DB tax free lump sum - a spanner in the works!

saver_ali

Albermarle said:

OP - You should also consider just taking the full pension as the commutation rate is poor with both lump sums.
Do you know the term of the pension, particularly with regard to annual/inflation increases?

@x@xylophone and Albermarle, thanks for these comments. We have now had confirmation that any pension increases are likely to be negligible.

“Once the pension is in payment, it will increase as follows:

· The Guaranteed Minimum Pension (GMP) receives statutory increase once it is in payment. The increases due to your Guaranteed Minimum Pension accrued from your contracted service prior to 1988 is paid to you along with your state pension and is not paid by the scheme. 
· The GMP accrued post 5 April 1988 will increase in line with the CPI capped at 3% (September index).
· The benefits accrued before April 1997 will be increase with the Trustees Discretion (No discretionary increases since 2003).”

This is very like my DB pension with a different company, which I’m already drawing - I’m lucky if I get £50 a year increase, and I have 5 years service post 1988, whereas he only had 3. Many companies don’t bother with “discretionary” increases.  In fact, I’m going on a demo outside the company HQ in September with ex-colleagues to protest about this! We have a very active ex-employee association.

Re the spouse’s pension,  the latest handbook (2020) is different to what it was in 2017.
2017 says “spouse’s pension payable - 2/3rd of the pre commuted pension at date of retirement revalued to date of death.”
2020 says “a spouse’s pension equal to 2/3rd of the Member’s pension entitlement is payable.” The worked example uses the words “pension entitlement at death”.
They've also decreased the number of years that the spouse gets the full pension in the event of death of the member within five years of drawing the pension, from a max 5 to 2 years. 

The pension pack he was sent last month did state that if he took the £11.5k TFLS, I would still get the same spouse pension as if he took zero TFLS. We need to wait and see what the new illustration says if he were to take a larger cash sum.

My husband’s latest state pension forecast is £221.92 a week, £11579 a year. His is calculated on the old rules. He has 44 years NI contributions.

xylophone

The increases due to your Guaranteed Minimum Pension accrued from your contracted service prior to 1988 is paid to you along with your state pension and is not paid by the scheme. 

No.

Your husband reaches SPA in the new scheme - see link in my previous.  https://techzone.abrdn.com/public/pensions/Tech-guide-guaranteed-min-pen

Increases in payment

Additional increases provided by the State

Whether someone gets any additional increases via their State Pension depends on whether they receive State Pension under the old regime or under the New State Pension. This is determined by the date they reach State Pension age (SPA).

• On or after 6 April 2016 - The Government will no longer pay any appropriate increases relating to pre or post 6 April 1988 GMP along with the State Pension.

In your husband's case,  if the GMP within his deferred DB pension  was revalued at Fixed Rate (likely in a private sector scheme) even had he reached SPA in the old arrangement, he may have ended up with no increase on pre 88 GMP, and only scheme provided increase on post 88 GMP.

https://forums.moneysavingexpert.com/discussion/comment/80126301/#Comment_80126301

With regard to his state pension forecast, the amount indicates that when his "starting amount"  for NSP was calculated at 6/4/16, it was already in excess of a full new state pension, despite the fact that he would have had a fair sized COPE.

The amount of his starting rate that was equivalent to a full NSP at that date (£155.65) has increased since then under the triple (double) lock arrangement while the balance (his "protected payment" has increased by  CPI.

With regard to his scheme pension, he will receive no increase on his pre 88 GMP, up to 3% CPI on post 88 GMP and any discretionary increase on the excess over GMP.

In these circumstances, will he be considering taking the maximum lump sum on the basis that he could save/invest within ISAs for you both over a couple of years?

flaneurs_lobster

Oh dear, I have in the last week requested a quotation from Mercer for a DB pension, the rules/history of which are far from simple. 

At least it's not Capita (although another DB pension is in their careless hands).

