GMP franking on retirement Pre-GMP Age

RocketRacoon

I work within a pensions advice firm, work on the technical information from DB schemes.

More and more frequently we are coming across examples of client pensions being franked when they hold GMP and are retiring at their NRA but before GMP age (most commonly males with an NRA for 60 or 62).

Not only are administrators frustratingly unforthcoming with such details, attempting to get the information from them on how they apply this, is also next to impossible. 

From doing research online, there also appears to be very few definitive recourses out there in regards to Franking and seems to be an area that the entire industry as a whole is pushing into a dark corner to pretend it doesn't exist. 

Does anyone know of some useful recourses around this? 

I am coming across more and more examples where the impact that this is having on our clients retirement's is substantial and would really like to make sure my knowledge is up to scratch on this subject to verify the information being provided to us.  

I have a good understanding of what franking is, but it's more the method of applying franking to a clients pension  is where I am struggling (i.e maximum or minimum limits, when it can result in a step up of income etc).

Any help would be greatly appreciated!

xylophone

You have seen this?

https://expertpensions.co.uk/wp-content/uploads/2017/08/GMP-franking.pdf

And read posts from here onwards

https://forums.moneysavingexpert.com/discussion/4736856/barclays-final-salary-pension-gmp-excess-revaluation-anti-franking/p7

xylophone

See also 

https://forums.moneysavingexpert.com/discussion/comment/79753773/#Comment_79753773

https://forums.moneysavingexpert.com/discussion/comment/80152580/#Comment_80152580

https://www.sackers.com/publication/pasa-issues-anti-franking-guidance/

https://buck.com/uk/lets-stop-skirting-around-anti-franking/

Minette999

I know this is a bit late for a reply but Towers Watson are trying to frank my excess on NRD (woman aged 60, left the scheme after 1985). It will work out that 50% of my GMP revaluation will be franked. It's now at Internal Dispute Resolution Procedure stage. I only realised what they had done because the figures didn't correlate with my deferred pension statement.  The administrators refuse to put anything in writing. So  I have no idea as to the mechanism of franking (and it's not in the company's pension literature either). There is no clarity but lots of smoke and mirrors.  

xylophone

When you left the scheme, what did your statement of deferred benefits on leaving show under

Pre 88 GMP

Post 88 GMP

Excess

Has your GMP revalued by fixed rate or full rate?

https://www.barnett-waddingham.co.uk/comment-insight/blog/what-is-a-gmp/

What do the scheme rules have to say about revaluation of excess in deferment?

You have disputed the figures - are you saying that Towers Watson have made no attempt at all to explain them?

Minette999

Hi Xylophone.  The GMP figures are split pre/ post 1988. The excess is split pre and post 97. I know what my excess should be as I have deferred pension statements (in fact my scenario is identical to another post you replied to). When I got my NRD figures I could see my GMP had been revalued (it's not at a fixed rate but s148 orders (?)) . I don't have a problem with the figure. However the excess bears no relation to the amount which should be in my excess deferred pension statement (increased annually in October,  RPI max 5%) When I queried my NRD figures, specifically the total excess amount, I was told it was based ' on statutory increases not scheme increases' (this is because it is a contracted out scheme which,  post 97,  does the reference scheme test, they check the scheme excess figure against a statutory increase calculation, you get the larger figure). However the figure in the NRD quote is lower than the deferred pension figure - but cleverly TW has never updated my figure in October 23, but I have the October 22 figure). Eventually, after 3 months I found out that the reason for the lower than expected excess amount is that TW have franked some of the increase of GMP against my  excess pension. They have admitted it to me verbally.  It's nothing to do with the actual increases, statutory  or otherwise, the excess has been partially franked.  Barclays provides a leaflet which does detail when franking can occur, ie leaving scheme pre 1985, on increases pre NRD,  between NRD and GMP age (male). However being a woman aged 60 taking NRD pension isn't mentioned. It also details scheme increases in deferment, RPI max 5%, then pro rata increase in first year of drawing pension so October 24) . Towers Watson have been promising me a letter explaining why they can do this.  It's obviously causing them problems as it's been almost 2 months now which is why I have started IDRP. It looks like TW are franking women's pensions routinely judging by the striking similarities with another post on here.  

xylophone

When I got my NRD figures I could see my GMP had been revalued (it's not at a fixed rate but s148 orders (?)) .

https://forums.moneysavingexpert.com/discussion/6359913/barclays-gmp-revaluation-at-retirement

Were you a member of the 64 Scheme?

