Pension increase exchange advice

Dox · 1 July 2018 at 10:17AM

Is there any GMP (Guarantee Minimum Pension) included in his DB pension? If so, don't forget that once he reaches age 65 (current age for men's GMP to come into payment, despite changes to state pension age), the scheme won't be paying increases on any GMP built up before 6 April 1988 (nor will the state); and post-88 GMP will get a maximum increase of 3% from the scheme. Only the excess over GMP will get more than 3%.

enthusiasticsaver · 1 July 2018 at 10:25AM

AnotherJoe wrote: »

Another POV is that you will need the additional money much less when older than now.
So you could make better use of that extra money for the first few years while younger and in good health, whilst aged say 80 plus at which point though the financial balance has swapped over to the inflation increase being better,you won't be spending that money anyway.
You said you survive comfortably now, so will you really need that extra money in 30 years time when you've got SP on top as well ?
So, my vote is take the extra now and spend it on something that makes good memories and you can enjoy now rather than worry about losing out slightly in 30 years time.

I think I would agree with that if we were not in the fortunate position that we are in. We both have other pensions to draw on in addition to DB pensions and a significant buffer in stocks and shares isas and cash. After paying 20% tax on the increase the extra income would probably be used rather than us drawing on our cash reserves for big holidays, home improvements and so on so these would remain untouched.

The increase is not really needed now even though we are in the most expensive part of our retirement and inflationary increases may not be needed in our later years due to having state pensions too but we may need to pay for private medical care or extra social care so I am not entirely convinced we won't need the extra in our 80s particularly if one of us dies.

I fully accept it is a judgement call. My husbands parents were both in their late eighties when they died so I have every expectation he has a good 30 years ahead of him. I have never been a short term thinker though but even my husband has said we are doing all the things we wanted to in retirement and still living well within our income/means so he is not inclined to accept the exchange either. I have always managed our finances though so he has left the decision to me. Having extra would not make our lives better now and I have to say I like the security of knowing our pensions are linked to inflation.

enthusiasticsaver · 1 July 2018 at 10:37AM

Dox wrote: »

Is there any GMP (Guarantee Minimum Pension) included in his DB pension? If so, don't forget that once he reaches age 65 (current age for men's GMP to come into payment, despite changes to state pension age), the scheme won't be paying increases on any GMP built up before 6 April 1988 (nor will the state); and post-88 GMP will get a maximum increase of 3% from the scheme. Only the excess over GMP will get more than 3%.

I cannot find any mention of a GMP in any of the quotes he had prior to retirement. Just the early temporary pension we took of £3400 until 2024 when he receives state pension will be removed. His scheme statements say pension accrued prior to April 2006 is 5% or RPI if less and post 2006 is 3% or RPI if less.

Brynsam · 1 July 2018 at 10:54AM

enthusiasticsaver wrote: »

I cannot find any mention of a GMP in any of the quotes he had prior to retirement. Just the early temporary pension we took of £3400 until 2024 when he receives state pension will be removed. His scheme statements say pension accrued prior to April 2006 is 5% or RPI if less and post 2006 is 3% or RPI if less.

You say 'He has only been retired 18 months but 2016/2017 was 4.1%. 2017/2018 was 5%'. So all his service in the DB scheme is pre-April 2006? Could well be, but just checking!

enthusiasticsaver · 1 July 2018 at 11:14AM

Brynsam wrote: »

You say 'He has only been retired 18 months but 2016/2017 was 4.1%. 2017/2018 was 5%'. So all his service in the DB scheme is pre-April 2006? Could well be, but just checking!

He contributed to a booster DB scheme from 1983 when he started working for his employer until 2008 when the DB scheme was withdrawn. He then transferred onto an investor plan DC scheme with a great incentive offered by the company to salve the bitter pill of the DB scheme being withdrawn where he paid 10% of his salary into the plan and his employer paid 20% reducing down to 10% over the next 10 years reducing by 1% each year. He took a large proportion of this in 2016 when he retired as the PCLS which we invested or saved to tide us over the next 6 years. Some also remains invested in the DC pot. So I guess you must be right that almost all is pre 2006 except for benefits accrued 2006-2008 when the DB plan finished.

Bimbly · 1 July 2018 at 11:28AM

If you don't need the money now, I would be inclined to reject the offer too. The comments above about inflation are most pertinent.

You never know what will happen in the future, and this is a good insurance policy. It also involves little effort on your part.

AnotherJoe · 1 July 2018 at 11:32AM

enthusiasticsaver wrote: »

I think I would agree with that if we were not in the fortunate position that we are in. We both have other pensions to draw on in addition to DB pensions and a significant buffer in stocks and shares isas and cash. After paying 20% tax on the increase the extra income would probably be used rather than us drawing on our cash reserves for big holidays, home improvements and so on so these would remain untouched.

