Early Retirement

evergreen

I will be 57 later this year. I am a civil servant and am seriously considering 'partial retirement'. I know I would have my pension reduced for retiring before 60 (I am in the classic scheme) by 5% per year, that is 15%, and my lump sum reduced by 2.5% a year, that is 7.5% and I will not have paid as many years into the scheme, but I am on temporary promotion at the moment which ends soon, so my pay is enhanced by 10% and I have been for about a year. Therefore my pension and lump sum would be based on my enhanced salary, which means the amount of pension reduction isn't as bad, as if I retired in 3.8 years time my salary at my proper grade would not be as high as my enhanced salary. I plan to still work about 24 hours a week, so will still be contributing to pension, until I get my state pension in 2015.

My question is have I missed something else here or does it make sense? I don want to reduce my hours, but do not want to reduce my income much. I could just reduce the hours and use savings to supliment my pay if it was a better choice financially. Anyone have any thought on this. I would really appreciate advice. Many thanks

dunstonh

Therefore my pension and lump sum would be based on my enhanced salary

It was never likely to be. I cant remember off the top of my head whcih it is but its more likely to be the average of the best three consecutive years in the last 10 or the average of the last 3 years or something similar. I suggest you check your scheme booklet before you make this one in a lifetime decision.

You may be making an incorrect assumption.

MikeJones_2

Hi evergreen,

dunstonh wrote: »

You may be making an incorrect assumption.

I'm firmly in agreement with dunstonh on this. For such an important decision you wouldn't be advised to make the presumption about enhanced pay.

I took a quick look at the Scheme Rules to see if I could help further (assuming that it is these Scheme Rules which apply to you, which they may not):

- The Principal Civil Service Pension Scheme - The 1972 Section (pdf-302 pages)

On Page 8 of Section 1 (it's actualy page 16 of the PDF document), the Definitions look at pensionable earnings paragraphs 1.6 -1.10.

If I were you I'd contact the Helpline and even then I'd recommend putting your questions in writing to avoid doubt.

One thing I would add which may weigh upon any decision to draw your pension benefits now is inflation. Early forecasts from some financial commentators suggest that inflation will dip to zero (nil) or even lower around the months of Aug-October 2009.

Most public sector pension schemes provide fully index-linked increases to pensions in payment - but, those increases use the RPI figure published for September.

If you do draw your benefits now, the years before your 60th birthday could suffer from very low inflation and therefore your pension too would only 'enjoy' these lower increases.

If you were talking about drawing your pension where inflation was above zero, the pension increase would partially offset the early payment penalty of 5% p.a. on your pension and 2.5% p.a. on your lump sum (presuming you invested it).

A small point maybe, but one which is often overlooked.

Hope that helps.

Mike

I work in the field of Pension Education and Pension Guidance in the UK. I am a 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.

evergreen

Thankyou both

I think I am Ok with my salary as the scheme rules say my 'pensionable earnings is the 12 month period in your last 3 years reckonable service in which you received the highest amount of basic pay'.

As far as inflation is concerned, I see your point, although even with pay increases I would still not reach the increased pension I will get based on my temp promotion pay. But I need to consider inflation.

I will wait a couple of months and then get a forcast if I did go down this route. Thanks again.