GMP franking on retirement Pre-GMP Age

Minette999

Hi again; your comment "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?"....That is my feeling exactly and that corresponds to the Barclays guide ' What happens to your pension when you leave Barclays'. However TW want me to accept franking which  represents 50% of the increase in GMP  since I left the scheme. 



Re the 1997 split, it took me a while to understand but basically GMP was replaced by the reference scheme test in 1997. The deferred excess pension figure, as at date of leaving the 1964 scheme,  is increased each October by the mount of RPI in June max 5%. The statutory revaluation figure is announced each December. The 2 figures are compared on retirement and the highest figure is the pension received.  From what I can see the pre 1997 and post 1997 excess pension receive the same increases of RPI max 5%.'scheme increases'.   So the split doesn't seem to be significant, the 2 figures need to be added together to see if they correspond to the deferred pension figure. Mine didn't,  which alerted me to the franking. I have based my claim on my known scheme deferred excess pension, as per TW's own figures on my deferred pension statement However it appears that the statutory figures are higher as those are the ones used in NRD figures by TW.

TW do not seem to want to explain how or why they are franking. So far they have refused all my requests.  I have  now asked the Trustees how any woman can receive an unfranked excess pension at NRD? I have instigated stage 1 internal Dispute Resolution procedure and I have kept up the pressure on TW to give me the formula for franking my pension (on the basis that men are told how their pensions can be franked at age 65, after receiving RPI increases on the whole pension).

I hadn't posted this reply as I was hoping for an update but as Towers Watson have not replied to any of my technical queries about franking, the Trustees are now involved in trying to get TW to respond. So at the moment  as a woman reaching NRD and GMP age 60, my GMP has been revalued correctly but some unknown calculation has taken place and my excess has been franked by about 50%  of the revalued GMP. Zero explanation from Towers Watson and zero information in any of the literature.  The longer it takes for TW to come up with any explanation for this, the more I believe it to be incorrect.  It's extremely hard to spot if your pension has been franked unless you have been keeping your deferred pension statements,  which fortunately I have. 

There is another thread on here which sets out exactly the same scenario as mine a couple of years ago. Sadly the woman, aged 60, was probably also misled by TW who made her think her excess pension was lower than because it was based on statutory increases.  Unsurprisingly this confused her, I expect the lower excess pension figures were because her pension had been franked against the GMP revaluation.  Only they didn't tell her. She too was locked out of her pension account.  

xylophone

I suppose that in the end and in default of the explanation, your recourse will be to the Ombudsman.

Incidentally, have you been receiving annual statements of your deferred pension benefits?

If so, it appears that you are among the called and the chosen as it were...

https://www.pensionfundsonline.co.uk/articles/how-to-get-ready-for-the-annual-pension-benefit-statement-iorp-ii

Reading through the above, I was struck by

An additional vague complexity in the methodology of revaluation to deferred pensions (Section 52a orders) has always acted as the excuse for schemes not providing deferred members with an annual update on their pension. The applied method calculates the uplift between leaving pensionable service and retirement age on an aggregated basis, rather than year-on-year. This means that any single year that exceeds the maximum capped increase is smoothed over the entire period and not annually. Whilst only likely to have an impact where price inflation rises above the annual cap, it still means that actual revaluation can only be known close to the point of retirement. This is the most commonly quoted reason for why schemes and administrators do not send deferred members annual statements.

I am now wondering whether some form of "smoothing" rather than franking has been used?

Minette999

I have unlocked the secret of my pension figures. It is all about the Statutory Reference Test which ensures an employer pays a minimum level of pension (it replaced GMP as a  concept).

To recap, the tests compare what a member is entitled to receive under the private DB Scheme and the minimum amount under law the employee must receive in pension based on statutory increases in deferment.  The highest figure is the pension paid.

TW fought tooth and nail not to let me see this, but the Trustees made them hand it over.

So the formula for Test 1 is: Unrevalued GMP + revalued  scheme excess (RPI max 5%)
Test 2 Unrevalued GMP +revalued GMP + Excess revalued as per statutory orders (a mixture of CPI/RPI  - unsurprisingly the figure is smaller than my revalued scheme excess).

As I expect you have spotted, there is  no revalued GMP included  in Test 1 so obviously Test 2 statutory revaluation,  produces the highest  overall figure even though the actual excess figure is lower!

As a result I am getting a pension based on the statutory minimum. 
 
The letter from TW states anti franking laws stop them franking the statutory minimum  excess (Test 2) against revalued GMP but they are permitted to frank the scheme excess which  presumably is the reason there is no revalued GMP in Test 1; they have franked the lot! (Although they should show this step in the calculation unless they just didn't want me to spot it). They also say the Scheme Rules allow it. I did ask TW specifically for details of where in law and the scheme this is written but they neglected to include that information. 

So yesterday I wrote to the Trustees. As you say, only the Ombudsman can assess the legality of the use of franking but I sent the Trustees copies of correspondence which I have received from Barclays over the years, one which says my deferred pension increases of RPI max 5% are guaranteed.  Another letter gives a description of this side by side calculation,  and it says revalued excesses and GMP's are added together - no mention of franking of the  scheme excess side of the calculation (in Test 1).