I have a vague memory of a poster mentioning a change from Fixed Rate to S148 in the Barclays Scheme but cannot noe find the reference.

For information about the difference see

https://techzone.abrdn.com/public/pensions/Tech-guide-guaranteed-min-pen#:~:text=If a member leaves the,known as fixed rate revaluation.

https://www.barnett-waddingham.co.uk/comment-insight/blog/revaluation-for-early-leavers/

With regard to the GMP, I had thought that Barclays had completed an equalisation exercise.

https://epa.towerswatson.com/accounts/barclays/public/barclays-bank-gmp-faqs/

See also

https://expertpensions.co.uk/wp-content/uploads/2017/08/GMP-franking.pdf

Public Sector Style Franking

There is a further scenario for Public Sector style schemes. If the scheme revalues the entire pension including the GMP at a single rate that is equal to RPI or CPI, then on retiring at the scheme’s Normal Retirement age, the minimum pension on reaching GMP age will be the sum of:

1. i)  GMP revalued to GMP age (usually by Section 148 orders)

2. ii)  Excess at Date of Leaving

So the scheme can frank the revaluation of the excess pension, but not fully frank the whole excess.

 I wouldn't describe Barclays as a PS style scheme but having changed to S148, is it possible that  above is what is happening?

Mike Floutier was a male member of the scheme - have a look at this (he was on Fixed Rate revaluation).

https://forums.moneysavingexpert.com/discussion/comment/63406494/#Comment_63406494

Minette999

Just to clarify,  when I say TW have never updated my excess pension figure following the October 23 increase,  what I mean is that I have never been able to obtain it. I used to be able to click on a link in my account to obtain  a deferred pension statement showing unrevalued GMP plus revalued in deferment excess, giving a total pension figure. I am pretty certain there is no dispute over the actual amount of the excess figure as I did manage to obtain an early retirement date quote for the day before my 60th birthday.  I have been told by TW that the ERD quote  uses the scheme deferred excess figure, plus unrevalued GMP plus a mysterious 'step up' figure. When I spoke to TW I asked them how much the 'step up' was in this ERD quote,  the figure they gave me was within  a few pounds of the following:

 ERD quote pension minus unrevalued GMP minus the figure which I believe to be my scheme excess = step up as advised by Towers Watson. So I don't think there is any dispute over the excess. It's simply that they are franking it to pay for some of the GMP revaluation in the NRD quote and using the statutory excess figure as presumably that is higher (for whatever reason) than the scheme figure otherwise they would use the scheme figure (according to them).

I was tempted to take my pension slighty early but as the figures in the  ERD quote are not split out until GMP age, this theoretical excess figure will probably,  on GMP payment age be reduced (franked) as the amount of step up is nowhere near the amount of GMP revaluation. I have asked TW if on GMP payment date, the residual revaluation of GMP will be added onto my pension,  to preserve the correct excess figure. Again I am still waiting for a reply. These aren't my actual figures but as illustration:

ERD quote = £20,000
comprising in theory: unrevalued GMP £1000
Excess revalued in deferment £18750
Step up £250.

On GMP age (the following day); if TW franking ; revalued GMP £2000, excess £18, 000. Total £20,000

If they don't frank it would be revalued GMP £2000 Excess revalued in deferment £18750. Total £20750.

As TW have not replied, I am not risking taking the pension early. Again, according to Barclays own leaflet, when a pension is in payment before GMP date, any increases to that pension between ERD and GMP date be franked . However in the 24 hrs between ERD and GMP  there are no increases to the pension so I can't see how franking can be justified according to their own literature.

As they admit to franking on the NRD figures and are likely to frank the ERD figures, I am waiting until NRD before drawing. There is total radio silence from TW still at the moment. 