Pat38493

flaneurs_lobster said:

Oh dear, I have in the last week requested a quotation from Mercer for a DB pension, the rules/history of which are far from simple. 

At least it's not Capita (although another DB pension is in their careless hands).

I also did the same in early July.

End of July they replied saying that such matters are now handled by an "outside company" so they have submitted the request and they will be in touch when they get some information back.  Weirdly, the email was signed off by the "Mercer Events team"!

No doubt if the estimates are wrong later on they will blame this "outside company" and say it's not their problem.

To further complicate things, the pension is currently in the process of a full buyout to Aviva but I haven't had any update about that since the first letter 6 months ago and they said it would take at least 18 months.  This should simplify matters long term hopefully as Mercer will be out of the picture (I hope), but not in the short term.

I'm not holding my breath.

Brie

saver_ali said:

[As background, I had horrendous dealings with the same scheme administrators in 2019 over a different pension, and I have very little confidence in them. I won’t name names, but @a@Albermarle will know who I mean! ]

Curious if this is the epi website run by an administration company for numerous schemes with the initials WTW? Oops, no wait I see the dreaded word Mercer....what do you know?!  My employer long ago and far away.

They messed up on my DB pension giving me a wrong NRD off by 5 years.  And my two other schemes with them have completely different requirements for logging on to their website and on how they send out information (determined by the pension trustees I know).  So one department was able to send me a quote within 24 hours but it's encrypted so I can't read it.  Last time I requested a quote it took me nearly 3 months to get a copy at which point it was completely out of date.  The other department takes up to 20 days to respond but I know that their scheme is very complicated  - in fact it comprises about 50 different schemes of which an employee may have been a member of 5 or 6.   (don't ask me how I know....)

Phossy

The new maximum lump sum looks in line with the monthly pension (as detailed nicely in hyubh's response).

saver_ali

xylophone said:

In these circumstances, will he be considering taking the maximum lump sum on the basis that he could save/invest within ISAs for you both over a couple of years?

That is certainly my way of thinking, but hubbie and I will talk through all the options. I want to double check that I’m not missing anything!

Thanks for the various links, which I have read and tried to digest. I think I understand which elements of his scheme pension will increase. I’m struggling with the various ways to calculate the maximum cash amount. The scheme details says tax free cash is calculated on a 3n/80ths basis. I think n=13 (#years service), so that gives 0.4875, but I don’t know what to do with that figure.
Or maybe thats irrelevant now if it is what they have changed in the plan as of 1st August 2023.

I’ve been going through all the old paperwork. I have all the figures for GMP on the date he left the scheme in 1991.

I think we just have to wait for them to come back to us now. 

Thanks for everyone’s comments, and good luck to anyone else who is dealing with this same administrator!

Bimbly

Pat38493 said:
Weirdly, the email was signed off by the "Mercer Events team"!

You may not get your pension quotation, but at least you'll get an invite to the Christmas party.

xylophone

 I have all the figures for GMP on the date he left the scheme in 1991.

Presumably it shows pre 88 GMP, post 88 GMP and excess.

 As this is a private sector scheme, it is likely (but not certain) that the GMP has been revaluing in deferment at a Fixed Rate  (7.5% for 1991 leavers) while the excess has been revaluing at least on the statutory basis.

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

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

The scheme details says tax free cash is calculated on a 3n/80ths basis. I think n=13 (#years service), so that gives 0.4875, but I don’t know what to do with that figure.

Is it by any chance 0.4875/salary at DOL?

saver_ali

@xylophone yes, re the GMP split, and yes, the GMP element was to be revalued at 7.5%, with the excess at the lesser of 5% or CPI.

Re the 0.4875, it just says the short sentence I quoted, i.e. “the tax free cash is calculated on a 3n/80ths basis.” No idea whether that’s DOL salary or revalued pension at retirement date. Strangely, given all the other numbers I have from 1991, I can’t find his actual final salary that was used to calculate the pension. Is there a reverse calculation I can do, working back from the deferred pension amount?