DB Pension Revaluations reply from Mercer - can you help me interpret their secret code?

Pat38493

Occupational pension scheme from my employment that was deferred by the company in May 2008 (all service was after October 1991).

What does it mean if Mercer are telling me for example that they used "14 years of CPI 131.997/87.083"?

Am I not correct to say that they should be using the Occupational Pension revaluation tables to revalue the pension components to today, so for an estimate in June 2024, they should somehow be using an uplift of 57.1% (or at least ensuring that they don't do less than that)?

Taken from here:
https://www.legislation.gov.uk/uksi/2023/1265/article/2/made

They have sent me a confusing reply in which they referred to a different estimate for an entirely different year, and saying that this is why it is lower, which is not what I was asking about.  However they have stated:

"When we valued the benefits to 10 January 2026 the revaluation used was:
1 year of RPI – 215.3/218.4
13 years of CPI – 123.764/87.083
Remaining 11 years to NRD valued using Aviva assumptions.

When we valued the benefits to 10 June 2024 the revaluation used was:
1 year of RPI – 215.3/218.4
14 Years of CPI – 131.997/87.083
Remaining 10 years to NRD valued using Aviva assumptions.

On top of the new CPI rate for 2023 becoming available between providing the two quotes we also updated our early retirement factors to reflect this change. This will have caused the early retirement and commutation factors we applied to be slightly different between the two quotations."

What do these numbers like 131.997/87.083 actually mean?  Does this mean they have uplifted it by 131.997 divided by 87.083 as written i.e. 51.57% or does it mean 131.997 minus 87.083 i.e. 44.914%?  Either way it doesn't match with anything on the statutory revaluation tables?

Also, why are they only adding 1+14 = 15 years - when I count back through the statutory tables to the year 2008, there are 16 complete years not 15?  There have been 16 complete years between May 2008 and June 2024.

(note - the 2026 estimate they were referring to was issued in the middle of 2023 at an earlier date and for a January retirement rather than June).

One possible explanation for part of it is that they are using the "lower percentage revaluation" for the revaluations after 2009, but in a letter that they sent me in 2021, it clearly states that "Statutory non-GMP increases prior to retirement are based on RPI for periods of deferement up to 2010 and CPI for periods after that, subject to a cumulative maximumn of 5% per year".  Surely this means they should be using the left hand column and not the right hand one on the statutory table?

(the reference to Aviva is because the pension has been insured by Aviva as they are preparing to a buy out).

Tommyjw

Pat38493 said:

Occupational pension scheme from my employment that was deferred by the company in May 2008 (all service was after October 1991).

What does it mean if Mercer are telling me for example that they used "14 years of CPI 131.997/87.083"?

Am I not correct to say that they should be using the Occupational Pension revaluation tables to revalue the pension components to today, so for an estimate in June 2024, they should somehow be using an uplift of 57.1% (or at least ensuring that they don't do less than that)?

Taken from here:
https://www.legislation.gov.uk/uksi/2023/1265/article/2/made

They have sent me a confusing reply in which they referred to a different estimate for an entirely different year, and saying that this is why it is lower, which is not what I was asking about.  However they have stated:

"When we valued the benefits to 10 January 2026 the revaluation used was:
1 year of RPI – 215.3/218.4
13 years of CPI – 123.764/87.083
Remaining 11 years to NRD valued using Aviva assumptions.

When we valued the benefits to 10 June 2024 the revaluation used was:
1 year of RPI – 215.3/218.4
14 Years of CPI – 131.997/87.083
Remaining 10 years to NRD valued using Aviva assumptions.

On top of the new CPI rate for 2023 becoming available between providing the two quotes we also updated our early retirement factors to reflect this change. This will have caused the early retirement and commutation factors we applied to be slightly different between the two quotations."

What do these numbers like 131.997/87.083 actually mean?  Does this mean they have uplifted it by 131.997 divided by 87.083 as written i.e. 51.57% or does it mean 131.997 minus 87.083 i.e. 44.914%?  Either way it doesn't match with anything on the statutory revaluation tables?