I hope that makes sense!

xylophone

This poster (DT2001) took his Barclays pension before Normal Scheme Pension Age

Note his comment here https://forums.moneysavingexpert.com/discussion/comment/80031974/#Comment_80031974

I have just had a very detailed reply from the IDPR. It confirmed that at GMP full franking would apply as that was in accordance with the scheme and law.

and https://forums.moneysavingexpert.com/discussion/comment/80576806/#Comment_80576806

Do you have any GMP in the DB pension? If so check what happens at 65 regarding franking of increases. I will end up with a pension that is completely GMP part of which does not increase and part by 3% max (rules changed in 2016 with new SP).

Mike Floutier took his Barclays 64 at Scheme Pension Age - note his post here

https://forums.moneysavingexpert.com/discussion/comment/63406494/#Comment_63406494

In your case, Scheme Pension Age coincides with GMP age - put your own figures in his chart?

And will you be affected by equalisation?

And have you obtained a state pension forecast?

https://www.gov.uk/check-state-pension

Minette999

Hi, Yes it is the 1964 Scheme.  For those who left the scheme after 1997, the GMP is revalued in accordance with s148 orders. I left in 2000. It's less generous but is correct. I have had looked at my state pension forecast and the COPD pretty much is equivalent to my revalued GMP so that is all OK. There is also the state pension deduction by Barclays at SPA, that is fixed at time of leaving and happily  being eroded by inflation. My SPA is 67.

I have read the Mike Floutier post and if you are a male your NRD and GMP dates are 5 years apart so franking of the the excess can occur but a man will have had 5 years of increases of the whole pension in payment (which may or may not work out to be fair) before the GMP is split out as you say. 

For ERD, for both male and female, the Barclays Guide states that for in payment early pensions, the increases can be franked (hence my query to Towers Watson that if there are no increases in the pension in payment, if it is taken just a few months early, is there still franking - but no reply).

As for GMP equalisation,  I thought the exercise to be complete but it isn't.  I received an additional note saying the process had not been completed for my pension and the figures are pre GMP equalisation exercise. 

So, can they frank my excess at NRD and GMP, both of which are age 60? I completely agree with you, if it is a public sector style scheme, they can, but I can't see that it fits that scheme either. The clauses that Towers Watson mentioned when they told me verbally that it was being franked, I think are the same ones mentioned deep inside the Mike Floutier thread which I couldn't make much sense of when I read them.

As it is Towers Watson seem unable or unwilling to put in writing why they think they can frank or indeed, between which  dates. I will have to wait and see what their response is. However as the Barclays guide goes into quite a lot of detail about ' What happens to your pension when you leave Barclays ' and this franking is definitely not mentioned,  I really am wondering whether they can do it. I appreciate tht scheme rules and the Trust document overrides everything,  but only if it is legal. At the moment it appears to me that a woman aged 60 can never receive her  excess pension at NRD age in an unfranked state as the scheme closed in 2009 and there will always be a period of GMP revaluation to be calculated.  Whilst it could be argued that franking the male excess between NRD (age 60) and GMP (65) isn't 'fair' , it is at least lawful and within their literature.  GMP is about equalising both parties upwards,  not one party downwards (and is never mentioned in any of the literature). 

I will post once I hear more.

xylophone

Going by the information provided to the other two posters cited,  ( male deferred Barclays 64 members), one taking benefits pre NRD and one at NRD), franking is permitted for the former and for the latter to the extent that as a male, at NRD, the GMP is paid on the unrevalued basis, the excess on the revalued basis so that at age 65, when the GMP is revalued and paid at the revalued rate, the excess (which has escalated in payment), reverts to its value at NRD.

In your case as a female (GMP age and NRD age 60), if you draw your pension at NRD, then presumably the starting position (going by the information provided the Mike) must be GMP revalued to age 60 and excess revalued to age 60?

https://www.gov.uk/guidance/provide-a-pension-for-your-scheme-member#gmp-anti-franking-requirements

You will be taking the pension at NRD/GMP age and therefore in terms of future increases, the pension will be split pre 88 GMP/post 88 GMP/excess.

I note that you mention that your excess pension has been split into pre and post 97 which was not mentioned by either of the other posters.

Are you indicating that you have been advised that there will be no increases in payment on the pre 97 excess?

At all events, whatever the position, TW must explain it with chapter and verse.

I look forward to your update.