Pension lump sum taken early

Xbigman

If I took my pension early (at age 55) I get an age deduction of 34%.

Would the lump sum be reduced by 34% too? Logically I would think not as it is not affected by how long I live. Am I right?
Regards



X

MikeJones_2

Hi Xbigman,

Entirely depends on the Scheme Rules, assuming it is an employer sponsored pension scheme?

Can you enlighten us on what type of pension it is (e.g. is it a 'final salary' type)?

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.

MrChips

The fact that the reduction rates are published implies to me that this is a DB scheme.

Almost certainly the lump sum would be reduced as the Scheme will be funding for it on the basis it will be paid at your Normal Retirement Age (probably 65 looking at the figures you have given - so ten years away).

Because of that length of time, the Scheme won't have all your lump sum at present, it will have such smaller amount which would be anticipated to grow to your full lump sum over 10 years with interest and investment returns. I would estimate that the reduction would not be as severe as for your pension however because of the reason you mention (it is not impacted by life expectancy) and so the reduction would probably be only half as severe.

MikeJones_2

MrChips wrote: »

The fact that the reduction rates are published implies to me that this is a DB scheme.

Agreed.

If it is a preserved pension (and we're not sure if it is or is not from the post) the lump sum and pension could have been quoted on a Statement of Entitlement either as at 'date of leaving' or an estimate at NRD.

If the poster left pre 6/4/2006 and the scheme continues to use pre A-Day cash calculations for those that left beforehand, the lump sum would likely be the scheme maximum cash. In that example, it would be unlikely to be reduced if taken early unless it would be restricted by the pension that would be provided at ERA.

All theory, I know...

Mike

MrChips

Sorry, I was looking at it as being a defined benefit lump sum (e.g. 3/80 of final salary per year of service). While this may be the case, it is more usual that the lump sum is available via commutaion of pension, as alluded to by MikeJones.

Can you clarify Xbigman?

Xbigman

It is a final salary pension. The rules for taking the pension early came to light when the scheme was slightly changed 2 years ago. Its amazing just how little 'hard' information its possible to get even now. The pension trustee's go out of their way to give the most general and obscure answers to questions. A colleague is retiring next June and is unable to make sense of the figures he has been given. I appreciate that the figures are estimates but they can't be that clueless.

Anyway. Looking at the lump sum I think it has been adjusted down by the same percentage as the pension payable but surely it shouldn't be.

Any idea's
Regards



X