State pension - contracted out

hyubh

player1_2 said:

Pat38493 said:

Do you have a breakdown of the amount of deferred pension that you have in each of the above categories?  If not, I would think that you should be able to request one.  The pension administrators have the breakdown of how the amounts are split between the categories mentioned above.

The entries mean that parts of  pension will increase with CPI price inflation each year, but there is a cap which applies - for example if inflation is more than 5%, you will just get 5% increase on that corresponding part of the pension.

So for the part that says 5%, if inflation is 3%, you get a 3% increase.  If inflation is 6% you get a 5% increase.

Thanks Pat38493, that is really helpful. 
I do not have the breakdown of deferred pension. 
Can you advise how does row 4 (pension earned)  differ from row 2 and 3 (GMP or pension above GMP earned) ?  

When you left active membership, your scheme pension was calculated according to scheme rules. At the same time, assuming you joined before 6/4/97, then a 'Guaranteed Minimum Pension' (GMP) was calculated; your scheme pension less your GMP was then your 'excess' pension (alias 'pension above the GMP').

GMP was intended to act as an underpin to ensure you hadn't lost out by being 'contracted out' of the (salary-related) additional state pension. (In being contracted out, both you and your employer paid a lower rate of National Insurance, at the cost of not accruing beyond the Basic State Pension with the state - at least originally.) This underpin had (has) its own due date that corresponds to the old state pension age, namely 60 for women and 65 for men. As an aside, it also had/has its own late retirement factor (completely distinct from any scheme late retirement factor), were you to draw your pension after your GMP age (as opposed to the scheme's normal pension age). However, GMP not a separate pension, it's still part of your scheme pension.

Were you to draw your scheme pension before your GMP age, then a scheme was able to do much what it wanted. From what you have screenshotted, your scheme likely took the course that most did: 'revalue' the GMP up until retirement, then treat the whole pension (GMP + excess) as one until GMP age. That is why the first three cells of column two are greyed out: until GMP age (i.e. 60 for women, 65 for men), there is no 'GMP' and 'pension above the GMP', only 'pension'. Conversely, from GMP age, the GMP/excess split is material, so a generic 'pension' category is not applicable (hence the greyed out cell in column three).

xylophone

First of all, is age 63 normal scheme retirement age in this DB Scheme?

Secondly, you mention that the DB scheme came to an end in 2009 - your company replaced it with what exactly?



In 2009, did the scheme close to future accrual so that for all members this pension became deferred?

Were you all given statements on scheme closure showing your position as to pre 88 GMP/post 88 GMP/ excess?

If so, what exactly did yours show?

Normally, when a member left a DB Scheme and his pension became deferred, there were certain rules that had to be followed in respect of revaluation in deferment of the  GMP element and the excess over GMP.

The Scheme's Trust Deed and Rules could make a more generous provision than was required on the statutory basis. 

For those who have a GMP there is an entitlement to increases in deferment up to GMP age (60(F)/65(M).

It should be noted that even when state pension age increased (it used to align with GMP age), GMP age remained the same.

When a person started to receive  the DB pension pre GMP age, the way that increases on the pension in payment were made depended on scheme rules.

Certain schemes simply increased the whole of the pension according to scheme rules up to age 60/65 and then at GMP age split out the pension into its component pre 88 GMP/post 88 GMP and excess.

Thereafter the scheme paid no increase on pre 88 GMP/up to 3% RPI/CPI on post 88 GMP and whatever scheme rules specified on the excess over GMP.

Others  followed a different process, see here for example

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

xylophone

Has there been any mention by your Scheme Administrator of  a GMP equalisation exercise in respect of post 1990 GMP?

https://epa.towerswatson.com/accounts/rsa/public/rsa-group-pensions-rigps-gmp-equalisation-faqs/

player1_2

xylophone said:

First of all, is age 63 normal scheme retirement age in this DB Scheme?

Secondly, you mention that the DB scheme came to an end in 2009 - your company replaced it with what exactly?

In 2009, did the scheme close to future accrual so that for all members this pension became deferred?

Were you all given statements on scheme closure showing your position as to pre 88 GMP/post 88 GMP/ excess?

