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Very high transfer quote: ICI Pension into LGPS

jaybelle22
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Joined: March 8th, 2022, 5:54 pm

Very high transfer quote: ICI Pension into LGPS

#485210

Postby jaybelle22 » March 8th, 2022, 6:06 pm

Hello would appreciate any advice on my situation. I recently started working for a FE College and have joined their LGPS fund at age 51. I worked for ICI Paints for 6 years from September 1988 to July 1994 and was wondering about whether to transfer this to LGPS. Current ICI Pension statement as calculated in November 2021 is 3627 GBP per year based on retirement date of 2032. Just received my ICI transfer value quote is just over 233,000 GBP which is over 60 times the latest statement - seems too good to be true. Had a chat with a financial advisor today who advised me to go back to ICI and request a forecast of what the 3627 GBP will be valued at in 2032 as he also thinks same as me. If correct, this 233,000 GBP will give me 18.5K additional pension in LGPS if retirement is at age 67. Penalty for taking this at 60 would still mean over 13K a year in pension. Any one else out there who has experience of ICI Pensions - I have searched on forum and saw they were offering 37 x not too long ago so why now 60 x or am I missing something?! Apologies for anything I am not explaining clearly I am a total novice at all of this. Thanks.

stevem01
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Re: Very high transfer quote: ICI Pension into LGPS

#487145

Postby stevem01 » March 17th, 2022, 1:07 pm

It is very likely that the ICI occupational pension scheme was "contracted out" of the State Earnings Related Pension Scheme (SERPS) during your period of employment. many years later, SERPS eventually became the second state pension (S2P). As a result of being contracted out of SERPS, both you and your employer paid a lower level of National Insurance contribution than the full Class 1 rate. however, you earned no SERPS pension benefit during that period.

In order for the ICI pension scheme to be "contracted out" of SERPS it had to guarantee that the pension benefit that it would pay you, would be at least equal to the SERPS pension benefit that you had forgone. This was called the Guaranteed Minimum Pension (GMP). The value of your ICI pension benefit was likely to be much more than the GMP, so that the benefit you earned was considered to be a total value that was split into 2 parts. One part was the GMP portion of your ICI pension benefit and the reminder was the pension benefit in excess of GMP, which was frequently called the "excess" pension. Up until 1997 the ICI pension scheme had to calculate the GMP entitlement, individually, for every individual who was in its pension scheme.

Employees who left membership of a "contracted-out" occupational penion scheme could either transfer their pension benefit or defer their pension benefit with that pension scheme. If the pension benefit was deferred then this meant the pension scheme had to revalue the pension benefit during the period that the pension was deferred. Different rules apply to the method of revaluation used for the deferred GMP portion of the pension benefit and the deferred "excess" portion of the pension benefit.

For the "excess" penion benefit the revaluation is normally in accordance with "The Occupational Pensions (Revaluation) Orders" which are published by the governement each year. This revaluation is generally in line with "inflation" but capped at 5% per annum (a lower cap of 2.5% per annum is applied in some circumatances, since 2009). This revaluation is applied annually, so that a pension benefit quotation should contain the current value of the "excess" pension benefit.

However, the GMP portion of your occupational pension benefit is, legally, not revalued AT ALL until you reach GMP age (65 for males and 60 for females). This is because GMP pension benefit CANNOT be paid by the occupational pension scheme until you reach GMP age. As a result, the GMP value that is contained in any quotation of your current deferred pension benefit, is still the actual value that the GMP was when you left employment and deferred your occupational pension benefit, some 28 years ago. But, if you deferred a pension with a GMP entitlement, the GMP portion must be revalued from the date of deferral to your GMP age, when the GMP revaluation actually takes place. There are a number of different methods of GMP revaluation which are available to an employers occupational pension scheme. Which of the available GMP revaluation methods that apply to your occuaptional pension scheme depends on the rules of the employers pension scheme.

Many private sector pension schemes chose to select the "Fixed Rate GMP Revaluation" method. This resulted in your deferred GMP being revalued by a fixed rate that is applied to every complete tax year between the date you deferred your pension benefit and the date of your 65th birthday for males or 60th birthday for females. The actual revaluation rate which applies to the deferred GMP portion of your occupational pension benefit was a value published by the government and which was determined based on the date that you deferred your occupational pension benefit.

Assuming that "Fixed Rate GMP Revalution" applies to the GMP portion of your pension benefit in the ICI pension scheme, then, as your occupational pension benefit was deferred around 28 years ago in July 1994, the "Fixed Rate GMP Revaluation" that would apply was 7.0% per annum, as this was the value to be used for all GMP benefits that were deferred between 06 April 1993 and 05 April 1997.

