Deferred pension poor performance

Walesman

Hi all,  I worked for Npower for around 10yrs, in that time I joined their defined benefit pension scheme. It wasn't great as they (Npower), paid 0 in. 
I left in 2019 & the pension then was £3985 pa lump sum £0
today when I have logged back in there is a retirement illustrator
which calculates if I take my pension at 65 (9yrs time), my pension will be £4516 pa lump £0.

Does this seem right? I expected it to grow better as some of my other deferred pensions have but 6yrs on with a further 9 to go it seems disappointing to me.

I welcome your thoughts.  

MallyGirl

It depends on what the rules are - it might use cpi/rpi, it might be capped, it might not revalue at all

Silvertabby

Does the letter covering your 2019 deferred benefit statement explain how the annual cost of living increases are applied? ie, RPI or CPI, capped or uncapped.  

If they are RPI or CPI then your current illustration of £4516 will only include the increases to 2015.  Future year's increases will be added as and when they are known/fall due.   

gm0

Apples and Oranges.

For a DB pension which is different from the saving up a pile of contributions kind (DC).  As I hope you know - is a payable salary amount not a pot.  Employer funds scheme not individual pot.  Scheme has a promise to you to pay an amount at normal retirement age for the scheme.  Based on your years of service and a salary calculation

Indexation (for inflation)

When you left you had X payable DB at normal scheme retirement age.  Possibly access to a lump sum (and less pension). Or not and the full amount.  With less for it taking early. And perhaps more for taking it late (deferring).  All of it depends on the scheme rules.  Which vary in the detail scheme to scheme and company to company.

Meanwhile pre-pension age. Indexation of some kind is happening to your promised pension pay - in deferrment. 

It isn't invested. It doesn't grow.  The payable amount is protected from being eroded by inflation by some uplift amount - which all members will get.  That promise is the promise.  Whatever it is.

Read your scheme booklet or website and look at indexation.  What is the promise.  CPI.  RPI.  CPI but capped at 5%.  A flat 3%.  Entirely at trustee discretion. Could be a range of things. Capped and not - which has an impact in inflation spikes.  There is nothing to be done about it anyway.  But to understand what is happening and project forward you need to know what it is.   The dates of any forecast - pre or post a particular year uplift also matter to make any comparison useful.  

It was 3895 (at some date - pre or post that year's uplift). If you find the promise is consumer price inflation CPI  You can look up CPI online for each year or a long term average and see if it is being applied and compounded year by year on your "promised income" (promised income if taken now - not forecast income tomorrow).

Retirement illustrators are problematic in many ways.  Assumptions.   They don't know future indexation. The assumptions on earning more credits are often dodgy. Zero for you clearly.  As you don't work there. 
And they use quite a few other standardised assumptions which when you look under the hood you often say.  That number is useless. It doesn't match what I am doing or what I think about the world.  

This standardised mess is slightly better than pension companies all making up nice sounding fantasies (based on other assumptions) to try and gloss up their product.  But only just.

Wish I had a pound for everyone confused by retirement illustrators (either by them being over enthusiastic (previously) or with regulator action - more recently - erring on the downside more

sandsy

Are you sure it's a full projection to 65?
it may only be what you would get from it if you were 65 now (which is how values of DB income will be shown when pension dashboards eventually go live).

Many scheme administrators refuse to project what a pension might be in future on the grounds that they can't predict what future inflation will be (and the increases between date of deferral and date of retirement are usually linked to inflation with some sort of cap).

itsthelittlethings

I guess it depends how much you were earning at the time as to how reasonable or not the pension is. Were you in the scheme for all 10 years?

Marcon

Walesman said:

Hi all,  I worked for Npower for around 10yrs, in that time I joined their defined benefit pension scheme. It wasn't great as they (Npower), paid 0 in. 

It's very much a great scheme! You surely don't think that employee contributions paid the full cost of paying pensions, administration, actuarial and legal costs...?

The rules of the scheme set out the benefits, and the employer (or someone on behalf of the employer) pays in whatever is needed to ensure the scheme can pay benefits as they fall due. Sometimes if a scheme is in significant surplus, or has a thumping gold-plated guarantee from a third party, the employer gets a 'contribution holiday', where their contributions are taken out of that surplus rather than paying in 'new' money.

xylophone

I joined their defined benefit pension scheme. It wasn't great as they (Npower), paid 0 in. 

I am mystified by this. How can a DB scheme have no employer contribution?

Were you in the Npower 2005 section (joined pre 1/10/09)?

If so, is NRA 63 rather than 65?

Do you have your member guide?

What does it have to say about how your benefits revalue in deferment?

Are you saying that there is no option of a Pension Commencement Lump Sum?

Walesman

Thank you for all of the replies, the website/provider Npower (now  under Eon), use is very basic & offers no information on RPI/CPI capped or uncapped. 
I was in the scheme for 10yrs & paid in a higher % for a better pension (13% for 1/68th), as opposed to 8% for 1/80th. 
Its only a small part of my overall pension pot but it just surprised me that it had not changed that much in 6yrs.
As gm0 mentioned it is what it is.

Thanks all

daveyjp

Despite your statement the pension is actually great.

Npower/Eon will be paying in, but the amount isn't of concern to the employee.  A DB pension is a promise to be paid a monthly pension for life (usually with an automatic increase based on inflation)  - look at is as a deferred salary rather than a savings account.

Marcon

xylophone said:

I joined their defined benefit pension scheme. It wasn't great as they (Npower), paid 0 in. 

I am mystified by this. How can a DB scheme have no employer contribution?

Either a completely rubbish website or a completely confused member! See my  post above for the most likely explanation of why an employer might (apparently) not be paying in 'real money' for some periods of time.

HMRC only gives tax approval to a DB scheme where the employer contributes a 'meaningful amount', so there's clearly a gap between reality and understanding.