If so, what exactly did yours show?

xylophone said:

Has there been any mention by your Scheme Administrator of  a GMP equalisation exercise in respect of post 1990 GMP?

https://epa.towerswatson.com/accounts/rsa/public/rsa-group-pensions-rigps-gmp-equalisation-faqs/

63 is NRA for this pension. 

When the DB scheme closed in 2009 the company replaced it with a DC stakeholder pension scheme.

I don’t recall receiving a scheme closure letter but it was a long time ago and could have been received but inadvertently not retained.

no mention of a GMP equalisation exercise as far as I know.

thanks for your continued support - my head is spinning 😀

Pat38493

I stand corrected - although it does seem like the government policy on this is against their own laws that says you cannot discriminate between people on the grounds of age or gender.  

With my DB pension that was deferred in 2008 it seems to be different - GMP was equalised recently but if I look on the factsheets even before that, there is no mention of male vs female in the pension increase section.

xylophone

there is no mention of male vs female in the pension increase section.

This question of male/female is specific to the GMP component of the pension.

The GMP relates to  accrual in contracted out pension schemes from 1978 to 1997.

You should note that in that period (and indeed up to 2010), SPA was 60 for females and 65 for males - this was also GMP age.

While SPA has changed, GMP age has remained the same.

In return for contracted out status (employer and employee paid a lower rate of NI), the scheme had to guarantee  that at GMP age it would pay the member a pension at least as great as he/she would have received had the scheme remained contracted in.

As a sweetener to employers, the government undertook to pay increases on the GMP component of the occupational pension through the state pension scheme.

This undertaking was later watered down (1988) such that the government would pay increases on the pre 88 GMP but the scheme would have to pay increases of up to 3% RPI/CPI on the post 88 GMP with the government picking up any increase over 3%.

The system through which the GMP increases were paid with SP ended with the introduction of NSP for those reaching SPA on or after 6/4/16.

However, there was no change requiring non public service schemes to pick up paying the increase on pre 88 GMP or anything over  up to 3% RPI/CPI on the post 88 GMP.

xylophone

When the DB scheme closed in 2009 the company replaced it with a DC stakeholder pension scheme.

What has happened to your stakeholder pension?

player1_2

xylophone said:

When the DB scheme closed in 2009 the company replaced it with a DC stakeholder pension scheme.

What has happened to your stakeholder pension?

That finds its way into the TFLS or residual monthly payment ( I have an option to remove that separately and get my TFLS/payments recalculated but I discounted that one). Also an option to forego the TFLS, take higher monthly payment and buy an annuity with the DC portion)  

xylophone

That finds its way into the TFLS or residual monthly payment

That seems very unusual for a simple stakeholder pension introduced as a replacement of a DB scheme.

xylophone

I have now looked at your first post again

1. TFLS of  £173k with residual pension of £26k.
2. no lump sum, £29.4k + whatever annuity £91k can purchase 
3. transfer out (pension valued at £664k

*Actually it is a Hybrid scheme, mainly DB with AVCs until deferred, the £91k of DC

This is not like the standard "hybrid from the start" scheme.

https://www.pensionsauthority.ie/en/lifecycle/private_pensions/hybrid_pension_schemes/

It is very unusual to be able to combine what you term a stakeholder pension with a closed DB Scheme in this way.



Is the value of the "stakeholder" as you term it £91,000?

It would seem that the value of the maximum possible PCLS was calculated and then (in effect), you were able to take the whole of the "stakeholder" tax free as part of that PCLS?

 As far as I can see, with regard to increases when your pension comes into payment and  looking at the chart you supplied, it would seem that pre age 65, whatever pension you start out with will  be treated as three tranches - you may (or may not) receive an increase on the  pre 97 accrual, will receive an increase of up to 5% on 97/05 accrual and then up to 2.5% on post 05 accrual.

After age 65, your pension will be split into pre 88 GMP, post 88 (to 97 when the GMP system ended) and the excess.

You will receive no increase on pre 88 GMP and  up to 3% CPI on post 88 GMP.

The excess over GMP is regarded as being formed of pre 97 accrual, 97  - 05 accrual  and post 05 accrual and increases will be applied as set out above.

You should check this with the Administrator who should also be able to supply the GMP/excess information.

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