Final salary scheme - benefit deductions for contracted out years

the-chauffeur_2

Hello gang

Back in the early '90s, I accrued 4 years benefits in a final salary scheme working for a life and pensions company.  The scheme was contracted out of SERPS and there's still a few years to go until the benefits become payable.  Suffice it to say that with such a short service period, I'm not expecting much from it at the scheme NRD of 60 . . . 

Given that my membership is deferred (i.e. not active) I've had next to no information about what benefits might be due at retirement in the intervening period.  I've asked for a revaluation statement but it's going to take a couple of weeks (or something).

Having said that, I've got a transfer statement from 1998 and it contains all kinds of figures - some of which make no sense whatsoever.  Again, I used to work for these folks so I've got half a clue about how this stuff works but there's some values (esp. relating to contracting out) that simply don't seem possible. 

But for the sake of this post, the bit I'm interested in is a statement that says the payable pension will be reduced at state pension age (was 65 at the time but will be higher) because basically SERPS.  Given that SERPS is no longer a thing, is this deduction still likely/necessary?   I realise the answer is likely to be 'it depends' and should be detailed in the scheme rules, but I've checked the current scheme documents and I can't see any mention of how this stuff will work.  It would be good to hear from anyone with experience of this sort of thing.

Meantime I've also been trying to get my head round the wider rules relating to the move away from SERPS and frankly, it's w-a-y too confusing.  In the four years prior to joining the above scheme, I was contracted out (too young to join the scheme) but even with a total of 8-ish years continuous contracting out, my NI history shows a full contribution history and projection for a full state pension.  I'm certainly not going to complain, but that makes no sense to me.

Thanks for reading.

Marcon

the-chauffeur_2 said:

Hello gang

Back in the early '90s, I accrued 4 years benefits in a final salary scheme working for a life and pensions company.  The scheme was contracted out of SERPS and there's still a few years to go until the benefits become payable.  Suffice it to say that with such a short service period, I'm not expecting much from it at the scheme NRD of 60 . . . 

Given that my membership is deferred (i.e. not active) I've had next to no information about what benefits might be due at retirement in the intervening period.  I've asked for a revaluation statement but it's going to take a couple of weeks (or something).

It's normal for deferred members of final salary schemes to receive no personalised information (benefit statements) from the time they leave active membership until close to the time they access the benefits. You may or may not get an updated statement - hopefully you will, given how long it is since you left.

the-chauffeur_2 said:

Having said that, I've got a transfer statement from 1998 and it contains all kinds of figures - some of which make no sense whatsoever.  Again, I used to work for these folks so I've got half a clue about how this stuff works but there's some values (esp. relating to contracting out) that simply don't seem possible. 

But for the sake of this post, the bit I'm interested in is a statement that says the payable pension will be reduced at state pension age (was 65 at the time but will be higher) because basically SERPS.  Given that SERPS is no longer a thing, is this deduction still likely/necessary?   I realise the answer is likely to be 'it depends' and should be detailed in the scheme rules, but I've checked the current scheme documents and I can't see any mention of how this stuff will work.  It would be good to hear from anyone with experience of this sort of thing.

Many schemes have a provision that the scheme pension will be reduced from state pension. It's called clawback and yes, it still applies.

the-chauffeur_2 said:

Meantime I've also been trying to get my head round the wider rules relating to the move away from SERPS and frankly, it's w-a-y too confusing.  In the four years prior to joining the above scheme, I was contracted out (too young to join the scheme) but even with a total of 8-ish years continuous contracting out, my NI history shows a full contribution history and projection for a full state pension.  I'm certainly not going to complain, but that makes no sense to me.

If you were too young to join the scheme, you weren't contracted out until such time as you joined the scheme!

molerat

the-chauffeur_2 said:

I was contracted out (too young to join the scheme) but even with a total of 8-ish years continuous contracting out, my NI history shows a full contribution history and projection for a full state pension.  I'm certainly not going to complain, but that makes no sense to me.

