Does this message from Aptia/Mercer make sense?

Pat38493

I put in a request to put my DB pension into payment in January, based on an estimate that was received in the Summer.

I have received a message from them today with the following in it:

"This is to inform you that the funds for this scheme are provided by the Aviva and we have sent a request for fund disinvestment.

Once the disinvestment confirmation will receive. We will arrange for the settlement of your benefits.

Please also note that estimated state pension deduction is likely refers to a deduction made from a person’s overall income or pension benefits based on their estimated state pension. In some cases, individuals who receive other forms of pension income may see a reduction or adjustment in their benefits to account for the state pension they are expected to receive. This deduction is often made to ensure that individuals do not receive an excessive total amount when combining different sources of retirement income."

The DB pension fund that I am in is a deferred scheme and I do know that the benefits were mostly insured (presumably with Aviva) some years back, and there is supposed to be a full buy out in process which was supposed to be completed already this year, but I never had any letter that it was done.

My questions are - why are they talking about funds being "disinvested".  Normally with a DB scheme, you do not "disinvest" funds as far as I know?

Secondly, what is all this stuff about "state pension deduction is likely" - this is a deferred DB scheme that has nothing to do with the state pension - there is nothing in any of the paperwork going back more than 30 years that mentions anything about reducing the pension for state pension entitlement, and nothing was mentioned in any of the previous quotations and estimates that I requested.  If they are just talking about Tax, why not say it's do do with tax coding?

xylophone

"This is to inform you that the funds for this scheme are provided by the Aviva and we have sent a request for fund disinvestment.

Once the disinvestment confirmation will receive.

Does it really say this? Your correspondent had over indulged at the office party?  

Had you been issued with an individual policy by Aviva in respect of your DB pension?

Have you done any googling in respect of what happened/is happening with respect to the buy out?

Re SPD, do you have your old scheme guide? Are you sure that there is nothing about  SPD/integration/clawback?

It is nothing to do with contracting out.

https://www.pensionsage.com/pa/policymakers-urged-to-review-appropriateness-of-pensionclawback.php

https://www.mandspensionscheme.com/my-pension-income/my-pension/state-pension-deduction

https://www.grove-pensions.co.uk/defined-benefit-pension-transfer/schemes/barclays-bank-uk-retirement-fund/#:~:text=A State Pension Deduction (SPD,dependant's pension on your death.

https://forums.moneysavingexpert.com/discussion/comment/81170762/#Comment_81170762

Pat38493

xylophone said:

"This is to inform you that the funds for this scheme are provided by the Aviva and we have sent a request for fund disinvestment.

Once the disinvestment confirmation will receive.

Does it really say this? Your correspondent had over indulged at the office party?  

Had you been issued with an individual policy by Aviva in respect of your DB pension?

Have you done any googling in respect of what happened/is happening with respect to the buy out?

Re SPD, do you have your old scheme guide? Are you sure that there is nothing about  SPD/integration/clawback?

It is nothing to do with contracting out.

https://www.pensionsage.com/pa/policymakers-urged-to-review-appropriateness-of-pensionclawback.php

https://www.mandspensionscheme.com/my-pension-income/my-pension/state-pension-deduction

https://www.grove-pensions.co.uk/defined-benefit-pension-transfer/schemes/barclays-bank-uk-retirement-fund/#:~:text=A State Pension Deduction (SPD,dependant's pension on your death.

https://forums.moneysavingexpert.com/discussion/comment/81170762/#Comment_81170762

Yes - well I didn't even mention the grammar mistakes in the mail which I assumed is from someone who does not speak English as a first language.  And yes this is a cut and paste from the email so this is what they wrote.  The reference number in the mail is correct from the previous correspondence, so I doubt it's a scam and they have not asked me to do anything.

No, there has not been any individual policy from Aviva.  About 5 years ago, I got a letter saying that a high proportion (I think 90% or something) of the pension had been insured.

Then a about 2 years ago, I got a letter saying that there would be a full buy out with Aviva and that it would take approximately 18 months - I have not heard anything about it since then, and I am guessing that since Mercer/Aptia are still involved, it hasn't been completed yet.

I am not sure if I will find anything on Google about the buy out as it's a relatively small pension scheme from an relatively small / unknown employer that nobody would ever have heard of - it's not a major scheme that would make the news. (unless you are saying that there is some public record source for this type of thing).

And no, there is nothing mentioned about SPD / integration / clawback in any of the documentation, and nothing was ever mentioned about it in the various estimates I had requested over the years, nor in the original deferred benefits letter.  I remember going through all the documentation a year or two back after reading one or other of those articles you linked about clawback - nothing to ever indicate that clawback applies.  Also - I have received a couple of CETV estimates over the years and I would have expected them to be significantly less if there was clawback involved.

(Also I am quite a few years from state pension age so i do not have a state pension in payment anyway).

There was a letter a few years back that they were doing equalisation of GMP and setting out the before and after amounts by different tranches of the years of contribution, and another letter later saying that this had been completed.

