DB pension forecast - what assumptions to ask for when requesting a forecast

SarahB16

By way of background once a year I request my DB pension forecast from a workplace (private sector) I left in c.2008.  They are willing to forecast up to five years’ away (i.e. if I request the forecast in November 2025 they will forecast my pension as though I commence drawing it in November 2030). 

The DB pension comprises of two tranches (both are definitely DB and not DC) and both tranches must be taken at the same time.  One tranche has a normal retirement age (NRA) of 60 and the other has a NRA of 65. 

I have kept all the correspondence I received when working for that company but don't receive a personalised annual benefit statement.  I do receive more general correspondence from them in terms of the assets of the pension fund, etc.  

In November 2030 I won’t have reached the age of 60 but I am requesting this pension forecast so that I can see the trend re the increasing pension (due to the lower actuarial reduction with each subsequent year) and can query any anomalies with the assumptions they have used from one year to the next. 

To be able to do this I wish to know the underlying assumptions they have used and this is what I am kindly requesting your help with. 

What do I need to include in my email when requesting my pension forecast?

Requests I think I need to ask for in respect of both tranches are:

·        What is the actuarial reduction that you have applied to each tranche due to taking it before its normal retirement age. 

·        Can you confirm how the annual increase is being calculated for each tranche (e.g CPI, RPI, fixed 5% etc) ahead of drawdown.    

What other factors do I need to request please? 

PensionsStuff

Breakdown of your pension at your leave date (if you dont already have it), revaluation used for each pension tranche until NRA , escalation rates for each one once in-payment, assumption used for future inflation when providing future projections, full list of current factors (early/late/commutation) for all applicable ages. Alongside then just any actual projections you want

Whether you get all depends on how good the administrator of your pension is, depsite it all being very easy information i wouldnt hold much hope judging by the many comments people here make about how helpful some can be. 

DRS1

It sounds like you have been asking for these forecasts for a while.  Have you asked these questions for each forecast or is this new?

Early retirement factors can change so yes ask about them but the increases in deferment will tend to be consistent from year to year (unless you are asking what the actual RPI figure is this year).  So maybe that is a once and done question.

Actually there may well be a table of early retirement factors at various ages with different factors for the age 60 and age 65 parts of the pension.  Maybe you could ask to see that table (and ask to be notified if it is going to be changed).  Saves asking the same question every year.

Do your forecasts have figures for GMP in them?  Maybe ask if there has been a GMP reconciliation exercise?  Or maybe only do that if the GMP figures change.  If they do a GMP equalisation exercise you'll get separate letters about that so no need to ask.

Do the forecasts talk about lump sums.  So is there a base pension figure with an alternative pension plus lump sum figure?  If so maybe ask what commutation factors they use and whether they can be changed.  Not changed by you but by the trustees.

Do people asking for forecasts really ask this sort of thing?  Isn't some of it included as a matter of course in the forecast or in the statement you got when you left?

And how comes you aren't expected to wait until you are within 5 years of NRA to get such a forecast?

Cobbler_tone

It always surprises me just how much people are left in the dark with their DB pensions.
On ours you can see any date live. We also have NRA’s of 60/65 and can ask to take them separately, along with a slider on the lump sum and bridging option.
If you have the scheme details to show things like the two parts having to be taken together, I’m surprised it doesn’t detail what increases are based on. You could find there are different caps for each section.

You could ask about the impact of a lump sum, i.e the max or a lower one of your choosing. 

RipleyG

I hadn't realised, until I became a pension scheme trustee, that every time someone makes a request like this on a DB scheme, there's a charge - the money for that charge is taken from the pension scheme investment pot.

A simple enquiry, such as requesting a pension forecast for retirement is £150 in our scheme. A complex forecast enquiry £350-£500.

I'm sure it's obvious with hindsight, but it made me realise that if everyone was asking for this every year, it would increase the running costs, and therefore reduce the value of the overall fund. 

p00hsticks

RipleyG said:

I'm sure it's obvious with hindsight, but it made me realise that if everyone was asking for this every year, it would increase the running costs, and therefore reduce the value of the overall fund. 

but then I guess with a DB pension, that's not really a concern for those enquiring, as it's unlikely to directly affect the amount they get.

LHW99

If you have to take both parts together, does the NRA60 part continue to increase at the same rate as before NRA? If not there may be a decision (calculation) to be made whether to take both at 60, or delay both until nearer 65.

RipleyG

p00hsticks said:

RipleyG said:

I'm sure it's obvious with hindsight, but it made me realise that if everyone was asking for this every year, it would increase the running costs, and therefore reduce the value of the overall fund. 

but then I guess with a DB pension, that's not really a concern for those enquiring, as it's unlikely to directly affect the amount they get.

Yes, and no. There are various practices in place to identify and reduce any shortfall between assets and pensions to be paid - but they aren't infallible. Schemes do sometimes fail, though the more likely first impacts (for the individuals, not the scheme) would be reductions in valuations for anyone wanting to transfer out, and taking a hardline on trustee discretions (e.g. Refusing early retirement, stricter Ill health retirement, reducing/refusing beneficiary payments when a pensioner dies). 

But I guess my high level point was more that many of us ask for these things (myself included - though only once every 5 years) without understanding that it has an implication that we may not have known about. 

Cobbler_tone

RipleyG said:

I hadn't realised, until I became a pension scheme trustee, that every time someone makes a request like this on a DB scheme, there's a charge - the money for that charge is taken from the pension scheme investment pot.

A simple enquiry, such as requesting a pension forecast for retirement is £150 in our scheme. A complex forecast enquiry £350-£500.

I'm sure it's obvious with hindsight, but it made me realise that if everyone was asking for this every year, it would increase the running costs, and therefore reduce the value of the overall fund. 

Depending how much they spend on this, maybe the Trustees could look into tools to make it easier for members to generate their own data. I have asked for a quote in the past, purely to calibrate against the online tool, which was spot on.
We can get one CETV per calendar year, any additional ones are charged at £300. Full financial advice (by a selected third party) is provided as a taxable benefit of £1,495. 

RipleyG

Thanks @Cobbler_tone. I only took on the trustee role 6 months ago, so still learning - but 2 meetings in, and I've been able to influence a few improvements for our beneficiaries. Your comment is really helpful in providing me with some benchmarking and specific examples. 

SarahB16

LHW99 said:

If you have to take both parts together, does the NRA60 part continue to increase at the same rate as before NRA? If not there may be a decision (calculation) to be made whether to take both at 60, or delay both until nearer 65.

Yes, this is something I'm very much aware of.  My current thinking is to take this DB pension at 65 but I agree depending on how much the tranche with the NRA of 60 increases by it may be better to take the pension at c.60-62 and have an actuarial reduction on the tranche with the NRA of 65.   

To date when I have enquired how much the tranche with the NRA of 60 would increase by after I reach the age of 60 (and if not drawn) they haven't given me a proper answer (verbally they just said on the phone there are different factors).  This is why I wish to send them an email this year to request my forecast.