Slightly confused by pension quotation and application form

GenX0212

Although I have decided I most likely have another year or two of working before I pull the trigger I was re-reading a pension quotation for taking my Defined Benefit pension early (as at Sept2024).

Three things stick out. Firstly this statement:

The next step in the process is to formally apply for my pension but the way the application forms are worded give the strong impression that once I have submitted the request then there is no going back.  It's a 100% deferred Defined Benefit pension so the only factors that will change will be annual inflation adjustments. Seems a little odd that they are telling you not to rely on the quotation but there is no 2nd step to actually give you a firm quote/commitment?


The second question is the application form. Option 1 states no cash lump sum but in my actual quotation option 1 is the standard cash lump sum:

I'm assuming if I didn't want to reduce the pension then I would fill out the form as option1 and still receive my standard lump sum. What are other people's interpretations of the wording?

The third is this statement on the quotation:

But there isn't actually anywhere on the application form to signal your preference...

For such a major decision the process/forms/information all just seem a little bit...... lax

The Pension is ex-ESPS now part of Serco scheme and administered by Isio.

flaneurs_lobster

I interpret the form (and the fact that it's open to interpretation rather supports your view as to it's clarity) as meaning that your scheme gives you no choice but to take a minimum lump sum of £36890 at the point of pension start (Option 1). The fact that the first description of Option 1 says something else is just wrong.

Or mebbe not. 

Albermarle

Welcome to the world of DB pension administrators, or most of them anyway.
A world of slow/no responses, inaccurate and confusing quotes etc.

xylophone

As a first step, have you read your old scheme guide and checked your statement of deferred benefits on leaving service?

Read any amendments etc notified to you by SERCO/ISIO at amalgamation/change of administrator?


It would normally be made clear if there was an automatic lump sum in addition to  annual pension on retirement.

It should also indicate whether any part of this automatic lump sum  could be given up to increase the annual pension. (Inverse commutation).

It should also indicate whether any part of the  annual pension can be given up to increase (or in the case where there is no automatic

lump sum create) a  cash lump sum. (Commutation).

From the illustration, it would seem that on retirement, together with the annual scheme pension,  an automatic cash lump sum is

provided without the option of inverse commutation.

You may, however, commute part of your annual scheme pension to create an additional cash lump sum of up to £40,990.

The commutation factor is  approx 1:21.

You will note that on both options the £36, 890 is NOT stated to be "estimated" unlike the annual pension and maximum commutation.

I am wondering whether this could possibly be some sort of life assurance payment set at the commencement of membership.

You should check  your/my understanding with the administrator.

How does the pension increase in payment?

Seems a little odd that they are telling you not to rely on the quotation but there is no 2nd step to actually give you a firm quote/commitment?

I imagine that you must actually apply to have the pension put into payment to get this.

But there isn't actually anywhere on the application form to signal your preference...

Ditto the above. 

GenX0212

xylophone said:

As a first step, have you read your old scheme guide and checked your statement of deferred benefits on leaving service?

Read any amendments etc notified to you by SERCO/ISIO at amalgamation/change of administrator?


It would normally be made clear if there was an automatic lump sum in addition to  annual pension on retirement.

It should also indicate whether any part of this automatic lump sum  could be given up to increase the annual pension. (Inverse commutation).

It should also indicate whether any part of the  annual pension can be given up to increase (or in the case where there is no automatic

lump sum create) a  cash lump sum. (Commutation).

From the illustration, it would seem that on retirement, together with the annual scheme pension,  an automatic cash lump sum is

provided without the option of inverse commutation.

You may, however, commute part of your annual scheme pension to create an additional cash lump sum of up to £40,990.

The commutation factor is  approx 1:21.

You will note that on both options the £36, 890 is NOT stated to be "estimated" unlike the annual pension and maximum commutation.

I am wondering whether this could possibly be some sort of life assurance payment set at the commencement of membership.

You should check  your/my understanding with the administrator.

How does the pension increase in payment?

Seems a little odd that they are telling you not to rely on the quotation but there is no 2nd step to actually give you a firm quote/commitment?

I imagine that you must actually apply to have the pension put into payment to get this.

But there isn't actually anywhere on the application form to signal your preference...

Ditto the above. 

100% there is an automatic lump sum. It's the Electricity Supply Pension Scheme:
 https://www.unitedutilities.com/globalassets/documents/pdf/esps-members-guide.pdf

Pension of 1/80th of your Pensionable Salary for each year of pensionable service; plus Lump sum of 3 times your annual pension. Annual increases by RPI capped at 5%. I'm not aware of any option to give up the lump sum.

Even more confusing then because if the lump sum is 3* pensionable salary (£13,610) then the lump sum should be £40,830 ?!

xylophone

This is a deferred Final Salary pension.

When are deferred benefits payable?

At NPA, or at any time from age 55 onwards, although an early retirement reduction will be applied if benefits are paid early (i.e. before NPA).

Deferred benefits may be paid early without reduction in the following circumstances:

• if you satisfy the Incapacity provisions, or

• at age 55 (or age 50 if you joined the Scheme

  prior to 5 April 2006) if you left the employment of the Company before that age on grounds of redundancy or reorganisation. 