Also, why are they only adding 1+14 = 15 years - when I count back through the statutory tables to the year 2008, there are 16 complete years not 15?  There have been 16 complete years between May 2008 and June 2024.

(note - the 2026 estimate they were referring to was issued in the middle of 2023 at an earlier date and for a January retirement rather than June).

One possible explanation for part of it is that they are using the "lower percentage revaluation" for the revaluations after 2009, but in a letter that they sent me in 2021, it clearly states that "Statutory non-GMP increases prior to retirement are based on RPI for periods of deferement up to 2010 and CPI for periods after that, subject to a cumulative maximumn of 5% per year".  Surely this means they should be using the left hand column and not the right hand one on the statutory table?

(the reference to Aviva is because the pension has been insured by Aviva as they are preparing to a buy out).

Honestly a new one on me seeing someone try to explain it like this...

215.3/218.4 = September 2009 + September 2008 RPI
131.997/87.083= September 2023 + September 2009 CPI

They are basically saying it is calculated according to statutory orders which used RPI up to 2009 and CPI afterwards.

Post-2009 capped at 2.5% cumulative (right column) is for benefits you earned post-2009 but you left in 2008 so that isnt applicable. So they are seemingly using the correct revaluation figures, just a very very backwards way to explain it, but i agree not using the correct amount of years (16 not 15). If we are saying they are looking at a total complete years DOL -> NRD of 25 years and they are a Scheme which projects benefits up to NRD first before applying any early retirement reduction (where they use "aviva assumptions" to get there), i'd have your (excess) benefits revaluaing at a total of

1. DOL x 
2. 1.571 x 
3. their assumption for 9 remaining years (e.g. common to assume 2.5% so 2.5%^9) x
4. the applicable ERF e.g. 0.8 for 20% reduction

I

Pat38493

Tommyjw said:

Pat38493 said:

Occupational pension scheme from my employment that was deferred by the company in May 2008 (all service was after October 1991).

What does it mean if Mercer are telling me for example that they used "14 years of CPI 131.997/87.083"?

Am I not correct to say that they should be using the Occupational Pension revaluation tables to revalue the pension components to today, so for an estimate in June 2024, they should somehow be using an uplift of 57.1% (or at least ensuring that they don't do less than that)?

Taken from here:
https://www.legislation.gov.uk/uksi/2023/1265/article/2/made

They have sent me a confusing reply in which they referred to a different estimate for an entirely different year, and saying that this is why it is lower, which is not what I was asking about.  However they have stated:

"When we valued the benefits to 10 January 2026 the revaluation used was:
1 year of RPI – 215.3/218.4
13 years of CPI – 123.764/87.083
Remaining 11 years to NRD valued using Aviva assumptions.

When we valued the benefits to 10 June 2024 the revaluation used was:
1 year of RPI – 215.3/218.4
14 Years of CPI – 131.997/87.083
Remaining 10 years to NRD valued using Aviva assumptions.

On top of the new CPI rate for 2023 becoming available between providing the two quotes we also updated our early retirement factors to reflect this change. This will have caused the early retirement and commutation factors we applied to be slightly different between the two quotations."

What do these numbers like 131.997/87.083 actually mean?  Does this mean they have uplifted it by 131.997 divided by 87.083 as written i.e. 51.57% or does it mean 131.997 minus 87.083 i.e. 44.914%?  Either way it doesn't match with anything on the statutory revaluation tables?

Also, why are they only adding 1+14 = 15 years - when I count back through the statutory tables to the year 2008, there are 16 complete years not 15?  There have been 16 complete years between May 2008 and June 2024.

(note - the 2026 estimate they were referring to was issued in the middle of 2023 at an earlier date and for a January retirement rather than June).

