The Pensions Debate
Update No. 27 (March 2014)- "Late Retirement".
A couple of Deferred pensioners have encountered a very unsatisfactory situation affecting those who have reached retirement age in the Scheme, i.e. 60, but have decided not to take their pension immediately and have left it a bit because the pension payable is then enhanced. This is known as Late Retirement.
Previously there was a late retirement uplift of 8% per year for all years of service. However this has now been reduced retrospectively to 6.5% p.a. for 'pre 97' benefits and 4.5% p.a. for 'post 97' benefits. This was discovered accidentally by members getting quotes in the past for late retirement, deciding to go with it, but now when wanting to take the pension finding that their pension amounts are rather lower than previously quoted. Obviously they are very annoyed because they had planned on the basis of the earlier higher pension amounts.
This is being taken up by a couple of people with the Trustees and will probably result in an ‘Internal Dispute Resolution Procedure’ case.
If you, or anyone you know, is affected by this, then contact the webmaster using the 'contact us' link who will forward it to me and I will put together a list of people and pass them onto those involved.
P.S. – as always if you know someone else who might like to receive these updates then let me know via the webmaster.
Update No. 28 (April 2014)- "Late Retirement - an overview".
Following on from Update 27, our Pensioner representative on the Board of Trustees, Roger Southgate, has provided an overview of the Late Retirement situation from his perspective.
Obviously, I am well aware of individual cases here, and I cannot comment on any of them either now or in the future. However, a word or two on how this happened might be helpful. I do this as the Pensioner representative on the Board of Trustees, hoping to shed some light on what went wrong, and definitely not as a formal response from the Trustees to anyone impacted by this problem.
1. The rules of the scheme allow the Trustees discretion to manage a number of parameters of this type. As well as the late retirement factors, there are early retirement factors and those that drive the calculation of transfer values etc.
2. The Scheme actuary brings any necessary changes to the attention of the Trustees with a view to maintaining the cost neutrality to the scheme of such early retirements, late retirements and transfers out. They need to change in line with rates of return etc, but a clear example of one which had got out of date was the late retirement premium which given the increases in life expectancy and the reduction in market returns was meaning that anyone leaving their pension to take later was getting too high a premium, one which could not have been achieved by taking the pension on time and investing it
3. Last September the Trustees were alerted to this anomaly and authorised the change, in line with our duty to maintain demands on the resources of the fund at a fair level for those that wished to take up such options and also for the majority of members who wish to take their pensions at Normal Retirement Date.
4. The adjustment was, in my view, analogous to a firm changing their annuity rates, and up until this last budget, many pensioners were exposed to the vagaries of the actual rates available on their date of retirement.
5. We did not give any attention to the method of communicating the changes to the late retirement factors, and this now appears regrettable.
6. When the gentlemen working past their normal retirement dates, who had been advised that they would get the higher rate found out that the rates had changed and they were stuck with the lower figure, they were, unsurprisingly unhappy.
7. This anomaly was brought to the Trustees at the earliest possible moment, where it was unanimously agreed that we should seek to find a solution which was fairer to these members, consistent with recognising that factors like these 'will go up and down'.
I am not aware of the outcome of what are individual cases, and whether these are resolved, but I do think that the mistake here is one of communication rather than any attempt to reduce costs by unfairly penalising a category of pensioners.
I doubt whether all deferred pensioners would want to receive a stream of minutiae regarding conversion factor changes, but the impact on those past their retirement dates should have been understood and the information communicated and ideally a solution offered up front.
Otherwise I believe that the Trustees have acted correctly to protect the fund by maintaining cost neutrality of such changes to retirement dates, and by authorising flexibility to those few who would have lost out.