You have said that you are not a "protected person"  so joined the Scheme after 1990?

In which years were you a member of the scheme?

Your NPA is 63 and you are currently age 55?

Did you leave the company on the grounds of redundancy or reorganisation?

Benefits at Normal Pension Age

You will receive an annual pension calculated as follows:

• 1/80 x Pensionable Salary x Service.

You will also usually receive a cash lump sum equal to 3/80 x Pensionable Salary x Service. However, this may be reduced if you paid contributions less than the basic rate in the past. Under current tax rules, this lump sum will not be subject to tax. 

Early retirement

You can usually receive your benefits early if you retire after age 55 (or age 50 if you joined the Scheme prior to 5 April 2006). The benefits will be calculated in the same way as for retirement at Normal Pension Age, but using your Pensionable Salary and Service up to the date of your early retirement. The benefits will also be reduced to take account of early payment. The percentages by which pensions are reduced on early retirement depend on your age at retirement (calculated in years and days) and are subject to review from time to time. 

Exchanging pension for cash or cash for pension

You will normally be able to give up some of your pension to increase your lump sum, subject to a maximum tax free cash sum as determined under HMRC regulations. You will automatically be given this option when you receive your retirement quotation.

You may also be able to exchange some of your lump sum to increase your pension.

The rate of exchange of pension for cash and cash for pension varies according to your age on the date your pension comes into payment. Please contact the ESPS Administrator for further details. 

Looking at the above, it would appear that inverse commutation of the automatic lump sum  may be possible?

I'd suggest you contact the administrator to clarify facts and figures.

GenX0212

Not a Protected Person, joined Sept 1990.
Scheme was closed to further accruals in June 2009. Became a deferred member at that time.
Current age 55.

xylophone

joined Sept 1990.

You'll have a GMP (all post 88).

https://techzone.abrdn.com/public/pensions/Tech-guide-guaranteed-min-pen#:~:text=Guaranteed minimum pension, commonly known,1978 and 5 April 1997.

What does your statement of deferred benefits on leaving show (GMP/excess)?

Your GMP is revaluing in deferment as is your excess. 

Once you reach GMP age, the scheme has no obligation to increase the revalued GMP part of your pension in payment above a maximum of 3%.

GenX0212

xylophone said:

joined Sept 1990.

You'll have a GMP (all post 88).

https://techzone.abrdn.com/public/pensions/Tech-guide-guaranteed-min-pen#:~:text=Guaranteed minimum pension, commonly known,1978 and 5 April 1997.

What does your statement of deferred benefits on leaving show (GMP/excess)?

Your GMP is revaluing in deferment as is your excess. 

Once you reach GMP age, the scheme has no obligation to increase the revalued GMP part of your pension in payment above a maximum of 3%.

It's a complicated history as my pension was originally part of 'Norweb' which became part of the 'United Utilities' umbrella, was then sold off to a private equity company who closed the scheme to further accruals and then subsequently 'sold' my pension onto Serco before entering voluntary liquidation themselves.

This is what my statement currently says. I don't really understand what the different elements are.

The £10,747.44 is almost consistent with the letter I received at the time the scheme was put into deferment in 2009. My original letter says £10,747.54 so they are cheating me of 10p plus inflation but as it's a trivial amount let's ignore that for now.

The company transferred my pension to Serco scheme in 2013 but I have never actually worked for Serco myself at any point in time. I sort of understand the concept of GMP and GMP Excess but I have no idea what the 'Serco Post 97 Pension 1' or the Serco Post 05 Pension' split is for.

So I started this conversation asking what I thought was an administrative question about the application forms but now I am left wondering why my lump sum illustration isn't 3* the pension which it should be, and also wondering how they are calculating inflation increases on the different elements of the pension that it now appears to have been broken down into.

xylophone

The GMP revalues in deferment and up to GMP age.

When you reach GMP age (65 for a male), your pension will show as split into GMP/excess because the increase on the GMP is paid by the scheme only up to 3% (usually CPI but may be RPI).

Relative has DB pension in payment where increase on excess  is  uncapped RPI but the  increase on post 88 GMP is still based on CPI.

With regard to increase in payment see




 https://commonslibrary.parliament.uk/research-briefings/sn05656/#:~:text=Pensions in payment must be,for rights accrued since then.

You'll need to get chapter and verse from ISIO.

GenX0212

xylophone said:

The GMP revalues in deferment and up to GMP age.

When you reach GMP age (65 for a male), your pension will show as split into GMP/excess because the increase on the GMP is paid by the scheme only up to 3% (usually CPI but may be RPI).

Relative has DB pension in payment where increase on excess  is  uncapped RPI but the  increase on post 88 GMP is still based on CPI.

With regard to increase in payment see




 https://commonslibrary.parliament.uk/research-briefings/sn05656/#:~:text=Pensions in payment must be,for rights accrued since then.

You'll need to get chapter and verse from ISIO.

So I'm inferring then that Isio have split my excess into statutory pre (max 5% RPI increase) and post 2005 (max 2.5% increase) rights but the original ESPS scheme rules were RPI capped at 5% for the whole so that is what should continue to apply to the whole.