Pension very depleted

Pat38493

Havent_got_a_clue said:

Sorry to jump in on this thread but the same thing has happened to my husband. 

He is a deferred member of a closed final salary scheme. We have checked the forecasts on their pension website and over the last 2 years the quotes have not changed. We were not surprised at this because the NRA is 60 and he is 62. He is looking to retire in the next couple of years and the benefits of deferring after 60 were favourable at approx 6% per year.
We have checked again in the last couple of weeks and these figures have dropped by nearly £3000 less for the lump sum and approx £400 pa for the pension payment.
The surviving spouse pension, however, has increased as has the estimate for taking the pension without a lump sum.

we are also concerned that this could change again and are advised  by the scheme administrators that this may well happen. 

It does not help when trying to plan but is also alarming that this is allowed.
We have also been told that this is because of interest rates? How can this be the case with a defined benefit scheme? 

I’ve read that DB schemes cannot change the rules without consultation. 

Is his situation different because he is no longer under the normal rules as he is past NRA? And therefore do a new set of flexible rules apply?

Its impossible for a layman to calculate the revaluation from the figure quoted at the closure of the scheme as he has various different factors such as GMP  and pre and post 1990 (forgive me if I have the year 1990 wrong I am saying this from memory) 

I can post this as a new thread but thought it was relevant to the OPs query and also another similar query that I have read recently.

Any advice would be really appreciated. 

What kind of magnitude of changes are you seeing - is this just a very small % of overall amounts?  The OP was implying a drop of more than two thirds in the valuation whereas I suspect what you are seeing is a much smaller change relative to the total amounts.  

My first guess would be that they have adjusted the factors that they use for late and early retirement, which typically they are allowed to do by the pension rules.  My understanding is that they are only supposed to do that in a way which is fair to all pensioners i.e. based on a reasonable assessement that every pensioner should get roughly the same benefit for the same contribution if they live an average lifespan.

They should also provide you with a copy of the relevant rules and tables if you request it.

The reason the spouse one changed in the opposite direction is not clear but normally the spouse pension is unaffected by early or late retirement and is based on 50% or suchlike of  NRA pension I think so maybe it’s that adjusted for inflation.

The other factor is whether you have mixed NRA inside the pension - in some cases even though they say the NRA is 60, it may be that there are different tranches within the pension with different NRA due to various historical legal rulings and realignments.  If that’s the case then each tranche would be calculated separately.

Havent_got_a_clue

Pat38493 said:

Havent_got_a_clue said:

Sorry to jump in on this thread but the same thing has happened to my husband. 

He is a deferred member of a closed final salary scheme. We have checked the forecasts on their pension website and over the last 2 years the quotes have not changed. We were not surprised at this because the NRA is 60 and he is 62. He is looking to retire in the next couple of years and the benefits of deferring after 60 were favourable at approx 6% per year.
We have checked again in the last couple of weeks and these figures have dropped by nearly £3000 less for the lump sum and approx £400 pa for the pension payment.
The surviving spouse pension, however, has increased as has the estimate for taking the pension without a lump sum.

we are also concerned that this could change again and are advised  by the scheme administrators that this may well happen. 

It does not help when trying to plan but is also alarming that this is allowed.
We have also been told that this is because of interest rates? How can this be the case with a defined benefit scheme? 

I’ve read that DB schemes cannot change the rules without consultation. 

Is his situation different because he is no longer under the normal rules as he is past NRA? And therefore do a new set of flexible rules apply?

Its impossible for a layman to calculate the revaluation from the figure quoted at the closure of the scheme as he has various different factors such as GMP  and pre and post 1990 (forgive me if I have the year 1990 wrong I am saying this from memory) 

I can post this as a new thread but thought it was relevant to the OPs query and also another similar query that I have read recently.

Any advice would be really appreciated. 

What kind of magnitude of changes are you seeing - is this just a very small % of overall amounts?  The OP was implying a drop of more than two thirds in the valuation whereas I suspect what you are seeing is a much smaller change relative to the total amounts.  

My first guess would be that they have adjusted the factors that they use for late and early retirement, which typically they are allowed to do by the pension rules.  My understanding is that they are only supposed to do that in a way which is fair to all pensioners i.e. based on a reasonable assessement that every pensioner should get roughly the same benefit for the same contribution if they live an average lifespan.

They should also provide you with a copy of the relevant rules and tables if you request it.

The reason the spouse one changed in the opposite direction is not clear but normally the spouse pension is unaffected by early or late retirement and is based on 50% or suchlike of  NRA pension I think so maybe it’s that adjusted for inflation.

