Reduced pension

winkey_2

Hi my occupational pension is being reduced a year before I receive my state pension what can I do about this, I was in a non contribution pension scheme with marks and spencer, I will be getting my pension reduced by half is there any way around this, I will get the full state pension 

Moonwolf

Do you mean that you are already receiving an M&S pension and it is being reduced by the state pension deduction?

Unfortunately I think this is a feature of the scheme. https://www.mandspensionscheme.com/my-pension-income/my-pension/state-pension-deduction

molerat

Rather than pay an even amount for life the scheme pays an enhanced pension up until (the old) state pension age then reducing to give you an even amount overall.  You have received more than your earned entitlement up to now and will get less in future, overall it works out the same.

Marcon

winkey_2 said:

Hi my occupational pension is being reduced a year before I receive my state pension what can I do about this, I was in a non contribution pension scheme with marks and spencer, I will be getting my pension reduced by half is there any way around this, I will get the full state pension 

No - those are the rules of the scheme in question. It will have been covered in the original scheme booklet and other communications to members, so although unwelcome, it shouldn't come as a surprise to anyone who bothered to read these (often a minority!).

Brie

Why is it being reduced a year before you get the state pension?  Surely it should be at the same time as you get it?

Moonwolf

Brie said:

Why is it being reduced a year before you get the state pension?  Surely it should be at the same time as you get it?

Reading the guidance it looks like the change in state pension age has caught the scheme out and some people are getting the reduction before they reach state pension age.

p00hsticks

Brie said:

Why is it being reduced a year before you get the state pension?  Surely it should be at the same time as you get it?

I suspect that when the scheme rules were originally put together they hard-baked the ages at which the deduction was applied as 65 (or possibly even 60 for females), as they didn't anticipate the State Pension Age being increased. those joining the scheme at a later stage may have different cut-offs applied. 

My pension from my first employment had a normal Retirement age of 60, the one from my second is 65 and the third will pay out 'when I reach State Pension Age'. 

Marcon

Brie said:

Why is it being reduced a year before you get the state pension?  Surely it should be at the same time as you get it?

Because that's what the scheme rules say. Changing them would have a very significant impact on costs (for the employer).

xylophone

Rather than pay an even amount for life the scheme pays an enhanced pension up until (the old) state pension age then reducing to give you an even amount overall.  You have received more than your earned entitlement up to now and will get less in future, overall it works out the same.

Not exactly - this is an example of "clawback" , a practice abandoned by many schemes but still in force in a minority, most notoriously in HSBC.

https://www.theguardian.com/money/2019/mar/30/ex-hsbc-staff-voice-anger-over-banks-pension-clawback

https://commonslibrary.parliament.uk/research-briefings/sn01121/

Moonwolf

xylophone said:

Rather than pay an even amount for life the scheme pays an enhanced pension up until (the old) state pension age then reducing to give you an even amount overall.  You have received more than your earned entitlement up to now and will get less in future, overall it works out the same.

Not exactly - this is an example of "clawback" , a practice abandoned by many schemes but still in force in a minority, most notoriously in HSBC.

https://www.theguardian.com/money/2019/mar/30/ex-hsbc-staff-voice-anger-over-banks-pension-clawback

https://commonslibrary.parliament.uk/research-briefings/sn01121/

You could argue that but you can also argue the first point, particularly where the reduction is not directly related to the value of the state pension. 

By allowing for a state pension deduction you allow people to retire on a higher pension for a given input cost.  The M&S pension was non contributory so all the costs were met by the employer and it was in the scheme rules.  By paying a higher rate to state pension age and a lower rate afterwards, people could retire earlier on a higher income for the same cost.

It would be roughly the equivalent of me buying a fixed term RPI linked annuity from my DC pot for £11,500 pa until I am 67 knowing that my income would then remain level in real terms.  An option I have seriously looked at as an alternative to draw down.

The alternative is that people get a pension boost when the state pension kicks in but a lower overall DB pension and less to live on if they retire before state pension age, or the employer or employee pays more.  In the M&S case, the reduction is always less than the state pension should be. 

There is a problem that people are not aware of this, but there is a lot of evidence that many people have a blind spot around pensions and just don't read the documentation. It has generally been scrapped for new entrants because of this perceived "unfairness" although there are some schemes that allow optionally and explicitly a higher initial pension with a reduced pension later on. Generally these are actuarially neutral.  Frankly I would have been fairly happy to be in a DB that ran like either of those.

Cobbler_tone

xylophone said:

Rather than pay an even amount for life the scheme pays an enhanced pension up until (the old) state pension age then reducing to give you an even amount overall.  You have received more than your earned entitlement up to now and will get less in future, overall it works out the same.

Not exactly - this is an example of "clawback" , a practice abandoned by many schemes but still in force in a minority, most notoriously in HSBC.

https://www.theguardian.com/money/2019/mar/30/ex-hsbc-staff-voice-anger-over-banks-pension-clawback

https://commonslibrary.parliament.uk/research-briefings/sn01121/

So the terminology in the second link states 'clawback' or 'bridging'. If they are the same thing then the scheme is designed to be cost neutral, i.e. the receiver doesn't lose out (potentially at very old age or they exceed life expectancy) and gives the pensioner more up front and less when the state pension is payable.
This can be hugely advantageous for many people who may want to retire early and helps to flatten the flow of income across the rest of their lives. I mean, the one thing that is uncertain is your time here.

Maybe this 'clawback' is slightly different and/or wasn't communicated properly, or wasn't given as an option. My guess is it probably was but people didn't understand it.

Bridging pensions in particular continue to grow in popularity and another tool to give workers greater flexibility in their retirement planning. Although everyone's situation is different, I am struggling to think of many downsides unless you plan to get significantly wealthier at state pension age.