I sent them  my deferred pension statement (I am definitely not a chosen one but for the last 4 years I have downloaded it and kept it, otherwise I would not have noticed this discrepancy and you cannot obtain historic records) . It says that I should read the 'What happens to your pension when you leave Barclays guide' in conjunction with the deferred statement. The statement shows  the amount of my  non GMP deferred excess as at date of statement and unrevalued GMP which it says  will be revalued at GMP age. GMP and non GMP parts are added together in the statement.  In the guide there are lots of explanations of the 3 scenarios when franking is allowed (leaving prior to 1985, on increases on pension between early retirement age and GMP age (which is also not being applied as described by TW) and for men, on increases between NRD age 60 and GMP age of 65 (who will have received scheme increases on the whole pension in payment for 5 years) but absolutely no mention of franking for a woman  at 60.

The tests are to ensure a minimum level of pension is paid by an employer.  TW seem to be using it as a way to discard all the guarantees about my Scheme pension in deferment. It is not possible to frank and keep the promises made by the 1964 scheme. Additionally,  over the years, 24 of them since I left the scheme,  at no stage has this ability to frank been mentioned.  I also think most, if not all, women will receive the statutory minimum and I wonder if men,  assuming the same test is carried out at NRD age 60, are more likely to receive benefits under Test 2,  the scheme excess pension, as revalued GMP is not yet due for payment,  so should not figure in either test.

This is a quick resume of my letter to the Trustees.  My claim is for revalued GMP + Scheme excess  pension be paid to me. 

So my nice shiny Barclays 1964 pension has been chucked out of the window and I am about to be a recipient of the minimum pension the scheme is allowed to give me. Whilst the difference is not huge, I cannot believe that TW can do this. So I now wait for the reply from the Trustees. 

Minette999

PS after months of trying to get TW to confirm the amount of my scheme excess to check it matched my one, as they had also refused to send me an up to date deferred statement post October 2023 increase, I was pleased to see the expected figure was sitting there in Test 1. TW certainly don't make anything easy...  

xylophone

The tests are to ensure a minimum level of pension is paid by an employer.

The Reference Scheme Test  - you might find this of interest if you haven't already read it.

https://techzone.abrdn.com/public/pensions/Tech-guide-section-92b-rights

Of particular interest is

Before 6 April 1997, schemes contracted out on a salary related basis had to provide a certain level of guaranteed minimum pension (GMP). But any excess benefits above this minimum benefit level were not treated as contracted out rights. The key difference after 5 April 1997 is that all of the defined benefit built up until 5 April 2015 is treated as section 9(2B) rights - although any additional money purchase benefits, such as additional voluntary contribution funds, are excluded.

But as far as I can see this does not prevent your deferred pension being split pre and post 97?

Because you have a GMP you would expect it to revalue in deferment as previously discussed.

The balance of the pension pre 97 was "excess" - post 97 the whole of the pension was excess.

Therefore it seems entirely logical for you to expect GMP revalued to age 60 (which is also Scheme NRA) and the whole of the excess revalued to NRA on the basis of the better of statutory /scheme revaluation.

Do report on the outcome.

Minette999

Thanks, I will certainly report back.  I will wait to see if Barclays Trustees believe that TW can frank the  scheme excess by the whole revalued GMP in Test 1 which is what has made the Test 2 figure appear greater.
Even if they are permitted to frank legally, can they if it means breaking all the other scheme promises about increases in deferment?
And finally, can enforce their rights? They may say my understanding is wrong  but it is they who allowed me to believe my understanding was correct due to the representations made in all of their communications, particularly the 'What happens to your pension when you leave Barclays ' guide which is the document they rely on to clarify matters for deferred pensioners!
I am expecting the Trustees to say they agree with TW because the implications of agreeing with me are huge, I wonder how many other people are receiving a smaller pension as a result?
No doubt I will have to go through the Ombudsman but that's fine. When I spoke to the  Ombudsman's office  I was told to focus on what Barclays has said to me over the years if I do end up submitting a complaint, that is definitely not a problem. At least I now understand what TW has done to my pension, even if they didn't want me to know.
Thanks Xylophone for your helpful comments and links.

xylophone

 When I spoke to the  Ombudsman's office  I was told to focus on what Barclays has said to me over the years i

Hm.... apropos of this have a look at the Ainsworth case.

https://www.pensions-ombudsman.org.uk/decision/2008/s00105/barclays-bank-uk-retirement-fund-s00105

I don't think that what Mr Ainsworth believed (or believed he was led to believe) cut very much ice......

Minette999

Ouch...that's a fascinating case. I am not overly optimistic because I am one person arguing alone. But that does not mean I am not going to try.....

Minette999

The Ombudsman says  'there was no intention to mislead' in that case. I think (only my opinion of course) that TW have very carefully tried to hide the deduction.  There has been no transparency whatsoever.  Reading a few Ombudsman's decisions 'loss of expectation ' appears a common theme and £1000 to cover the 'disappointment '. 

xylophone

I'll be vey interested in the outcome.