Assuming you are male and you are now aged 51, the GMP portion of your deferred ICI pension benefit, will become payable in around 14 years, say 2036. If you are female and you are now aged 51, the GMP portion of your deferred ICI pension benefit, will become payable in around 9 years, say 2031. As a result there would be around 42 complete tax years (if you are male) and 37 complete tax years (if you are female) between the date you deferred your occupational pension benefits and the date of payment of your GMP (65th birthday for males and 60th birthday for females). This means the GMP portion of your pension beenfit would be revalued so that the initally deferred value will be worth 1.070^42 = 17.144 times (1714.4%) the initially deferred value, when it becomes payable at age 65 (if you are male) or 1.070^37 = 12.224 times (1222.4%) the initially deferred value, when it becomes payable at age 60 (if you are female).

If you are male, your average life expectancy will be around age 86, which is 21 years after you reach GMP age. If you are female, your average life expectancy will be around age 87, which is 27 years after you reach GMP age. Therefore, the occupational pension scheme would expect that it would need to pay you the revalued GMP for:
    21 years, if you are male, which is a total of 21*17.144 = 360 years worth of the value of the originally deferred GMP.
    27 years, if you are female, which is a total of 27*12.224 = 330 years worth of the value of the originally deferred GMP.
These values ignore any inflation uplifting that is applied to the GMP once it comes into payment. NOTE: GMP is actually split into two "bits" - that earned before 05 April 1988 and that earned after 06 April 1988. Once the GMP is in payment, any pre-1988 GMP will NOT have any inflation uplifts applied to it, whereas any post-1988 GMP will be uplifted annually by CPI with a cap of 3%.

If you receive a transfer value for your whole occupational pension, the transfer value must include a fair valuation of the pension benefit being sacrificed in exchange for the transfer value. Therefore:
    1. the transfer value offered to you has to include a fair valuation of your GMP benefit - which is likely to be at least 360 times (if you are male) or 330 times (if you are female) the value of the GMP when you deferred the pension benefit 1994. It may well be more than that , in order to to reflect the obligation for the occupational pension scheme to pay the annual inflation uplift that is applied to the post-1988 portion of the in-payment GMP.
    2. The "excess" (or non-GMP) portion of the occupational pension benefit is currently worth about 92% more than it was when you deferred it in 1994 (based on data in The Occupational Pensions (Revaluation) Order 2021). If a transfer value was offered equivalent to, say, 35 times the current annual value of the deferred non-GMP pension benefit, that would mean the non-GMP portion of the occupational pension benefit would have a current transfer value of 35*1.92 = 67.2 times (6720%) the initially deferred "excess" pension value.

The pension statement you have received in November 2021 indicates a pension of £3,627 per annum based on retirement date in 2032. If you are male, this is around 4 years BEFORE you would reach GMP age, in which case it is likely that the statement will NOT have applied the revaluation to the GMP portion of your deferred pension benefit in the value(s) quoted in the statement and you would not receive the revalued GMP until you were age 65. If you are female, this is around 1 year AFTER you would reach GMP age, in which case it is likely that the statement WILL HAVE applied the revaluation to the GMP portion of your deferred pension benefit in the value(s) quoted in the statement. Until you can establish the split between the GMP portion and the "excess" portion of your deferred pension benefit, you can't do any detailed analysis. You also need to identify whether the ICI pensions scheme did in fact use the "Fixed Rate GMP Revaluation" method for deferred GMP revaluation - many private sector occupational pension schemes did, but thee were other less generous GMP revalution methods.

As you can see the GMP portion of your deferred ICI pension benefit is quite valuable, as it will, most likely, receive a much larger revalution during deferment, than the "excess" portion will receive during deferment. Hence it is not too surprising that the transfer value being offered to you is apparently so high. This will allow the occupational pension scheme to eliminate the future risk (to them) of you living a very long life and them having to pay your occupational pension benefit - including the GMP element - for a very long time.

DrFfybes
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Re: Very high transfer quote: ICI Pension into LGPS

#487154

Postby DrFfybes » March 17th, 2022, 2:26 pm

Good grief Steve, that is an impressive explanation.

It also helps me understand some of my old scheme leaving statements, where a portion grows at 7% pa whilst the rest grows with Inflation (Sheffield uni one, left 1994). And I now understand GMP, or at least the thought behind it.

