Earliest Retirement Age

amethystcash

I have a Classic CS pension and wanted to know, is there an earliest age at which you can retire and what effect this has on the pension that you receive. We are in a position that we could get by just on my DHs salary, so I'm not sure if I left work what would happen to my pension and when I would be able to start earning it. Should I be able to get this information from my pensions department?

I've been trying to become more financially savvy but have to admit that pensions is one area that I just don't understand - is there such a thing as a magic formula that you can use to work out if you would be financially secure with the pensions provisions you have in place compared to what your outgoings are? Also how do you forecast this into the future when prices will obviously be higher.

Lastly and I know this is probably something I should know, but is the state pension means tested? Do they take any savings that you have or other pensions that you will get (DH and I both have "company" pensions) into account when working out how much state pension you will get?

Sorry if these seem like naive/stupid questions.

evergreen

If you are in the classic scheme, you can retire at 50 by you loose 5% of your pension for every year you retire before 60, so it would cost you alot to retire at 50. At 60 your pension would be 1/80 of your pensionable salary for each year of service. Your pensionable salary is defined by your scheme. I am in the classic scheme and my pensionable salary is the highest 12 month earnings, during the last 3 years before retirement. You also get a lump sum of 3 times your pension, but this too would be reduced if you left early.
Hope that helps.

amethystcash

evergreen wrote: »

If you are in the classic scheme, you can retire at 50 by you loose 5% of your pension for every year you retire before 60, so it would cost you alot to retire at 50. At 60 your pension would be 1/80 of your pensionable salary for each year of service. Your pensionable salary is defined by your scheme. I am in the classic scheme and my pensionable salary is the highest 12 month earnings, during the last 3 years before retirement. You also get a lump sum of 3 times your pension, but this too would be reduced if you left early.
Hope that helps.

From what you've said, does that mean that you would lose 50% pension by retiring at 50 (10 yrs early)? Do you know if you can retire early but freeze the pension to 60?

Confirming calculation - £Sal / 80 x Yrs = annual pension? + £Sal x 3 = lump sum

sleepless_saver

You don't have to take a reduced pension at 50. You can just leave if you want to and then draw your pension at 60. It will not be reduced and will have increased by the rate of inflation in the meantime. See link.

Andy_L

amethystcash wrote: »

From what you've said, does that mean that you would lose 50% pension by retiring at 50 (10 yrs early)? Do you know if you can retire early but freeze the pension to 60?

Yes, although you'd just resign rather than retire. The pension will not be frozen, it will increase by RPI every year, quite possibly by more than it would increase if you stayed in

evergreen

As Andy L said you can resign and then take your pension at 60. As far as your calculation goes, your Lump sum would be 3 x pension not 3x salary.

amethystcash

Thanks for all your advice.

amethystcash

evergreen wrote: »

If you are in the classic scheme, you can retire at 50 by you loose 5% of your pension for every year you retire before 60, so it would cost you alot to retire at 50. At 60 your pension would be 1/80 of your pensionable salary for each year of service. Your pensionable salary is defined by your scheme. I am in the classic scheme and my pensionable salary is the highest 12 month earnings, during the last 3 years before retirement. You also get a lump sum of 3 times your pension, but this too would be reduced if you left early.
Hope that helps.

Evergreen, you've said that I would get 1/80 of salary, but in another thread on this forum re CS pensions, someone says that figure is 1/60 - can you clarify? Thanks.

taliesin

I'm not Evergreen, but perhaps I can clarify. There are now three distinct CS pension schemes - Classic, Premium, and Nuvos - plus a hybrid, Classic Plus, which is a mix of Classic and Premium. The Classic scheme, which you said you were enrolled in, is based on 1/80 of final salary per year of service; the Premium scheme is based on 1/60 of final salary per year of service.

(Don't think that you're losing out, though -- the Premium scheme does not provide a lump sum without losing some of that pension, and staff who opted to go Premum a few years ago have been paying an additional 2% of salary to provide the small net additional benefit over Classic).

I'm also responding to add a note regarding the figure of 5% per year that is being suggested for taking early retirement. That figure is a reasonable approximation for early retirees approaching 60, but the real figure is worked out from actuarial tables, and for a number of reasons, the cost of taking each year rises as you move the early retirement age down from 60 to 50. So your pension would be reduced by more than 50% if you decided to take early retirement at 50. If you dig very deep into the files on the Civil Service Pension Scheme web site, you can find the tables with the exact reduction by month. On the other hand, your local personnel office can get a quotation for you if express an interest.

Be aware that when departments need to down-size (and there are constant pressures of that sort in government offices, despite what you read in the press), they often look for volunteers to take early retirement and will sometimes offer incentives such as allowing you to leave early on full or near-full pension (the rules are such that the maximum they can give you is 6 2/3 years' worth of full pension, but even that is quite a sweetener). If your department is under pressures of this sort, they may be willing to offer you an early retirement deal even though no call has been issued publicly. It should do no harm to let the personnel office know you are contemplating early retirement -- an enquiry is just that, an enquiry.

Coming back to your original question, the great thing about Civil Service pensions is that (as Andy L and others have said) it increases with RPI. Now, your personal spending won't increase in line with RPI -- pensioners spend their money differently to the "basket" of items that goes to make up the RPI; your personal "basket" may go up by more, or may go up by less -- but RPI is generally considered to be a more generous measure of price inflation than CPI, the international, government-preferred figure, and it's better than many pensioners are getting. So if you have a little margin for comfort when you start on your pension, that margin should not be eroded too rapidly. Bear in mind that as you get older, your spending profile will change. There's an article looking at how inflation affects different family groups to differing extents at http://www.telegraph.co.uk/finance/2952331/What-results-mean-for-different-groups.html

taliesin

I see no-one has answered your point about state pensions. No, they are not means-tested. State pensions are taxable, along with the rest of your income.

You may be thinking of "pension credit", which is a means-tested system that tops up earnings to ensure that everyone of pension age receives a minimum income (£189.35 a week for a couple). It doesn't sound like you're going to be struggling that badly!

Debt_Free_Chick

From April 2010, you will need to be at least age 55 in order to receive your pension.