Actuarily reduced pension - comuting

Stux

Hi all

I've been using this forum for a while to gain information and it has proved invaluable - it helped me calculate accurately my Classic civil service pension right to take the pension 3 years early. Anyway, to my point (and also for anyone else who might be thinking about this).

I left service in 2006 aged 53 with 23 years service. My circumstances are such this year that I decided to semi-retire, and take out my pension on an actuarily reduced basis.

I worked out and planned on the basis of information available to me, and everything has worked out OK except for one point. I wanted to comute part of the pension to an increased lump sum - all the indicators I could find pointed to this not being an problem, I could do it.

However I've now discovered that because I left the service in 2006, I could not in fact comute part of the pension to lump sum as that option did not become available, I'm told by the Government Pensions department, until 2008. That is in spite of the fact that for example where early retirement was taken pre-2008 it was actually possible to comute in this manner.

That came as a bit of a surprise (not I'd say a major blow, I can live with it) - I'm just curious if anyone else has come upon this particular ruling or was at least aware of it?

Goldenyears

Assuming your pension is not yet in payment (since nothing can be changed after commencement) have you had this ruling in writing.

If it is in writing does it quote the rule and the PCSP section paragraph that is being applied. These rules are on the Civil Service Pensions website (I mean the full rules eg. 2002 Section and 2007 Section, not the guides). If you have not been quoted the exact rule you are entitled to know it in a dispute resolution.

At first sight the ruling is not correct. The option has been there a long time, but you are an early leaver and that complicates things a bit. The critical date may be 1 October 2007.

This may be a daft question but are you sure the ruling is about giving up pension for additional lump sum and not giving up lump sum for additional pension. Even so the inverse commutation option has been available since at least 1996.

Stux

Goldenyears wrote: »

Assuming your pension is not yet in payment (since nothing can be changed after commencement) have you had this ruling in writing.

If it is in writing does it quote the rule and the PCSP section paragraph that is being applied. These rules are on the Civil Service Pensions website (I mean the full rules eg. 2002 Section and 2007 Section, not the guides). If you have not been quoted the exact rule you are entitled to know it in a dispute resolution.

At first sight the ruling is not correct. The option has been there a long time, but you are an early leaver and that complicates things a bit. The critical date may be 1 October 2007.

This may be a daft question but are you sure the ruling is about giving up pension for additional lump sum and not giving up lump sum for additional pension. Even so the inverse commutation option has been available since at least 1996.

Thanks for the reply - I'm clear that it is about giving up pension in exchange for a larger lump sum. I've even used the calculator provided on the Pensions site to calculate the sums involved.

I need to go look at the rules myself I think, I've taken the word of the civil servant dealing with my case - as you do - I was just taken by surprise that in spite of my research showing that it was possible, he quoted the reason it was not (and it sounded plausible) was that I left prior to this particular option being permitted.

BTW the pension is indeed not yet in payment, it will be next month assuming they get the finger out )

Stux

An update on this for the benefit of anyone else caught out - it is far from clear until you do some real digging...

Details of when commuting began can be found on the Civil Service Website (not allowed to post a link on the forum apparently cause I might be a spammer, but it's the CS Pensions Site).

In the "Guidance for employers" there is a section for "Employer Pension Notice". Notice number EPN177 issued in June 2007 gives details of when the option to commute part of an annual pension to increase the lump sump began.

Basically, you can only commute part of a Classic pension into a lump sum if you left service after the 2007 changes were brought into play. If you left prior to that you can't.

Andy_L

although Classic has the automatic 3x lump sum anyway so you're limited on extra commutation allowed. Considering the punishing 12:1 rate is it that great an issue?

Stux

Andy_L wrote: »

although Classic has the automatic 3x lump sum anyway so you're limited on extra commutation allowed. Considering the punishing 12:1 rate is it that great an issue?

As I said in original post Andy, I can live with it - was never a great issue. The whole pensions thing though is a minefield, really, really difficult to get accurate information even from those tasked with the job of providing you with it.

The 12:1 rate though I do not consider to be 'punishing' - guess it's all about individual interpretation.

Andy_L

I always compare it against going in the other direction, its £20+ to buy £1 of RPI/ pension at age 6,5 let alone 55, in the open market.
You can almost beat it just by taking out a loan & paying it back with your pension

vbm

Stux wrote: »

The 12:1 rate though I do not consider to be 'punishing' - guess it's all about individual interpretation.

12:1 is pretty poor value.

Given the true actuarial value of the benefits you are giving up I would consider it pretty punishing.