Actuarial Reduction - any insights?

olbas_oil

I transferred 20 years benefit from Teachers Pension to Universities (USS) about 5 years ago, and was told there could be an actuarial reduction if I retired within 7 years (see below).
Apart from confirming that this could apply, USS are unable to explain what it would actually mean, in money terms. It seems like I would actually have to retire, before I knew what the reduction would be.
Can anyone provide any insight into the formula that might be applied? Is it just something to do with time (eg after 5 years the benefits are reduced by 10%, after 6 years by 5%, and after 7 years by 0%), or could it involve indexation, stock-market performance etc?

Early payment of benefits transferred to USS

Benefit for any service transferred to USS may be actuarially reduced, in certain circumstances, in the event of your early retirement before age 60, other than on grounds of ill-health.
If the transfer payment is received by USS within one year of you joining the scheme then the transferred in service will be reduced if you retire with less than seven years active membership since joining.

LizzieS_2

The 7 years refers to retirement before the age of 60.

Your normal retirement age will be written into your contract and will be anything between 60 - 65.

If your retirement age is 65 and you choose to retire before 63 1/2 all your benefits may be reduced.

I think you are asking USS a very general question where there are many different amounts depending upon what can be interpretted.

You are entitled to ask for a quote of your benefits, so at least you will then see the differences.

This is one of their factsheets, although it doesn't have the reduction factors on http://www.usshq.co.uk/downloads/pdf/all_sections/communications/factsheets/FS9.pdf

exil

I'm in the same scheme. They are very cagey about reduction rates but I imagine it's similar to the 5% that applies in other schemes. I also assume it's compounded so 5 years at 5% would be 23% and 10 years 40%.

The logic is that if you are entitled to a pension of 10k at 60, you might receive it over 20 years before popping your clogs. This costs the scheme 200k overall. So, if you take it 10 years early the same 200k has to last for 30 years and so it would be reduced by about 30%. However the actuaries assume that over the 10 years the value of your pension "pot" would increase so the reduction applied is rather more than this.

seven-day-weekend

My husband took Actuarilly Reduced Retirement five years early and lost 1/3 of his Teachers' Pension.

I know all schemes are different but this is just an illustration of how much you could lose.

I would lose a similar amount if I toook my LGPS Pension next year when I am 60 (retirement age in this scheme is 65).

aah

seven-day-weekend wrote: »

My husband took Actuarilly Reduced Retirement five years early and lost 1/3 of his Teachers' Pension.

I know all schemes are different but this is just an illustration of how much you could lose.

I would lose a similar amount if I toook my LGPS Pension next year when I am 60 (retirement age in this scheme is 65).

Hi 7 days.

If you have been in the LGPS for some time then you will have protection which will enable you to retire at 60 if you meet the rule of 85 (years of service plus age).

Best wishes

seven-day-weekend

Thanks aaah for that information.

The earliest I can take my pension without any actuarial reduction is August 14th 2014 (see how I know the date?), which is six months before I am 65.

At least that's what it says on my Deferred Pension statement!

EdInvestor

7DWE

Might be worth your while to get a quote on the actuarial reduction: getting the pension for an additional 5 years, even if it's at a lower rate, might be a good idea as it would provide a significant improvement in your lifestyle. Obviously it depends on how big the reduction would be.

seven-day-weekend

I have asked on the phone, it would be about a third and att he moment my pension is only £45 a week to start with, with a £5.5k lump sum. I only paid into it for ten years, some of this on a part-time salary.

I get my State Pension next January which at about £100 a week will be a HUGE rise for us !

It wouldn't hurt though to ask for a formal written quote. I'll do that.

Thanks to everyone for your interest.

olbas_oil

Many thanks for your replies. I am wondering whether the USS scheme is threatening a double whammy? There is the normal 'actuarial reduction' on retirement before 60, but the quote on my original post refers to a reduction specifically on transferred-in benefits if that was within 7 years before retirement. Do these separate reductions run together (like a concurrent jail sentence?) or are they cumulative?

My first reaction is one of slight shock. Losing a third for five years early is worse than I would have assumed. Methinks I may need to carry on a while!

exil

The way I read it is that this additional reduction would apply only

(a) if you transferred in the service within a year of joining

AND

(b) when you retired you had less than 7 years service

So if you've 7 years service then there should be no additional reduction. That is, 7 years service, not 7 years since transferring in.

Sound like some schemes have a ludicrously high actuarial reduction rate - which makes it well worth considering living on savings or other income (or even borrowing money, reluctant as I am to suggest this!) and deferring the pension till the normal age. But I have had 40% quoted to me (unofficially) for 10 years early retirement for the USS, and 25% for 5 years early on the Water Board scheme, ie an annual rate of 5%

Also - despite what a previous poster has suggested, the teachers' scheme has a reduction rate of 5% a year - ie 23% for 5 years - they have a calculator on their website - very helpful, other schemes please copy!

EdInvestor

seven-day-weekend wrote: »

I have asked on the phone, it would be about a third and att he moment my pension is only £45 a week to start with, with a £5.5k lump sum. I only paid into it for ten years, some of this on a part-time salary.

Looks like you would lose about 770 a year, but would get an additional c.7800 (5 years x the lower pension).So it would take about 10 years to catch up if you waited for the higher pension.This doesn't take index linking into account, or the additional interest on the lump sum over the 5 years.

What will you tax position be? With the smaller LGPS pension plus the state pension you are only just over the basic personal allowance now, should be under it after April So it all should be tax free.Of course you are well clear of the age allowance from 65 either way.