One possible explanation for part of it is that they are using the "lower percentage revaluation" for the revaluations after 2009, but in a letter that they sent me in 2021, it clearly states that "Statutory non-GMP increases prior to retirement are based on RPI for periods of deferement up to 2010 and CPI for periods after that, subject to a cumulative maximumn of 5% per year".  Surely this means they should be using the left hand column and not the right hand one on the statutory table?

(the reference to Aviva is because the pension has been insured by Aviva as they are preparing to a buy out).

Honestly a new one on me seeing someone try to explain it like this...

215.3/218.4 = September 2009 + September 2008 RPI
131.997/87.083= September 2023 + September 2009 CPI

They are basically saying it is calculated according to statutory orders which used RPI up to 2009 and CPI afterwards.

Post-2009 capped at 2.5% cumulative (right column) is for benefits you earned post-2009 but you left in 2008 so that isnt applicable. So they are seemingly using the correct revaluation figures, just a very very backwards way to explain it, but i agree not using the correct amount of years (16 not 15). If we are saying they are looking at a total complete years DOL -> NRD of 25 years and they are a Scheme which projects benefits up to NRD first before applying any early retirement reduction (where they use "aviva assumptions" to get there), i'd have your (excess) benefits revaluaing at a total of

1. DOL x 
2. 1.571 x 
3. their assumption for 9 remaining years (e.g. common to assume 2.5% so 2.5%^9) x
4. the applicable ERF e.g. 0.8 for 20% reduction

I

Thanks for the reply Tommyjw - I think you are an expert in this area as you have sometimes replied to very similar topics in the past?  Sso in your view the statutory regulations requires them to apply the 1.571 as a minimum - they cannot get out of it by claiming that they always only need to use the anniversary calendar date of the scheme retirement age of the member because of the approach they are using? (this is what they appear to be claiming).  And they cannot get out of it by claiming that it's in the original scheme rules because the legislation overrides the rules?

This is somewhat aligned with a comment by poster TVAS in this thread from 2019 (bottom of page 1)
Rules on using Occupational Pensions Revaluation Orders — MoneySavingExpert Forum

In this thread posters discuss how you can get a smaller or larger pension by choosing the date  that you put it into payment relative to the anniversary date.

However TVAS contradicts this and appears to state that they can do what Mercer/Aviva is doing, stating that this is actually "more generous" - not true because I am sure they are using much bigger ERFs when they do it that way.

Given this, I guess my next step shoul be to go back again and challenge them on exactly this point - there are 16 full years between the deferement date and the date of payment and therefore they are obliged to use 1.571 or higher as their statutory adjustment, regardless of how they are calculating early payment scenarios.

Tommyjw

It is always just the complete calender years between Leaving Date and Retirement Date (in this case it appears your Normal Retirement Age classes as your Retirement Date as on a Scheme which projects up to then first). Anything different (which would be odd) would still have to be underpinned (the higher of both calculations are then paid) by the statutory minimum which you cannot pay less than.

It is often quite hard to find places where it really gets down to the details on it but some view sites using search terms to find agreeing points:

• https://www.legislation.gov.uk/uksi/2022/1229/pdfs/uksiem_20221229_en.pdf  - (point 7.7 providing a short example)
• https://www.cpc-learning-materials.com/leavers-fact-finding-final-salary  - (weird one but this is a entry level exam in the DB admin world and see "...the whole of the pension in excess .. is increased .. for each complete year from date of leaving to date of retirement."
  
• https://cms-lawnow.com/en/ealerts/2015/12/pension-revaluation-and-increases-in-deflationary-times  (Revaluation in defined benefit (DB) schemes... for complete years between leaving .. and the scheme's normal pension age.)
  

If i assume your NRD is over 25 complete years away (so after May 2033?) Then as an administrator you calculate the complete years (25), you think 'what years inflation do we not know' = 2025 to 2033 inclusive (9 total), 25-9 = 16 years 'known' revaluation to use now.

