Every time I get a quote for my modest DB pension - it has gone down.

silvercue

Hi,

I have a modest DB pension form a previous employer. It is linked to the final salary I was on when I left that company. I can go ask for a quote on their portal and input a date I would like to start drawing it as long as it is over 55.

I have just got a quote to draw at 55 (a few months after 55th birthday) and it is significantly lower (~10%) than quotes I have previously got to start drawing at the same time.

My pension knowledge has been more focussed on DC pot, than how DB works, so I am not knowledgeable on such things.

Is this quite normal? What is the reason for this?

Thanks

sammyjammy

The only reason I am aware that a quote for the same request would be different over a period of time in a negative way would be that the adjustment % for taking it before SPA has increased. What kind of difference are we taking about?

silvercue

https://forums.moneysavingexpert.com/discussion/comment/82085747#Comment_82085747

Hi. Thank you for the reply.

The most recent quote I had prior to today was taken in Oct 25. That gave an annual income payable by the pension, should I take when 55, that is almost 10% higher than the quote I got today for taking it at the same age.

Interestingly if I wait until 65 which was the pensions default age - the value has gone up, but only slightly.

NoMore

was the original quote while you were still employed by the company? They often quote based on you continuing to build up service while now they know you will not build up any more service.

gm0

Pension communications are regulated (for good reasons not worth going over again for this question)
And there is a lot of confusion so generated.

Web sites and their calculators are bandit country I am afraid. Especially if you push them to the edges with odder scenarios (from service or the question being asked). I have seen this multiple times unfortunately. There is usually something by way of assumptions and disclaimers to allow for it. It may be the web site (or underyling calculator engine) has had a software update to fix a "bug".

On request or wake up packs. And some annual communcations. It varies. DB pensions are often quoted if taken "now". The amount % of salary x for n years service (and other complications) - is known. And accruals to date (now). But scheme rules may discount the pension for early age access (over the minimum age but lower than the planned scheme age).

There is usually a rule about that too. Not the same for all schemes but generally based on the idea that if you take it "for longer" to average death date (actuary mortality tables) - you get less per year for more years = the same planned total as the person taking the same benefit on the "normal" date. With some pensions such as the state pensions - you get "more" by taking it later - deferral. Same idea. Fewer years. More income per year. Same result for the same accrued benefit.

The income amount is X. In general I would expect this number to slowly rise towards the theoretically "correct" number at normal scheme age. As the early access discount gets removed. And each year of uplifts/inflation rises gets applied to accrued benefits promises (as with pensions in payment getting their rises).

If subsequent statements in formal letters show an income decrease for the same start date - that's a bit weird. A mistake, or a special circumstance must apply in the detail - which frankly deserves better explanation by the scheme operator. Ask. For the web site - you are probably chasing your tail but can hustle them over it if so minded (if you have screenshots that it actually happened).

The true future amount taken at a later "correct" date some years away is unknown due to uplifts yet to be decided and come (inflation linked rpi,cpi, discretionary % perhaps below a cap - whatever your scheme rules say) so any "quote" for later would be an estimate. So this is often NOT done.

Cold comfort it may be but the same mess applies to DC. Where website calculators take a stab at low/med/high future amounts based on a load of assumptions which are FCA imposed (and suiting a majority) the assumptoins make the projections useless for many others.

A 2nd number often on the paperwork is the "value" or CETV. This is the "buy out" amount. We will pay you X (into a valid DC scheme) to not have to pay the DB pension later. This is not a pot. This is not your money as per DC. You have a promised income stream with uplifts. This is an "offer" to buy that back off you.

This number is a function of the income amount and central bank interest rates (UK gilts). When the rates are low or zero - the CETV is huge. When interest rates are higher the amount of UK government debt you need to "buy" to create that pension worth of inflation indexed cash flow - goes down substantially. That bounds the "value" of your promised income in a way that they can use. This has happened since the end of QE. Central bank interest rates are up. So are mortgage offers. CETV is down as the amount of capital funding for "gilts" needed to buy a given cashflow is down.