Paul

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Re: Very high transfer quote: ICI Pension into LGPS

#487175

Postby BullDog » March 17th, 2022, 3:41 pm

Looking at the employment dates in the OP, the OP has a normal retirement age from the ICI pension scheme of 62. However, there is usually a concession applied by the trustees that the pension is paid to deferred pensioners from the age of 60 without any actuarial reduction. Male and female pension ages are the same in the ICI pension scheme.

Jimbob66
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Joined: February 4th, 2024, 8:00 pm

Re: Very high transfer quote: ICI Pension into LGPS

#644815

Postby Jimbob66 » February 4th, 2024, 8:10 pm

jaybelle22 wrote:Hello would appreciate any advice on my situation. I recently started working for a FE College and have joined their LGPS fund at age 51. I worked for ICI Paints for 6 years from September 1988 to July 1994 and was wondering about whether to transfer this to LGPS. Current ICI Pension statement as calculated in November 2021 is 3627 GBP per year based on retirement date of 2032. Just received my ICI transfer value quote is just over 233,000 GBP which is over 60 times the latest statement - seems too good to be true. Had a chat with a financial advisor today who advised me to go back to ICI and request a forecast of what the 3627 GBP will be valued at in 2032 as he also thinks same as me. If correct, this 233,000 GBP will give me 18.5K additional pension in LGPS if retirement is at age 67. Penalty for taking this at 60 would still mean over 13K a year in pension. Any one else out there who has experience of ICI Pensions - I have searched on forum and saw they were offering 37 x not too long ago so why now 60 x or am I missing something?! Apologies for anything I am not explaining clearly I am a total novice at all of this. Thanks.



Can I ask if your transfer value has reduced since your last post?

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Re: Very high transfer quote: ICI Pension into LGPS

#644822

Postby BullDog » February 4th, 2024, 9:14 pm

Jimbob66 wrote:
jaybelle22 wrote:Hello would appreciate any advice on my situation. I recently started working for a FE College and have joined their LGPS fund at age 51. I worked for ICI Paints for 6 years from September 1988 to July 1994 and was wondering about whether to transfer this to LGPS. Current ICI Pension statement as calculated in November 2021 is 3627 GBP per year based on retirement date of 2032. Just received my ICI transfer value quote is just over 233,000 GBP which is over 60 times the latest statement - seems too good to be true. Had a chat with a financial advisor today who advised me to go back to ICI and request a forecast of what the 3627 GBP will be valued at in 2032 as he also thinks same as me. If correct, this 233,000 GBP will give me 18.5K additional pension in LGPS if retirement is at age 67. Penalty for taking this at 60 would still mean over 13K a year in pension. Any one else out there who has experience of ICI Pensions - I have searched on forum and saw they were offering 37 x not too long ago so why now 60 x or am I missing something?! Apologies for anything I am not explaining clearly I am a total novice at all of this. Thanks.



Can I ask if your transfer value has reduced since your last post?

I wouldn't hold your breath. He/she made one post almost two years ago.

Jimbob66
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Re: Very high transfer quote: ICI Pension into LGPS

#644849

Postby Jimbob66 » February 5th, 2024, 9:52 am

Ah ok. the reason I have asked the question is I was wondering if he/she had seen any devaluation in the pension valuation? 45% loss to date and no explanation other than the guilt market plummented.........

Dod101
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Re: Very high transfer quote: ICI Pension into LGPS

#644856

Postby Dod101 » February 5th, 2024, 10:50 am

Jimbob66 wrote:Ah ok. the reason I have asked the question is I was wondering if he/she had seen any devaluation in the pension valuation? 45% loss to date and no explanation other than the guilt market plummented.........


The guilt market plummeted. Everyone getting more confident?

Dod

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Re: Very high transfer quote: ICI Pension into LGPS

#644867

Postby mc2fool » February 5th, 2024, 12:08 pm

Dod101 wrote:
Jimbob66 wrote:Ah ok. the reason I have asked the question is I was wondering if he/she had seen any devaluation in the pension valuation? 45% loss to date and no explanation other than the guilt market plummented.........


The guilt market plummeted. Everyone getting more confident?

Dod

"plummented". Obviously a specific term for trading in guilt ... but does it mean that indulgences are now cheaper? I thought the selling of those was banned a little while ago .... :D

Jimbob66
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Re: Very high transfer quote: ICI Pension into LGPS

#644925

Postby Jimbob66 » February 5th, 2024, 4:51 pm

well my ICI pension pot lost 55% of value..............


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