From reading TVAS wording i think (emphasis) what they were trying to say is (for yourself for example) you can't change the May 2008 start date or your NRD (65?). So lets say we are now in 2033, your reaching your NRD. if your NRD due to your age is March 2033 you're only entitled to 24 years of revaluation at that point as from March 2008 you havent hit the last complete year... if your NRD happens to be after May (so after your DOL anniversary month) you have 25 years of revaluation, which just points to the luck/unfairness of the way they are calculated. 

Pat38493

Tommyjw said:

It is always just the complete calender years between Leaving Date and Retirement Date (in this case it appears your Normal Retirement Age classes as your Retirement Date as on a Scheme which projects up to then first). Anything different (which would be odd) would still have to be underpinned (the higher of both calculations are then paid) by the statutory minimum which you cannot pay less than.

It is often quite hard to find places where it really gets down to the details on it but some view sites using search terms to find agreeing points:

• https://www.legislation.gov.uk/uksi/2022/1229/pdfs/uksiem_20221229_en.pdf  - (point 7.7 providing a short example)
• https://www.cpc-learning-materials.com/leavers-fact-finding-final-salary  - (weird one but this is a entry level exam in the DB admin world and see "...the whole of the pension in excess .. is increased .. for each complete year from date of leaving to date of retirement."
  
• https://cms-lawnow.com/en/ealerts/2015/12/pension-revaluation-and-increases-in-deflationary-times  (Revaluation in defined benefit (DB) schemes... for complete years between leaving .. and the scheme's normal pension age.)
  

If i assume your NRD is over 25 complete years away (so after May 2033?) Then as an administrator you calculate the complete years (25), you think 'what years inflation do we not know' = 2025 to 2033 inclusive (9 total), 25-9 = 16 years 'known' revaluation to use now.

From reading TVAS wording i think (emphasis) what they were trying to say is (for yourself for example) you can't change the May 2008 start date or your NRD (65?). So lets say we are now in 2033, your reaching your NRD. if your NRD due to your age is March 2033 you're only entitled to 24 years of revaluation at that point as from March 2008 you havent hit the last complete year... if your NRD happens to be after May (so after your DOL anniversary month) you have 25 years of revaluation, which just points to the luck/unfairness of the way they are calculated. 

Thanks Tommyjw - let me clarify again exactly just to make sure as we might be at cross purposes here.  My birthday is in January.

The normal retirement date under the scheme for me would be at age 65 in January 2034.

(there is a part of the pension which has retirement age 60 but I'm not sure whether that changes anything for this discussion).

I am getting a quote for retiring at June 2024.  There have been 16 full years in deferment as of June 2024.  

If I am understanding you correctly, you agree with me that they should use 1.571 as the (minimum) factor and not 1.496.  1.496 should be used if I was asking for payment before May 31st.

From previous threads like the one linked above, I had understood that it's the number of complete years between the deferment, and the in payment date that has to be used, and hence you should carefully select your retirement date within the target year.

I am just double checking this because a lot of the links talk about the year you reach "normal retirement age" (of which on my pension there is arguably no such thing due to the different tranches).

On the other hand if only the January date is relevant, this would then mean that in my situation with a January birthday, I would never trigger the row relevant for 2008, and the other prior threads are not relevant anymore as it all depends on the luck of when is your birthday.

Also - if the current Mercer calculation is correct, doesn't it mean that if I put my pension into payment on any month after my birthday, the payments up to that date in the starting year are just money thrown away - that can't be right can it?

hyubh

Pat38493 said:

I am just double checking this because a lot of the links talk about the year you reach "normal retirement age" (of which on my pension there is arguably no such thing due to the different tranches).

An aside, but having different tranches does not mean not having an NRA, it means (as applicable) having multiple NRAs so that the revaluation of each is calculated separately. That said, especially as your start date postdated Barber, it's not implausible for all your tranches to share the same NRA. However they might not share the same revaluation basis.

