Change in calculation basis for Statutory Money Purchase Illustrations (SMPI) PR illustrations by 1 September 2009

Background

In March this year we provided details of provisions under the Pensions Act 2007 legislation for changes to be made to the way the State 2nd Pension (S2P) is calculated and the method of calculating rebate payments. The changes were effective from 6 April 2009 and were made to new business illustrations for customers contracted out of S2P. Read this communication

In addition to the changes above, the Pensions Act 2007 provided for the abolition of contracting out under Money Purchase schemes. This means everyone who is currently contracted out of S2P will be contracted back in from a date still to be finalised, (unless they reach state pension age or choose to contract back in before then). The current date proposed for the cessation is 5 April 2012.

Impact for SMPI* illustrations

Technical Memorandum 1.3 (TM1.3), issued by the Board for Actuarial Standards, covers how the above changes are to be incorporated for SMPI illustrations. In addition to the revised rebate calculation, TM1.3:

• confirms that the provider should include an assumed end date for contracting out in the illustrations, and that date does not need to be 2012, and
• allows providers a deadline of up to 1 September 2009 to make the changes for SMPI illustrations.

*An SMPI illustration shows the amount of pension that might be payable when a member retires, in terms of today's prices

Customer Impact

The change impacts customers who are contracted out of the S2P via Money Purchase arrangements and are still receiving rebate contributions from the Government.

Prudential have decided, for the purposes of SMPI illustrations, the assumed end of contracting out date shown on the statements will be:

Personal/Stakeholder Pensions: The end of the tax year prior to the illustration date. For example an end date for a June 09 illustration would be 5 April 2009.

Occupational Money Purchase: The illustration date shown on the statement.

SMPI illustrations will include all rebate contributions allocated at the data extraction date, but will not project any future rebates that may be received.

Broadly speaking, all customers in the above category will see a reduction in the SMPI figures for Protected Rights included in their annual statements due to the assumption that no further rebates will be payable.

Where will a customer or adviser see the change?

Annual statements

Customers will see the impact of this change in the SMPI section of annual statements titled 'The estimated pension you might get when you retire is...' If the customer compared this statement with their previous statement they would most likely see a reduction in the SMPI projection figures.

In addition, the statements will include text providing an assumption that the individual has ceased to contract out of S2P.

If you have any questions regarding this please contact your Prudential Account Manager.