CETV is quoted on pension communications. And it is normal for the amount to fluctate as described. It would be normal for that number to have dropped year to year for several years. And it is of no concern. It has no bearing whatsoever on the pension you will receive. The promise is the promise.

On CETV financial advice is needed and the circumstances have to be quite specific for it to be sensible, or possible for anyone to take that DB to DC conversion option in 2026. For most this is noise.

What to do.

1) Ignore the website over time.
2) When ready - on application to move into payment. The "estimated" income amount becomes a proper calculation for a particular date. And quote paperwork for confirmation and selection of any commencement lump sum is generally done. Understand the process for your scheme.

Where offered some people take some lump sum (and less pension ongoing), some take none - and maximise their inflation indexed income. Your circumstances dictate what suits you though in general guaranteed inflation indexed income is more valuable than people typically intuit.

Personally I would focus more attention on that process step than unpicking past versions (and assumptions) of a web calculator.

But with a sanity check (old salary, scheme years, and amount (with average inflation upticks). Does it look right more or less. With some schemes and GMP and McCloud judgement and much more - the calculations are involved and unique to your service dates. So penny accuracy done independently can be a fools errand.
For some big schemes there are experts here who know the main scenarios and timelines and can help you do a better calculation. For others - not so much.

silvercue

https://forums.moneysavingexpert.com/discussion/comment/82085805#Comment_82085805

No, I left many years ago. The quote that was higher was only obtained in Oct 25. The value has dropped almost 10% since then

silvercue

Thanks. I have written to them for an explanation as ~10% change in a few months seems a lot.

I would have thought if they made changes to the scheme, whether around taking pension early or anything else, they would have had to inform me.

Marcon

https://forums.moneysavingexpert.com/discussion/comment/82085747#Comment_82085747

State Pension Age would only be relevant if the scheme in question had a Normal Retirement Age linked to SPA.

https://forums.moneysavingexpert.com/discussion/comment/82085844#Comment_82085844

Assuming the calculator is accurate and up to date (always a big assumption worth checking!), one likely explanation is that the early retirement factors have been reviewed by the trustees and changed to reflect market conditions/scheme experience. Depending on the scheme's rules, there is no requirement to inform members when factors are reviewed - there will be a disclaimer in the scheme's booklet/literature/website explaining that factors are 'subject to periodic review' or some such wording.

silvercue

https://forums.moneysavingexpert.com/discussion/comment/82085880#Comment_82085880

I am starting to think maybe this is what it is - that the trustees have made changes to early retirement rules and I have not been informed. This is quite tough to take when it is such a large difference.

Marcon

I am starting to think maybe this is what it is - that the trustees have made changes to early retirement rules and I have not been informed. This is quite tough to take when it is such a large difference.

I doubt they've changed the rules - it's more likely they've changed the factors. It's rare in the extreme for a scheme to notify members every time factors change. There is no legal requirement to do so (the pension payable at the scheme's NRA isn't impacted), but I can fully sympathise with a member who has been adversely affected.

dunstonh

https://forums.moneysavingexpert.com/discussion/comment/82085844#Comment_82085844

Forward projections from a DB scheme are always based on assumptions.

A quote you got a year ago will have built in assumed inflation and the scheme’s then‑current early‑retirement reduction factors. Once a year has passed, part of that assumed period is replaced by actual revaluation under the scheme rules, and the scheme may also have updated its actuarial reduction basis. Both of those can cause the projected figure at 55 to move, sometimes down as well as up, so differences between quotes are not unusual.

If the drop is around 10% in the income, it’s reasonable to ask the administrator whether the early‑retirement factors or revaluation basis have changed since your previous quote.

If the drop is around 10% in the CETV, then that is expected given the rate that CETVs have been falling over the last five years