Have Mercer actually confirmed the revaluation basis, i.e. statutory with/without a post-05 split, scheme specific with statutory underpin, etc.?

Pat38493

hyubh said:

Pat38493 said:

I am just double checking this because a lot of the links talk about the year you reach "normal retirement age" (of which on my pension there is arguably no such thing due to the different tranches).

An aside, but having different tranches does not mean not having an NRA, it means (as applicable) having multiple NRAs so that the revaluation of each is calculated separately. That said, especially as your start date postdated Barber, it's not implausible for all your tranches to share the same NRA. However they might not share the same revaluation basis.

Have Mercer actually confirmed the revaluation basis, i.e. statutory with/without a post-05 split, scheme specific with statutory underpin, etc.?

Yes - they have sent a sheet about GMP equalisation in 2021 which set out the revaluation approach - it said that for all tranches the revaluation approach was statutory capped 5%.  Apart from the dispute about the number of “known” years they should use for early payment of the pension after May 31st, their reply that I posted in my OP seems to be consistent with statutory (however it’s not the exact same if you do the calculation it’s very slightly higher, based on the number of years they say they are using).

The more I think about it, the more I think that it cannot make sense for them to insist that for early payment of pension, the revaluation can only be based on the calendar date of the NRA because this results in missing period of revaluation compared to the statutory requirement.  Unfortunately none of the legislation lined by Tommy above talks specifically about early payment of pension scenarios, but we have examples from this forum where other pensions were taking the full number of years to the payment date.

Pat38493

hyubh said:

Pat38493 said:

I am just double checking this because a lot of the links talk about the year you reach "normal retirement age" (of which on my pension there is arguably no such thing due to the different tranches).

An aside, but having different tranches does not mean not having an NRA, it means (as applicable) having multiple NRAs so that the revaluation of each is calculated separately. That said, especially as your start date postdated Barber, it's not implausible for all your tranches to share the same NRA. However they might not share the same revaluation basis.

Have Mercer actually confirmed the revaluation basis, i.e. statutory with/without a post-05 split, scheme specific with statutory underpin, etc.?

P.s. - they didn’t say anything about a post 05 split and none of the tranches have dates 2005 - I see dates of pre 1988 GMP (but that was always nil), post 6th April 1988 GMP (now nil), Pre 6th April 1997 Excess, April 1997 to April 2002, and Post 30 April 2002.  

All of the ones with remaining amounts after GMP equalisation refer to Statutory non GMP increases prior to retirement with a sub note that says RPI to 2010 and CPI after that, capped 5% (which I think is exactly what is done by the official tables?

Pat38493

Just to update here, I am about to send the following to Mercer - let's see what they come back with.  I will update here if anyone is interested but they usually take several weeks to reply.

I am not entirely sure who to complain to if they come back insisting that their way is acceptable, but one step at a time I suppose.

I am writing with reference to your recent reply. 

Focussing in on the estimate that you sent me dated 31st January 2024, for benefits going into payment on x June 2024, I have a further query.

In your recent reply you state that the estimate is revalued by:

1 year of RPI – 215.3/218.4

14 Years of CPI – 131.997/87.083

Remaining 10 years to NRD valued using Aviva assumptions.

However, the occupational pension revaluation statutory rules, state that you should revalue pensions according to the total number of whole years passed from the date of deferment to the date of payment.  

This pension was put into deferment on 31st May 2008.  As such, on x June 2024, the total number of whole years passed is 16, not 15.  Per the revaluation order, there are 16 known periods of revaluation there.

As such, surely your revaluation should be:

2 years of RPI starting at 2008.

14 years of CPI.

9 years to NRD at whatever your forecast is that you are using.

This should result in an uplift of not less than 57.1% as mandated in the occupational pension revaluation order 2023 from November last year.  The statutory requirement to revalue the pension within known periods has to underpin any other calculations that you are doing instead.

Can you please clarify why you are not taking this approach. 