Hopefully it's just a standard email as it says "in some cases....." so maybe they just say that to everybody even when it doesn't apply.  

There was no attachment to the email so it's all a bit confusing.  

Could it be the case that if the scheme is partially insured by Aviva, Aviva has to pay the deemed current value of their insured portion of the benefits over to the administrator to put the pension in payment (or they have to pay their share of the monthly amount each month to the administrator)?

xylophone

I am hazarding a guess that this is connected with buy in/buy out.

The existing position is a buy in(?) - the Trustees hold the policy and claim on it as pensions become due?  This is the "disinvestment" to which the letter refers?

Links below may be relevant?

https://www.aviva.co.uk/business/workplace-pensions/corporate/defined-benefit-solutions/

https://www.heywood.co.uk/publications/understanding-pension-buy-ins-and-buy-outs#:~:text=A buy-in involves a,portion of the scheme's obligations.

https://www.pensioncorporation.com/trustees/buy-in-buyout

Pat38493

xylophone said:

I am hazarding a guess that this is connected with buy in/buy out.

The existing position is a buy in(?) - the Trustees hold the policy and claim on it as pensions become due?  This is the "disinvestment" to which the letter refers?

Links below may be relevant?

https://www.aviva.co.uk/business/workplace-pensions/corporate/defined-benefit-solutions/

https://www.heywood.co.uk/publications/understanding-pension-buy-ins-and-buy-outs#:~:text=A buy-in involves a,portion of the scheme's obligations.

https://www.pensioncorporation.com/trustees/buy-in-buyout

Probably you are right - I think the first thing they did some years ago was a buy in.  Then there was a letter saying that they are in the process of a buy out, which must be not yet completed.

The other thing that I wonder is, once a total buy out is completed, and members are issued with individual policies, is the pension still held in trust?  I suppose it must be otherwise the tax benefits are lost but who is the trustee at that point?

The other concern I have is - if each member is issued with an individual policy at the end of the day, does this remove the obligation to treat all members of the scheme fairly with regard to, for example, ERF factors?  

i.e., does this mean that Aviva could decide that they don't like members taking their pension early so they are going to make the ERF ridiculously high? 

Hopefully this won't affect me since I asked to put my benefits to payment before the full buy out is done.

In fact this type of confusion highlights one of the reasons why I am putting my DB into payment before I completely stop work - I am using it to enable me to go part time, but also I want to be sure the benfits are flowing before I completely stop work.

xylophone

I've become acquainted with a few of the big DB schemes over the years but never known anyone who was part of a buy out.

As far as I can gather, a full buy out enables wind up of the scheme, thus relieving the Trustees of any responsibility as this is assumed by
the insurer.  

In effect, each pensioner  becomes an annuitant of the insurer who takes over payment/admin/customer service via the individual policy.

I had thought that the buy out enabled each pensioner to enjoy the same benefits as provided by the  original scheme, so presumably 

early retirement would be covered.

I seem to remember reading that it was even possible for the Trustees to negotiate enhanced benefits.

You will need to check your position - I hope you'll find a reliable source of information.... ( not anyone who's been "on the sauce"...... ).

Pat38493

xylophone said:

I've become acquainted with a few of the big DB schemes over the years but never known anyone who was part of a buy out.

As far as I can gather, a full buy out enables wind up of the scheme, thus relieving the Trustees of any responsibility as this is assumed by
the insurer.  

In effect, each pensioner  becomes an annuitant of the insurer who takes over payment/admin/customer service via the individual policy.

I had thought that the buy out enabled each pensioner to enjoy the same benefits as provided by the  original scheme, so presumably 

early retirement would be covered.

I seem to remember reading that it was even possible for the Trustees to negotiate enhanced benefits.

You will need to check your position - I hope you'll find a reliable source of information.... ( not anyone who's been "on the sauce"...... ).

This may not end up being relevant for me if my benefits are already in payment, but typically, ERFs can be reviewed and altered based on advice from actuaries (as far as I understand).

Some of the links you posted imply that if there is a full buy out, your rights become set in stone with no further discretion available - this would seem to imply that ERF factors, calculation methodology, commutation factors, and inflation assumptions that are involved in any calculations, also have to be set in stone - I would hope that the insurer cannot simply alter them later down the line to the detriment of the members.

In one of the links you posted it also mentions that even if the pension scheme is wound up after the buy out, this does not necessarily mean that the former trustees are absolved of all responsibility e.g. if they failed to insure the full benefits that members were entitled to or suchlike.

xylophone

In one of the links you posted it also mentions that even if the pension scheme is wound up after the buy out, this does not necessarily mean that the former trustees are absolved of all responsibility e.g. if they failed to insure the full benefits that members were entitled to or suchlike.

I'm not sure about this - I'd have thought that the Trustees/their professional advisers would  have studied the position exhaustively and covered their own backs... with insurance perhaps?