The other factor is whether you have mixed NRA inside the pension - in some cases even though they say the NRA is 60, it may be that there are different tranches within the pension with different NRA due to various historical legal rulings and realignments.  If that’s the case then each tranche would be calculated separately.

Thanks for your reply. Yes that must be the reason for the change then as the commutation factor has changed. I’m glad I asked the question as at least I now know that this is allowed although it seems a little unfair on people trying to plan for their future. 

It’s relatively small amounts in the scheme of things but this has come on the back of having received outrageously generous, albeit erroneous estimates received from the previous administrators and this still stings even after several years! 

Every penny is being accounted for and even a loss of a few hundred each year and a few thousand from the lump sum means taking the deficit from another source. 

Thank you for your help

Tommyjw

Havent_got_a_clue said:

Sorry to jump in on this thread but the same thing has happened to my husband. 

He is a deferred member of a closed final salary scheme. We have checked the forecasts on their pension website and over the last 2 years the quotes have not changed. We were not surprised at this because the NRA is 60 and he is 62. He is looking to retire in the next couple of years and the benefits of deferring after 60 were favourable at approx 6% per year.
We have checked again in the last couple of weeks and these figures have dropped by nearly £3000 less for the lump sum and approx £400 pa for the pension payment.
The surviving spouse pension, however, has increased as has the estimate for taking the pension without a lump sum.

we are also concerned that this could change again and are advised  by the scheme administrators that this may well happen. 

It does not help when trying to plan but is also alarming that this is allowed.
We have also been told that this is because of interest rates? How can this be the case with a defined benefit scheme? 

I’ve read that DB schemes cannot change the rules without consultation. 

Is his situation different because he is no longer under the normal rules as he is past NRA? And therefore do a new set of flexible rules apply?

Its impossible for a layman to calculate the revaluation from the figure quoted at the closure of the scheme as he has various different factors such as GMP  and pre and post 1990 (forgive me if I have the year 1990 wrong I am saying this from memory) 

I can post this as a new thread but thought it was relevant to the OPs query and also another similar query that I have read recently.

Any advice would be really appreciated. 

Please note there are some uncommon quirks to Schemes i can see that might mean its something else as well, but the most likely reason both of what you said happen (higher pension, lower lump sum and lower reduced pension) past a Schemes NRA is if both of the below changed.

- The late retirement factor. So you have £10,000 pension at 60, retire at 61 it increases by 6%, go at 62 it increases by 12%.. etc. So £11,200 at 62. This is common now with inflation, many schemes are making these factors better.

If this has increased your pension entitlement is higher, say it's now 8% per year then you'll see the pension, without cash, option a little higher. So let's say at 62 it was £11,200, its now £11,800.

- The commutation factor. This defines how much cash you get per pound given up. A factor of 20 = you get £20 lump sum for every £1 of pension given up. Higher = better for you, lower is worse 

A pension of £11,200 with a commutation factor of 25 gives you a lump sum of £58,947 and you can a smaller pension of £8842.

A pension of £11,800 with a commutation factor of 18 gives you a lump sum of £58,233 and a smaller pension of £8,564

As in the above example, despute your pension going up (higher late increase) the lump sum and reduced pension have gone down (a lower commutation factor), but as seen they need to go down quite a bit for it to give an end result of lower options. In the above example it needs to go from 25 to below 20.

There is the possibility of other quirks I can think it may be but that are uncommon so I'd ask to be sure. It really shouldn't be difficult for them to tell you what's changed.

Sometimes Schemes publish details online of any changes, does this pension scheme have a website ?

Edit to clarify : Schemes can change these factors at any point, it's a whole process but the summary is (to be blunt) members don't need to be told before it changes or even after. In short the rules of the scheme (which yes, can't change) will say e.g. "increased past NRA by a late retirement factor as decided by the Trustee" so they have the option to change it whenever they want.

Havent_got_a_clue

Tommyjw said:

Havent_got_a_clue said:

Sorry to jump in on this thread but the same thing has happened to my husband. 

He is a deferred member of a closed final salary scheme. We have checked the forecasts on their pension website and over the last 2 years the quotes have not changed. We were not surprised at this because the NRA is 60 and he is 62. He is looking to retire in the next couple of years and the benefits of deferring after 60 were favourable at approx 6% per year.
We have checked again in the last couple of weeks and these figures have dropped by nearly £3000 less for the lump sum and approx £400 pa for the pension payment.
The surviving spouse pension, however, has increased as has the estimate for taking the pension without a lump sum.

we are also concerned that this could change again and are advised  by the scheme administrators that this may well happen. 