What exactly does your state pension forecast show ?  Being contracted out from the Second State Pension does not affect your Basic State Pension accrual or NI record.

A short contracted out period is unlikely to have much effect on your pension forecast as the S2P earned over the remaining years can easily overcome the negative effect of COPE on the new pension calculation.  Plus anyone with at least 30 pre 2016 years and maintaining a full post 2016 record cannot fail to receive a full new pension with a retirement date post April 2025.

xylophone

I've got a transfer statement

Transfer? Do you mean that you requested a Cash Equivalent Transfer Value in 1998?

Do you have a copy  of the Scheme Guide?

Do you have a statement of deferred benefits on leaving service showing GMP and excess?

Does the GMP revalue by Fixed or Full Rate?  If FR when you left, have there been any alterations since?

Are you male or female?

the payable pension will be reduced at state pension age

What exactly does the scheme booklet (or any amendments to which you may have acess) have to say on this point?

At the time you left service, SPA (and GMP age) would have been 60 for a female and 65 for a male.

GMP age is unaltered but SPA is not.

You will need to check whether there has been any amendment to scheme rules so that the State Pension Deduction takes place (if it takes place) at your actual SPA.

You would also need to check whether or not it has been abolished in your particular scheme.

It hasn't been in Barclays or HSBC (but it should be noted that in Barclays the deduction is far less that in the HSBC scheme.

Have a look at this

https://commonslibrary.parliament.uk/research-briefings/sn01121/#:~:text=This is one of a,amount of occupational pension payable.

You might also need to check on the state of GMP equalisation in your particular scheme.

Which firm is currently administering your pension?

xylophone

Was this the only contracted out scheme of which you have ever been a member?

If so, what is the COPE shown on your state pension forecast?

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

xylophone

You might wish to conduct a "deep dive" on your records....

https://forums.moneysavingexpert.com/discussion/comment/78331478/#Comment_78331478

https://forums.moneysavingexpert.com/discussion/comment/78377177/#Comment_78377177

the-chauffeur_2

Thanks folks.  Not sure whether much of what follows will be any more enlightening, but I'll give it a go.  I've also labelled what questions apply to which plans to help anyone following 'cos this stuff is easy to confuse . . . 

What exactly does your state pension forecast show?  

30+ years continuous service going back to the time when I joined the company (4 years before I joined the pension scheme).

If you were too young to join the scheme, you weren't contracted out! (pre-DC scheme)

The existence of the policy document and annual statements of accrued benefits suggest otherwise.  I was contracted out of SERPS with the funds having been diverted into what was called a contracted out (appropriate) personal pension at the time.  It was a thing, but how well known it was I have no idea - and we've also lived through the SERPS mis-selling furore since, so that may have also changed the landscape.  All I can remember is that because I worked for life and pensions outfit I knew more about what could be done than most.  Mine would have been a marginally better deal 'cos I reinvested commission for higher allocation rates, but given that my annual salary was only around four grand at the time and that it only ran for four years, the investments into it wouldn't have been significant.  I've separately asked for a summary of contributions (i.e. NI payments) together with historic bonus rates (unitised with profits) to see whether it's worth transferring for ease of planning/long term admin.  

Transfer? Do you mean that you requested a Cash Equivalent Transfer Value in 1998? (DC scheme)

It's titled transfer value quotation (out).  It doesn't mention Cash Equivalent.

Do you have a copy of the Scheme Guide? (both schemes)

Yes - mentioned above.

Do you have a statement of deferred benefits on leaving service showing GMP and excess?  Does the GMP revalue by Fixed or Full Rate?  If FR when you left, have there been any alterations since? (DC scheme)

No.  Again, no meaningful correspondence other than that described above.  Assume that may/will be set out in the statement I've requested.

Are you male or female?

The '98 statement contains the following statement:

At age 65 a deduction of X for the State Pension will be applied.

Given that the age is stated (rather than a term like "state pension age") I assume that'll mean the deductions start then rather than move with the SPA.