Marcon

xylophone said:

In one of the links you posted it also mentions that even if the pension scheme is wound up after the buy out, this does not necessarily mean that the former trustees are absolved of all responsibility e.g. if they failed to insure the full benefits that members were entitled to or suchlike.

I'm not sure about this - I'd have thought that the Trustees/their professional advisers would  have studied the position exhaustively and covered their own backs... with insurance perhaps?

You'd certainly expect trustees to have taken out suitable insurance for, say, 'missing members'. However exhaustively you study the position, if old records are wrong and someone has been 'lost' along the way, you aren't necessarily going to 'find' them just because the scheme is being wound up. Trustees would also be wise to seek an indemnity from the sponsoring employer.

There could be liabilities which could not have been foreseen (eg if cases such as Virgin Media have an impact), in which case the employer could be on the hook for benefits which haven't been insured. No buy out provider is going to cough up for anything in excess of the agreed benefits.

xylophone said:

I had thought that the buy out enabled each pensioner to enjoy the same benefits as provided by the  original scheme, so presumably 

early retirement would be covered.

I seem to remember reading that it was even possible for the Trustees to negotiate enhanced benefits.

Most discretions are removed during a buy out, so only 'guaranteed' benefits are definitely on offer. Anything else will be negotiated during the buy out process, and members should receive full details once these are known.

Enhanced benefits have to be paid for, and not many employers are going to add extra cash at the eleventh hour to pay for enhancements. Therefore trustees can only negotiate enhanced benefits if there is a surplus available to fund these, and the rules of the scheme stipulate that either the trustees have complete control over how the surplus is used, or at least a say in the matter. If the rules say the employer is entitled to the return of any surplus, the trustees can certainly ask (and should!), but if members are getting the promised benefits, the employer is well within their rights to decline. The highest profile case in this area in recent times is Bristol Water. See https://www.pensions-ombudsman.org.uk/decision/2023/cas-92093-n4d9/water-companies-pension-scheme-bristol-water-plc-section-cas-92093

Pat38493 said:

The other concern I have is - if each member is issued with an individual policy at the end of the day, does this remove the obligation to treat all members of the scheme fairly with regard to, for example, ERF factors?  

i.e., does this mean that Aviva could decide that they don't like members taking their pension early so they are going to make the ERF ridiculously high? 

These are individual policies, spelling out the terms of exactly what is covered, so there are no other members of the scheme to take into account in the same way there'd be in an ongoing DB scheme. Things like ERF factors will be for the insurer to decide, and may vary depending on market conditions; they aren't set in stone (indeed, doing so could be against the interests of members), unless the original trust document set them in stone and this was replicated in the buy out.

Albermarle

xylophone said:

I've become acquainted with a few of the big DB schemes over the years but never known anyone who was part of a buy out.

As far as I can gather, a full buy out enables wind up of the scheme, thus relieving the Trustees of any responsibility as this is assumed by
the insurer.  

In effect, each pensioner  becomes an annuitant of the insurer who takes over payment/admin/customer service via the individual policy.

I had thought that the buy out enabled each pensioner to enjoy the same benefits as provided by the  original scheme, so presumably 

early retirement would be covered.

I seem to remember reading that it was even possible for the Trustees to negotiate enhanced benefits.

You will need to check your position - I hope you'll find a reliable source of information.... ( not anyone who's been "on the sauce"...... ).

My Wife's DB pension was a buy out many years ago, and the only correspondence she receives is from the insurer ( Legal and General ).
My own DB pension has recently been the subject of a buy in ( with Just) but as it was already in payment via Mercer/Aptia ( after much initial hassle) I have not seen any change at all.
Like with the OP a buy out is planned at some point.

Marcon

Albermarle said:

xylophone said:

I've become acquainted with a few of the big DB schemes over the years but never known anyone who was part of a buy out.

As far as I can gather, a full buy out enables wind up of the scheme, thus relieving the Trustees of any responsibility as this is assumed by
the insurer.  

In effect, each pensioner  becomes an annuitant of the insurer who takes over payment/admin/customer service via the individual policy.

I had thought that the buy out enabled each pensioner to enjoy the same benefits as provided by the  original scheme, so presumably 

early retirement would be covered.

I seem to remember reading that it was even possible for the Trustees to negotiate enhanced benefits.

You will need to check your position - I hope you'll find a reliable source of information.... ( not anyone who's been "on the sauce"...... ).

My Wife's DB pension was a buy out many years ago, and the only correspondence she receives is from the insurer ( Legal and General ).
My own DB pension has recently been the subject of a buy in ( with Just) but as it was already in payment via Mercer/Aptia ( after much initial hassle) I have not seen any change at all.
Like with the OP a buy out is planned at some point.

Your wife will only receive correspondence from L&G because the original trust will have been dissolved long ago, and her relationship is now entirely with the insurer who provides her benefits.

Your own pension is only at the buy in stage, so you shouldn't see any sort of difference. Effectively the trustees' policy with Just is simply an 'investment asset' of the scheme, and the trustees remain responsible for the provision of pensions administration and payment of pensions until the buy out stage has been reached.