The increase is not really needed now even though we are in the most expensive part of our retirement and inflationary increases may not be needed in our later years due to having state pensions too but we may need to pay for private medical care or extra social care so I am not entirely convinced we won't need the extra in our 80s particularly if one of us dies.

I fully accept it is a judgement call. My husbands parents were both in their late eighties when they died so I have every expectation he has a good 30 years ahead of him. I have never been a short term thinker though but even my husband has said we are doing all the things we wanted to in retirement and still living well within our income/means so he is not inclined to accept the exchange either. I have always managed our finances though so he has left the decision to me. Having extra would not make our lives better now and I have to say I like the security of knowing our pensions are linked to inflation.

Ah well if you dont need the money now, or wont make use of it now, plus having it now "would not make our lives better" then the answers obvious and you're likely wondering why you even asked the question!

Brynsam · 1 July 2018 at 1:04PM

enthusiasticsaver wrote: »

He contributed to a booster DB scheme from 1983 when he started working for his employer until 2008 when the DB scheme was withdrawn. He then transferred onto an investor plan DC scheme with a great incentive offered by the company to salve the bitter pill of the DB scheme being withdrawn where he paid 10% of his salary into the plan and his employer paid 20% reducing down to 10% over the next 10 years reducing by 1% each year. He took a large proportion of this in 2016 when he retired as the PCLS which we invested or saved to tide us over the next 6 years. Some also remains invested in the DC pot. So I guess you must be right that almost all is pre 2006 except for benefits accrued 2006-2008 when the DB plan finished.

There's something slightly odd here - if he had any post-2006 service, his increase would not have been the full 5%. Looking at his dates of service in the DB scheme, he would have built up a GMP for a large part of his membership IF the scheme was 'contracted out' of SERPS - does that ring any bells/appear anywhere in the correspondence? It's really important to establish that because it significantly alters the increases he would receive from the state from age 65 if inflation exceeds 3%.

enthusiasticsaver · 1 July 2018 at 1:19PM

Brynsam wrote: »

There's something slightly odd here - if he had any post-2006 service, his increase would not have been the full 5%. Looking at his dates of service in the DB scheme, he would have built up a GMP for a large part of his membership IF the scheme was 'contracted out' of SERPS - does that ring any bells/appear anywhere in the correspondence? It's really important to establish that because it significantly alters the increases he would receive from the state from age 65 if inflation exceeds 3%.

I don't think his pension was contracted out as his state pension forecast shows no COPE as mine does (mine is a LGPS) and his scheme booklet says he will get state pension and additional state pension. His contributions were paid via salary conversion. I was never too clear about how this worked but it apparently saved on NI contributions but the last state pension forecast we got online up to April 2015 just before retirement showed £162.16 per week up to April 2015 and the maximum he would get if he continued to contribute was £165.03 per week but obviously as he retired in October 2016 he won't reach that. I will research that further though.

He received a letter in May saying a pension increase was administered in error because of the post 2006 3% increase. He was only overpaid by £4.02 so I confess I did not pay much attention to it.

enthusiasticsaver · 1 July 2018 at 2:02PM

Dox wrote: »

Is there any GMP (Guarantee Minimum Pension) included in his DB pension? If so, don't forget that once he reaches age 65 (current age for men's GMP to come into payment, despite changes to state pension age), the scheme won't be paying increases on any GMP built up before 6 April 1988 (nor will the state); and post-88 GMP will get a maximum increase of 3% from the scheme. Only the excess over GMP will get more than 3%.

I have perused his personal quote in detail and there is no GMP. The first tranche of his pension states it is the pension built up in excess of GMP before 1997 which attracts RPI inflation up to 5%. The second tranche is pension post 1997 in excess of GMP which is the lesser of RPI inflation and either 5% or 3% depending on when it was built up so presumably either pre 2006 or post 2006.

The third tranche is his AVCS which again attracts 3% post 2006 or RPI. Same goes for his temporary pension which will be removed in 2024. The total of all these come to his current pension and they all say in excess of GMP.

One thing it does say though that it is only the first tranche which is actually only £8778 which is exchangeable so around a third of the pension and the other two thirds will continue to attract increases each year. The £8778 will increase to £13147 and remain there for life if he takes the PIE option but the remaining £15918 will continue to attract the normal increases each year.. That may alter things slightly although the key issues document still suggests in our circumstances we would be better declining it.

Soo confused.

Pension increase exchange advice

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