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  • FIRST POST
    • Bravepants
    • By Bravepants 10th Feb 18, 8:33 AM
    • 343Posts
    • 381Thanks
    Bravepants
    Added Pension and Early Retirement
    • #1
    • 10th Feb 18, 8:33 AM
    Added Pension and Early Retirement 10th Feb 18 at 8:33 AM
    Has anyone any thoughts on buying added pension with a view to retiring early, and thus taking actuarial reduction?

    Say at 55 instead of 67.

    The figures seem to work out beneficial for me, but am I being generally silly?
Page 1
    • Silvertabby
    • By Silvertabby 10th Feb 18, 9:20 AM
    • 2,288 Posts
    • 3,082 Thanks
    Silvertabby
    • #2
    • 10th Feb 18, 9:20 AM
    • #2
    • 10th Feb 18, 9:20 AM
    Has anyone any thoughts on buying added pension with a view to retiring early, and thus taking actuarial reduction?

    Say at 55 instead of 67.

    The figures seem to work out beneficial for me, but am I being generally silly?
    Originally posted by Bravepants
    It depends on the scheme rules. I wouldn't have thought that would be a great idea in, for example, the LGPS, as in that case not only does buying added pension involve paying the equivalent of your employer's contributions as well as your own, but the pension bought would also be subject to an early payment reduction.

    Which pension scheme are you in?
    • Bravepants
    • By Bravepants 10th Feb 18, 9:32 AM
    • 343 Posts
    • 381 Thanks
    Bravepants
    • #3
    • 10th Feb 18, 9:32 AM
    • #3
    • 10th Feb 18, 9:32 AM
    It depends on the scheme rules. I wouldn't have thought that would be a great idea in, for example, the LGPS, as in that case not only does buying added pension involve paying the equivalent of your employer's contributions as well as your own, but the pension bought would also be subject to an early payment reduction.

    Which pension scheme are you in?
    Originally posted by Silvertabby
    Thanks for your reply.

    I'm in Civil Service Alpha. I also have 19 years in Premium which is frozen and I can take that at 60. I'm thinking of a phased retirement.

    I have a S&S ISA too.

    I was thinking that I could pay, say £35k, into Alpha added pension. This would give me added pension of £3400 (half the maximum allowed), which would reduce to £1476 per annum due to actuarial reduction if taken at 55 and after 20% tax, and this increases each year with inflation.

    My thinking is that £1476 is 4.2% of the original £35k, which corresponds to typical drawdown rates if the £35k were to stay in my ISA. However the ISA would be subject to volatility of the asset mix I'm invested in and growth is not guranteed even to match inflation.

    So, the £35k might be better off buying something guaranteed.
    • Silvertabby
    • By Silvertabby 10th Feb 18, 12:02 PM
    • 2,288 Posts
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    Silvertabby
    • #4
    • 10th Feb 18, 12:02 PM
    • #4
    • 10th Feb 18, 12:02 PM
    My background is LGPS, not CS, but I'm sure that a CS expert will pop up soon.

    In the meantime, are you sure about these figures? An unreduced additional pension of £3400 for a payment of £35K is very generous!

    ADD

    I've just had a look at the LGPS additional pension calculator (unlike the CS, you can use this without logging into your actual pension record).

    Based on female, age 55, with a retirement age of 67, a lump sum of £35K would buy an unreduced pension of £2742.52.

    CS wins this one !
    Last edited by Silvertabby; 10-02-2018 at 12:11 PM.
    • Bravepants
    • By Bravepants 10th Feb 18, 12:38 PM
    • 343 Posts
    • 381 Thanks
    Bravepants
    • #5
    • 10th Feb 18, 12:38 PM
    • #5
    • 10th Feb 18, 12:38 PM
    My background is LGPS, not CS, but I'm sure that a CS expert will pop up soon.

    In the meantime, are you sure about these figures? An unreduced additional pension of £3400 for a payment of £35K is very generous!

    ADD

    I've just had a look at the LGPS additional pension calculator (unlike the CS, you can use this without logging into your actual pension record).

    Based on female, age 55, with a retirement age of 67, a lump sum of £35K would buy an unreduced pension of £2742.52.

    CS wins this one !
    Originally posted by Silvertabby
    I just double checked my figures. There is an Excel based calculator available. I can buy a maximum of £6600 for £65142. So that would give me 0.543*£6600 = £3583 (£2867 after tax) at 55 I reckon, so equivalent to 4.4% of £65k per annum.

    I guess the reason I have my doubts is because it DOES seem generous, and just seems to make sense to do this if true.

    Unfortunately my pensions department at work is not allowed to give this sort of financial advice, so I have to do all this research myself and make sure it all makes sense.
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