cost of converting an annual income to a lump sum has increased. It's changes in market conditions, mainly interest rates. The rates are set by actuaries. It's really not some evil govt conspiracy to steal your pension. They've moved the other way in the past.

Annuities are now better value as they convert lump sum to annual income, transferring out of a DB scheme is now worse value as that does the opposite, and commuting a pension for a lump sum is worse value as that partially does the same.