I am questioning the fairness of a recent pension decision. I recently received a pension from a defined benefit scheme, which was relatively small. However, I noticed what appeared to be unfair treatment and wanted to get your opinion on the matter. My total annual pension was £4,110, with £1,810 from pre-1997 and £2,300 from post-97. I chose to take a lump sum of £19,779. Is it unfair that my pension lump sum was deducted from the inflation-protected portion? Should I file a complaint?
I found it surprising that the reduction in pension was only applied to the post-97 amount, reducing it to an annual pension of £1,156. This means that any future increases in pension will be based on a much smaller amount. I would have expected the reduction to be applied to both the pre-97 and post-97 portions.
This particular scheme does not provide discretionary increases on pre-97 pensions and limits post-97 increases to 3%. While these schemes often rely on the discretion of the trustees, this situation seems questionable to me. What do you think? Do I have grounds for complaint?
Steve Webb responds: Many defined benefit pension schemes offer the option of taking a portion of the pension as a lump sum. In your case, you chose to receive a lump sum along with a lower regular pension.
The question then arises of how much of a deduction should be made from the regular pension in exchange for the lump sum. This is done through a process called ‘commutation’, where the lump sum is converted into a deduction from the pension. In your case, the ratio is around 17 to 1.
It’s important to note that the reduction is applied to the post-97 pension because there is a legal duty for schemes to provide inflation protection for pensions starting from 1997 onwards. The rules for pre-97 pensions are less generous. If the reduction were applied to the pre-97 pension, it could potentially bring that figure below the legal minimum.
Scheme rules and regulations determine these decisions, which can vary from scheme to scheme. If the rules of your scheme state that the deduction should come from the post-97 service, there may not be much you can do about it. However, it’s worth considering that this decision does not necessarily mean you have lost out financially.
Overall, it’s important to look closely at the specific rules and regulations of your scheme to understand the reasoning behind their decision. If you believe that your pension rights have been unfairly treated, you may consider reaching out to a Government-backed organization such as MoneyHelper for further assistance.
Denial of responsibility! VigourTimes is an automatic aggregator of Global media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, and all materials to their authors. For any complaint, please reach us at – [email protected]. We will take necessary action within 24 hours.
