Understanding my Rentokil Initial pension

Malthusian

No. It means that if you had taken the pension on 11 June 20** you would have used up 5.73% of your Lifetime Allowance. If you use more than 100% of your Lifetime Allowance when you "crystallise" your pensions (and they all have to be crystallised at some point), until April 2023 you would have had to pay additional tax charges. Labour intend to bring those additional tax charges back if they win the next election. 
The value of a DB pension for Lifetime Allowance purposes is 20 times the annual pension, plus any lump sum. It is not the same as a CETV.
The % of the Lifetime Allowance used by the pension is likely to increase as the pension increases (if only with inflation).

eskbanker

Thumbs_Up said:

I have the same defined benefit scheme as David.  Can someone tell what this means:

“Your estimated lifetime allowance percentage as at 11 June 20** is 5.73%”

 Does this mean my pension is updated every year at 5.73%? I am way off from taking the pension just yet.

Good post’s BTW.

Not normally the done thing to hijack a thread with an unrelated query, but don't suppose anyone will mind when it's so old - the wording means that the aggregate pension benefit (as defined by annual payment times 20 plus any lump sum) is estimated to use up just 5.73% of your lifetime allowance, which has been £1,073,100, so the total benefit is estimated at about £61,500.  However, as from this tax year, the lifetime allowance won't apply to any pensions taken in future, so it's no longer relevant....

The increases to your pension once in payment will be defined somewhere within the scheme rules, and will typically take the form of escalation according to a nominated inflation index, with a minimum or maximum overlaid too, e.g. CPI or 2%, whichever is smaller.

Thumbs_Up

Never heard of “ lifetime allowance” so duly educated on the pension term and the “hijack” bit.

Many thanks to you both.

 

gm0

@Thumbs_Up.  

No it has nothing to do with how your accrued pension is or is not increased against inflation.  There will be a rule about that - so the amount your accrual of years (or % of salary) buys will indeed likely increase before you get there.  Whether that is 3%, CPI, RPI or some other value will be buried in the product documentation and communications somewhere.

What they have told you here about LTA is different.  Any pension was (until the latest changes muddied things further) measured against a lifetime allowance.  Essentially a limit to how much can be had via incentives to save in pensions before an additional tax uplift was applied (above 100% of LTA used).

For a DB "final or average salary" scheme a multiplier of the pension to be paid is used.  How much you are projected to get x 20 = an amount.  That amount is then calculated as a % of the LTA limit (circa £1m) in your case that sum came out as 5.73%.  Your provider was obliged to tell you this.  From next year or the year after this will probably stop.

A round numbers example for ease.  Around £10k pension income is expected from N years of accrual. 
20 x 10k = 200k.   200k/1m (approx limit) = ~20% used.

No tax penalties (were) applied until it reached 100%. 

The last budget started a process of abolition so you need not concern yourself unduly about it.  Some other tax regimen will be along in a minute

Thumbs_Up

gm0 said:

@Thumbs_Up.  

No it has nothing to do with how your accrued pension is or is not increased against inflation.  There will be a rule about that - so the amount your accrual of years (or % of salary) buys will indeed likely increase before you get there.  Whether that is 3%, CPI, RPI or some other value will be buried in the product documentation and communications somewhere.

This pension is deferred from 1999 so some time ago. The final figure increases in 3 segments-

Fixed 3%

RPI to a max 4%

RPI to a max 5%.

I take this RPI is inferior to CPI as a measuring tool?

What they have told you here about LTA is different.  Any pension was (until the latest changes muddied things further) measured against a lifetime allowance.  Essentially a limit to how much can be had via incentives to save in pensions before an additional tax uplift was applied (above 100% of LTA used).

I’m never getting close to a lifetime allowance so no worries there. I am very cash rich but very pension poor, a terrible combination I now understand very well, sadly to late in life to be rectified. I’m looking at purchased-life-annuity as a sort of get out of jail card, do understand they are poor value for you money (atm), maybe a monthly income fund is more applicable.

 Thank you gm0 for the follow up.