Of coure, if the pension was being put into payment before May 31st 2024 your approach would be correct.

cloud_dog

Typo "Of coure, if the pension was being...", if you haven't spotted it. 

Tommyjw

Pat38493 said:

Tommyjw said:

It is always just the complete calender years between Leaving Date and Retirement Date (in this case it appears your Normal Retirement Age classes as your Retirement Date as on a Scheme which projects up to then first). Anything different (which would be odd) would still have to be underpinned (the higher of both calculations are then paid) by the statutory minimum which you cannot pay less than.

It is often quite hard to find places where it really gets down to the details on it but some view sites using search terms to find agreeing points:

• https://www.legislation.gov.uk/uksi/2022/1229/pdfs/uksiem_20221229_en.pdf  - (point 7.7 providing a short example)
• https://www.cpc-learning-materials.com/leavers-fact-finding-final-salary  - (weird one but this is a entry level exam in the DB admin world and see "...the whole of the pension in excess .. is increased .. for each complete year from date of leaving to date of retirement."
  
• https://cms-lawnow.com/en/ealerts/2015/12/pension-revaluation-and-increases-in-deflationary-times  (Revaluation in defined benefit (DB) schemes... for complete years between leaving .. and the scheme's normal pension age.)
  

If i assume your NRD is over 25 complete years away (so after May 2033?) Then as an administrator you calculate the complete years (25), you think 'what years inflation do we not know' = 2025 to 2033 inclusive (9 total), 25-9 = 16 years 'known' revaluation to use now.

From reading TVAS wording i think (emphasis) what they were trying to say is (for yourself for example) you can't change the May 2008 start date or your NRD (65?). So lets say we are now in 2033, your reaching your NRD. if your NRD due to your age is March 2033 you're only entitled to 24 years of revaluation at that point as from March 2008 you havent hit the last complete year... if your NRD happens to be after May (so after your DOL anniversary month) you have 25 years of revaluation, which just points to the luck/unfairness of the way they are calculated. 

Thanks Tommyjw - let me clarify again exactly just to make sure as we might be at cross purposes here.  My birthday is in January.

The normal retirement date under the scheme for me would be at age 65 in January 2034.

(there is a part of the pension which has retirement age 60 but I'm not sure whether that changes anything for this discussion).

I am getting a quote for retiring at June 2024.  There have been 16 full years in deferment as of June 2024.  

If I am understanding you correctly, you agree with me that they should use 1.571 as the (minimum) factor and not 1.496.  1.496 should be used if I was asking for payment before May 31st.

From previous threads like the one linked above, I had understood that it's the number of complete years between the deferment, and the in payment date that has to be used, and hence you should carefully select your retirement date within the target year.

I am just double checking this because a lot of the links talk about the year you reach "normal retirement age" (of which on my pension there is arguably no such thing due to the different tranches).

On the other hand if only the January date is relevant, this would then mean that in my situation with a January birthday, I would never trigger the row relevant for 2008, and the other prior threads are not relevant anymore as it all depends on the luck of when is your birthday.

Also - if the current Mercer calculation is correct, doesn't it mean that if I put my pension into payment on any month after my birthday, the payments up to that date in the starting year are just money thrown away - that can't be right can it?

So playing around a bit, May 2008 to June 2034 = 26 complete years so i would expect the known revalution + their future assumptions to = 26, on the basis thats how they seem to do it and apply the ERF at that point, we don't know what inflation will be 2025 -> 2034 inclusive = 10 future years + 16 known as discussed, then apply whatever ER reduction they give.

You are correct a lot of places talk about a 'normal retirement age', a lot of that is down to just simplifying what they are talking about, and because in most/all DB Schemes Early Retirement isn't automatically allowed in the Rules and is only allowed at trustee/company discretion , you only have the right to your benefits at Normal Retirement age (just that these days most have built in it is not allowed for everyone), so most just talk with reference to the NRA as every person in a DB Scheme can retire then, not all are allowed to retire early.