DB Pension Terminology Query

AltaNate

As mentioned in another post I’m considering taking a deferred DB pension early which means a reduction of 17% with my selected start date.

I have requested a quotation to start the process but there’s a few terms I don’t understand in the documents and hoping someone could fill in the gaps so I’m better informed before I contact the scheme administrator.

A full pension £2,431.32 a year which includes:

Scheme pension built up before 6 April 1997 £1,553.28 a year

Scheme pension built up after 5 April 1997 £878.04 a year

When you reach your GMP age of 65, the Scheme pension built up before 6 April 1997 will be replaced by a Guaranteed Minimum Pension (GMP) built up after 5 April 1988 of £1,254.24 a year. At your GMP age of 65, we will write to you with details of the increase in your pension and details of any tax recovery charge due.

However it looks like my pension would actually decrease by approximately £300 and not increase at 65. 

And what is a tax recovery charge?

DRS1

Is your scheme one of those which integrates with the state pension?  So you get a higher rate up to an age and then a lower rate afterwards?  I think some banks used to do that and I suspect the age would have been 65 even after the SPA changed.

Not sure what a tax recovery charge might be - perhaps it is where the scheme has paid an annual allowance charge and is reducing your benefits to account for that.  On your figures it does not seem likely to be something you'd need to worry about.

AltaNate

No I don’t think it is. It’s not a bank pension either. I’m wondering as I worked either side of the April 1997 date with total service of 4.5 years that normally people would get an increase and that the administrators template is setup for that. I’ll check.

About the tax charge you’re right it shouldn’t be anything to be too worried about.

Marcon

It looks like very poor drafting. Part of your pre-1997 service will have created the GMP, but you will also have some pension in addition to that - known (for self-evident reasons!) as 'excess over GMP'. 

AltaNate said:

A full pension £2,431.32 a year which includes:

Scheme pension built up before 6 April 1997 £1,553.28 a year

Scheme pension built up after 5 April 1997 £878.04 a year

When you reach your GMP age of 65, the Scheme pension built up before 6 April 1997 will be replaced by a Guaranteed Minimum Pension (GMP) built up after 5 April 1988 of £1,254.24 a year. 

If you add the words 'plus a pension of £xxxxx, being the excess over GMP....' I think that might do the trick.

The reference to a tax recovery charge looks like lazy drafting - ie leave the words in for everyone on a 'just in case' basis, however irrelevant and misleading those words are for the majority of members.

AltaNate

OK thanks for that. Appreciate it’s a small DB pension but poorly written docs doesn’t help understand, even more so if the amount was larger. I’ll see what they say.