early retirement query

Pez

Dear All,

The trustees of my deferred occupational pension scheme have given their permission for me to take early retirement (due to ill health). I left the company due to ill health in March 1988 having worked there 6 years and have been unable to work since. The benefits would not be enhanced and the factor by which it would be reduced for early payment is 6% per annum and 0.5% per calendar month.

Taking the money would obviously be really useful, but I have only to wait for July 2010 for NRD. (I'm female and now 58).

I've put the figures as from retiring at 1st September 2008 and at my NRD of July 2010 below & wondered if one of you financial wizzes might throw a bit of light? The nearest pension specialist can't see me for 3 weeks (he's doing exams!) & the scheme administrators want to know if I want to go ahead. It's doing my brain in wondering what to do!

Deferred pension at date of leaving:
Guaranteed Minimum Pension £404.56
(earned before April 1988)

Excess over GMP earned before 1st Jan 1985 £211.40
Escess over GMP earned after 1st Jan 1985 £257.64

The GMP is increased by 8.5% compound for each complete tax year
Excess over GMP before 1st Jan 1985 is not increased
Excess over GMP after 1st Jan 1985 increased by the smaller of (a) the percentage increase in the retail price index and (b) 5% per annum

The cash option at date of leaving payable at 60 was then £1965.37

Revalued figures are -
Retirement pension taken at 1st September 2008

Earned before 6 April 1997 £2,614.32
Earned after 6 April 1997 0.00
or cash option £4,802.05
plus
reduced pension of £2,323.08

This pension would be increased by 3% until I reach normal retirement date

At Normal Retirement Date - July 2010 the figures are:

estimated full pension - £3,100

or cash option £12,000
plus
reduced pension £2,430

It seem to be that, whether or not I take early retirement, my final pension has to be £2434.65 because this is the Guaranteed Miminum Pension I am obliged to get by contracting out of SERPS = £404.56 x 18 years (from my leaving until NRD) x 8.5%

After that my grasp of the figures comes a bit unstuck.

Even if I can gain £1,000 or so overall by waiting another 21 months, it could be worth it. My husband's private pension is low & my other (teachers) pension will be about £2,000, and we have endowment shortfall of (probably) about £8,000 with plans maturing next year. So, you'll understand I don't want to make a mistake.

Any thoughts on the above would be much appreciated.

MikeJones_2

Hi Pez,

Pez wrote: »

It seem to be that, whether or not I take early retirement, my final pension has to be £2434.65 because this is the Guaranteed Miminum Pension I am obliged to get by contracting out of SERPS = £404.56 x 18 years (from my leaving until NRD) x 8.5%

My post is to simply clarify the calculation of your Guaranteed Minium Pension.

Assuming your Date of Leaving Service (which will be detailed on your documentation) was before 6/4/1988 and assuming your NRD is your 60th birthday, presumably in July 2010, your Revalued Guaranteed Minumum Pension is calculated as:

£404.56 x 8.5% x 22 years = £2,434.65 p.a.

This is the minimum pension that your scheme can provide you with at your NRD.

It could pay you less than this if you choose to draw your pension earlier than your NRD (and any reduction and formula for early payment is determined by the Scheme Rules) but your pension at your NRD must be increased to at least £2,434.65 p.a. It cannot be lower than that.

I presume you know that the State Pension Age is being equalised at age 65 for men and women. The change is being phased-in over a 10-year period from 6th April 2010. After this date, State Pension Age for women will increase.

• Women born before 6th April 1950 are not affected by the change.
• Women born between 6th April 1950 and 5th April 1955 will have a State Pension Age which gradually rises from 60 to 65.
• Women born after 5th April 1955 now have a State Pension Age of 65.

So your State Pension Age is slightly higher than your 60th birthday.

I hope that helps your point about your GMP.

Mike Jones

I work in the field of Pension Education and Pension Guidance in the UK. I am a current member of the Specialist Pensions Forum as well as being a Voluntary Adviser for The Pensions Advisory Service. I work with scheme members, employers, trustees, scheme administrators and advisers on most things to do with employer sponsored pension schemes. The views expressed by me in this thread are my personal opinions. You should seek professional advice from an appropriately experienced and qualified adviser. I am not an IFA.

Pez

Thanks Mike,

Yes, you're right, it should have been 22 years from leaving in 1988 to NRD in 2010 - my mistake.

As I was born in July 1950, my state pension retirement date is now October or November 2010 (can't remember which). Does this mean that company pension schemes will fall in with this as well?

I ask because the company administrators on recent correspondence still refer to my normal retirement date as July 2010.

Pez

MikeJones_2

Hi Pez,

Pez wrote: »

As I was born in July 1950, my state pension retirement date is now October or November 2010 (can't remember which). Does this mean that company pension schemes will fall in with this as well?

I ask because the company administrators on recent correspondence still refer to my normal retirement date as July 2010.

Your Normal Retirement Date (NRD) is determined by your Scheme Rules and not by State Pension Age, so you'll still get your pension on your 60th birthday - including your GMP - so long as that is your NRD.

You can check Female State Pension Age here.

Knowing that you will get your Revalued Guaranteed Minimum Pension at age 60, irrespective of when your draw your benefits, has this helped you decide what to do in respect of your original post?

Mike Jones

I work in the field of Pension Education and Pension Guidance in the UK. I am a current member of the Specialist Pensions Forum as well as being a Voluntary Adviser for The Pensions Advisory Service. I work with scheme members, employers, trustees, scheme administrators and advisers on most things to do with employer sponsored pension schemes. The views expressed by me in this thread are my personal opinions. You should seek professional advice from an appropriately experienced and qualified adviser. I am not an IFA.

Pez

Thanks Mike

Glad that my company pension NRD not affected by state retirement date!

Got my new state retirement date from your link, thanks.

I don't know about a decision. It seems, whether I take early retirement now or wait til July '10 then my GMP will be the same. So the main difference will be in the cash sum.

Take £4800 now & have (almost) 2 years of pension at £2323pa - say that's £9,300 - or wait 2 years and get a cash sum of £12,000. That's a difference of £2,300.

Of course, taking the benefits now, I could pay off some debt/gain interest on the money between now and my NRD. Or I could be very practical, wait and give up part of the £12,000 to increase my annual pension.

I'm worrying over a relatively small amount, I know, but our pensions provision is not good & I don't want to make a mistake.
If, with everything taken into account, just by exercising a bit of patience, I can increase the payment even say by £1,000 overall in 21 months then maybe I should hang on.
As you see I am driving myself a bit potty about this. I have asked for further info from the administrators re how the final cash amount is worked out.

Pez