It does not help when trying to plan but is also alarming that this is allowed.
We have also been told that this is because of interest rates? How can this be the case with a defined benefit scheme? 

I’ve read that DB schemes cannot change the rules without consultation. 

Is his situation different because he is no longer under the normal rules as he is past NRA? And therefore do a new set of flexible rules apply?

Its impossible for a layman to calculate the revaluation from the figure quoted at the closure of the scheme as he has various different factors such as GMP  and pre and post 1990 (forgive me if I have the year 1990 wrong I am saying this from memory) 

I can post this as a new thread but thought it was relevant to the OPs query and also another similar query that I have read recently.

Any advice would be really appreciated. 

Please note there are some uncommon quirks to Schemes i can see that might mean its something else as well, but the most likely reason both of what you said happen (higher pension, lower lump sum and lower reduced pension) past a Schemes NRA is if both of the below changed.

- The late retirement factor. So you have £10,000 pension at 60, retire at 61 it increases by 6%, go at 62 it increases by 12%.. etc. So £11,200 at 62. This is common now with inflation, many schemes are making these factors better.

If this has increased your pension entitlement is higher, say it's now 8% per year then you'll see the pension, without cash, option a little higher. So let's say at 62 it was £11,200, its now £11,800.

- The commutation factor. This defines how much cash you get per pound given up. A factor of 20 = you get £20 lump sum for every £1 of pension given up. Higher = better for you, lower is worse 

A pension of £11,200 with a commutation factor of 25 gives you a lump sum of £58,947 and you can a smaller pension of £8842.

A pension of £11,800 with a commutation factor of 18 gives you a lump sum of £58,233 and a smaller pension of £8,564

As in the above example, despute your pension going up (higher late increase) the lump sum and reduced pension have gone down (a lower commutation factor), but as seen they need to go down quite a bit for it to give an end result of lower options. In the above example it needs to go from 25 to below 20.

There is the possibility of other quirks I can think it may be but that are uncommon so I'd ask to be sure. It really shouldn't be difficult for them to tell you what's changed.

Sometimes Schemes publish details online of any changes, does this pension scheme have a website ?

Edit to clarify : Schemes can change these factors at any point, it's a whole process but the summary is (to be blunt) members don't need to be told before it changes or even after. In short the rules of the scheme (which yes, can't change) will say e.g. "increased past NRA by a late retirement factor as decided by the Trustee" so they have the option to change it whenever they want.

Thank you for this explanation. We did call the administrators and they advised that it was the commutation factor that has changed but I was set to  query whether they were allowed to do that without consulting the scheme members. Now I know they can (thank you) 

I’ve just worked ilout the commutation factor on the figures for the date we were looking at and it appears to be 20.3 whereas previously it was 20.75 which seems odd? It’s not a very big change? Would they change it by a small amount?
We will contact the administrators for a copy of the actual changes. 
I’m going to look at it in more detail tomorrow as I am now thinking that the starting point (Ie the figure being used from aged 60) has been changed? I don’t really know if I’ll be able to do this though as I mentioned it’s complicated because of the GMP etc

I’ll also look in more detail at the examples you have posted in case I have miscalculated 🙂 
Thank you again for taking the time 
 

Pat38493

Havent_got_a_clue said: 

It’s relatively small amounts in the scheme of things but this has come on the back of having received outrageously generous, albeit erroneous estimates received from the previous administrators and this still stings even after several years! 

Every penny is being accounted for and even a loss of a few hundred each year and a few thousand from the lump sum means taking the deficit from another source. 

DB pension scheme administrators are not unknown to get things wrong.  I have seen threads here where they came back several years later asking for money back from the pensioner because they had wrongly paid them too much.

I will be interested to see what my next estimate is as I had a vague feeling that the last estimate they sent me was too high, but we will see - I have discovered a lot more information since then about my pension details, partly because they are doing a buy out so they had to provide me with a full breakdown of the details of it.

It's also worth re-iterating that according to my understanding, the trustees and administrators are obliged to act in the best interests of all members of the scheme, taking into account the best knowledge of market conditions and expectations.  So they can't just decide they don't like people retiring later and artificially reduce the amount or whatever.  It's pretty common for commutation factors and early/late retirement factors to be changed.  Good luck getting a detailed explanation of the assumptions behind the change.  I've often wondered what would happen if you put in a freedom of information or data protection request asking for all details of it.

steliz

Here's a quick update, my wife checked her pension account again this morning and the cash lump sum option has now returned to £20k. I can't find any explanation for this on the web portal.

Thanks again for all the help.