What exactly does the scheme booklet (or any amendments to which you may have access) have to say on this point? (DC scheme)

Not much, but then I only have access to the scheme booklet and benefit summary rather than scheme rules.  The current documents seem to be mostly aimed at new joiners/active members (understandably) but contain the following:

During your working life you will build up entitlement to pension benefits payable by the government (subject to your National Insurance record). Any entitlement you may have can be paid to you when you reach your State Pension Age. The new State Pension came into effect for anyone reaching State Pension Age on or after 6 April 2016. State Pensions are separate to your benefits in the Scheme. 

Until 6 April 2016 the Scheme was contracted out of the State Second Pension and members paid reduced rate National Insurance Contributions (NIC). The government abolished contracting out from 6 April 2016 and since then Scheme members and the Employer have paid full rate NIC.

There's nothing about historical weirdness like mine.

Was this the only contracted out scheme of which you have ever been a member? (DC scheme)

Yes - it's the only one.  

What is the COPE shown on your state pension forecast? (DC scheme)

About £46 a week.  I assume that's the bit the DC scheme deduction will apply to, although if the logic about the deduction statement above is right, my DC scheme benefits will drop at 65 without the state pension kicking in for another few years . . .  

You might wish to conduct a "deep dive" on your records....

Excellent idea - thank you.  SAR submitted.

Marcon

the-chauffeur_2 said:

Thanks folks.  Not sure whether much of what follows will be any more enlightening, but I'll give it a go.  I've also labelled what questions apply to which plans to help anyone following 'cos this stuff is easy to confuse . . . 

What exactly does your state pension forecast show?  

30+ years continuous service going back to the time when I joined the company (4 years before I joined the pension scheme).

If you were too young to join the scheme, you weren't contracted out! (pre-DC scheme)

The existence of the policy document and annual statements of accrued benefits suggest otherwise.  I was contracted out of SERPS with the funds having been diverted into what was called a contracted out (appropriate) personal pension at the time. ng in for another few years 

You didn't mention you had an APP...makes sense now. You'd still have been building up basic state pension benefits - the APP was used to contract you out of the State Additional State Pension on what was known on a 'minimum payments basis' (ie you and the employer paid full rate NI, and part of that was diverted, or 'rebated' to your APP).

p00hsticks

the-chauffeur_2 said:

What exactly does your state pension forecast show?  

30+ years continuous service going back to the time when I joined the company (4 years before I joined the pension scheme).

Your state pension forecast should show values - how much you have currently accrued and the maximum you can get, and your COPE value (if any) , as well as the number of NI years you have, how many more years you need to contribute and how many years you have available to you going forward in which to do so https://www.gov.uk/check-state-pension

xylophone

I think we need some clarity here.  

Let's start again.

First of all. are you saying that at some point around 1990 you took a job with a certain company which offered an occupational Defined Benefit Scheme BUT only to those who had reached a certain age?

As you were too young to join the Scheme, it was suggested that you should contract out into an APP (which is a DC Scheme)?

You did this for four years  at which time you were eligible to join the company's DB Scheme?

The policy to which you refer relates to the DC Scheme?

You stayed with the company for another four years and left with a deferred DB pension?

Or are you saying that you are still with this company, still a member of the DB Scheme (which is no longer contracted out because contracting out for DB Schemes ended in 2016)?

It is the DB Scheme which has the State Pension Deduction?

the-chauffeur_2

First of all. are you saying that at some point around 198* you took a job with a certain company which offered an occupational Defined Benefit Scheme BUT only to those who had reached a certain age?

As you were too young to join the Scheme, it was suggested that you should contract out into an APP (which is a DC Scheme)?

You did this for four years  at which time you were eligible to join the company's DB Scheme?

The policy to which you refer relates to the DC Scheme?

You stayed with the company for another four years and left with a deferred DB pension?

Yes to all of the above.  And this is the scheme to which my original question relates.

Or are you saying that you are still with this company, still a member of the DB Scheme (which is no longer contracted out because contracting out for DB Schemes ended in 2016)?

No.  I left the company in 1994/5.