Royal Mail Pension ( Help )

dparr59

Hi
I worked for royal mail for 25 years from may1981 - august 2006 and will be 50 in July this year my pension is deferred till i am 60 which at the last statements in sept 2008 says £5,548 a year and a £16,000 lump sum.
What i want to do is take it early at 50 this year from royal mail depending on offer if possible or transfer out all together and take a 25% lump sum and then buy a annuitie with the rest

Will royal mail let me take it early ?
Will GMP affect the answer and how do i work that out.
is it possible to work out the whole transfer value of this pension ?
I hope to take it early this year but not sure to use a company on the net or use a local fsa member that take's a comission fee at the end of the transaction.

Thank you

david

MrChips

Taking it 10 years early will lead to a very big reduction of both the pension and lump sum (something like a 40% - 50% reduction).

Royal Mail probably will let you take it early, although depending upon the Rules of the Scheme, you may need the consent of Royal Mail and/or the Trustees of the Scheme.

You are correct to site GMP as a potential fly in the ointment. The Scheme will be legally obliged to provide you with a certain amount of GMP from 60 (if female) or 65 (if male). They are unlikely to let you take early retirement now if that means the pension you start with is reduced to such an extent that by the time you reach 60/65 it won't have grown sufficiently to hit the GMP figure they are obliged to pay.

Only the Trustees (i.e. their administrators) can tell you the transfer value of your benefits. Given payment age is 60 and you are 50, it is likely to be of the order of about £80k - £90k I would say, but the Royal Mail scheme is notoriously underfunded and it is possible the Trustees have agreed to reduce transfer values from their normal value to protect members who remain in the Scheme.

dparr59

Hi thanks for the reply
1 year Just before i left royal mail i got a yearly statement saying you will get this £7,466 and a lump sum of £29,000 if you retire at 60.
It them mentions that if i was to buy a similar product from a insurace compay it will cost £223,980
if i devide £223,980 by 30 (years ) that would be £7,466 a year.
So if i times my frozen pension £5,448 by 30 the answer is £163,440 transfer value or am i wrong ?
Should i write to royal mail my self or use a FSA member instead,
the reason i ask is that i can only request a statemant once a year and need to ask the right questions first time.

thanks

david

MrChips

I imagine that the quote of £7,466 assumed you stayed in service until age 60, i.e. it includes 10 years of service which you didn't complete. But I guess you know this already!

Unfortunately you have slightly oversimplfied the situation. The first problem with your logic is that insurance companies will charge more to provide the same pension than your scheme will. This is because insurance companies will charge to make a profit, and to include expenses. They are also obligated to invest in more secure assets which have lower expected returns than your pension scheme will - hence while an insurance company will need to invest £223,980 to provide this pension, your scheme will probably only need to reserve about 70%-80% of this figure. Your transfer value will be based on the expected cost of providing your benefits in the scheme, rather than with an insurance company (this is why in most cases, it isn't worth transferring benefits out of a defined benefit scheme).

The second point is that (I imagine) your statement was detailing the cost to buy those benefits if you were aged 60. You are ten years younger than this. Hence the scheme will expect ten years of investment returns on the money it has set aside to provide these benefits and this will also be reflected in your transfer value.

Factoring in these two elements brings your £163,440 approximately down to my estimate in my first post. If the Trustees are currently reducing transfer values due to underfunding, this will impact it further.

Of course, the only way to find out the actual figure is to make a request.