Possible Voluntary Early Retirement

Wellinever

I wonder if anyone can help. I will have worked for the MET Police in a civilian role since April 2003. We are facing another round of cuts so I have applied for Voluntary Redundancy with a leaving date of 17th June 2013.
I am female and will be 60 on 29/03/2013 but had intended to work until I can claim my State Pension in March 2016. I am hoping to use whatever I may be offered in compensation (usually 1 month for each year worked) to bridge the gap in my finances until I claim my State Pension. This may not be much as I believe that the amount tapers off the closer you get to retirement age.
I have contributed to a work pension (Civil Service Premium) and with extra bought in years will have accrued just under 14 years, yielding a pension of ~£7000pa. I will also have a small deferred teachers pension of ~£3200pa plus a lump sum of ~£9700. I also have a very small Personal Pension with Aegon (formally Scottish Equitable), the current plan value being £16,000 in a High Equity WP Fund.
I would like to know what my options are a) if I am accepted for redundancy or b) if I am not. Eg - Should I keep my pensions as they are, can I take my Personal Pension as cash, etc. ? I would be grateful for any ideas.

kidmugsy

Wellinever wrote: »

I have contributed to a work pension (Civil Service Premium) and with extra bought in years will have accrued just under 14 years, yielding a pension of ~£7000pa.
WHEN IS IT PAYABLE?

I will also have a small deferred teachers pension of ~£3200pa plus a lump sum of ~£9700.
WHEN IS IT PAYABLE?

I also have a very small Personal Pension with Aegon (formally Scottish Equitable), the current plan value being £16,000 in a High Equity WP Fund.
IS THERE A POTENTIAL PENALTY UNLESS YOU "CRYSTALLISE" IT ON A SPECIFIC DATE?

"... can I take my Personal Pension as cash ... ?" Not as things stand: your total in pensions is worth much more than capital of £18k so you can't do "trivial commutation". You can get 25% out as a tax-free lump sum and put the balance into "capped income withdrawal": if Aegon don't offer that service you can presumably transfer the pension to a provider who will, though you'd have to check on penalties and charges for such a move first. You'd also want to check whether the Aegon policy offers a GAR i.e. a guaranteed annuity rate. If it does the annuity rate is likely to be far bigger than you could get on the open market so it might be worth abiding by the rules that let you realise that GAR. If the GAR is high enough it might even be worth forgoing the Tax-Free Lump Sum so as to maximise your annuity.

I've written this comment on the assumption that you are not permitted to transfer the Aegon policy into the Civil Service one: that too you should check.

atush

Have you checked if you would have been better off if they had made you redundant instead of retiring early? you might have been better off?

Can you work still? Would you like to?

Wellinever

Thanks for your reply kidmugsy.

In answer to your questions:-
I could have taken both work pensions from age 50 but with penalties. I am 60 on 29th March 2013. The teachers one is deferred but I could continue to contribute towards the Civil Service one for as long as I continue to be employed. If I am offered Early Retirement it would be from 17th June 2013 and from that date, I would have accrued just under 14 years, yielding a pension of ~£7000. I would take both pensions from that date.

As for the Aegon Personal Pension, I am unaware of any potential penalties for failing to 'crystallise' on a specific date - I have not come across such a clause in the small print.

I will check to see if I am permitted to transfer the Aegon Pension into the civil Service or Teachers Pension.

Wellinever

Atush - With the civil Service Pension, once you get past the age of 55, they automatically give you early retirement instead of redundancy with the same amount of compensation - 1 months salary for every year worked. The only loss is that if you are very close to the 'pension retirement age' of 60, they gradually taper off the amount of compensation. However, I don't think that they have taken into account that the State Pension ages have been raised. This means that many, myself included, cannot afford to retire until they can claim their State Pension.

I had intended to continue working until my State Pension retirement age of 63 in 2016. However, pressures of work mean that I would prefer to retire next year if I am offered sufficient compensation to keep me going until I can claim my State Pension.

kidmugsy

Wellinever wrote: »

If I am offered Early Retirement it would be from 17th June 2013 and from that date, I would have accrued just under 14 years, yielding a pension of ~£7000. I would take both pensions from that date.

So from June you'll have an income from the two defined benefit pensions of just over £10k per annum, which will be free of National Insurance payments and nearly free of income tax (though in the tax year '13-'14 HMRC may tax you a bit more because of your earnings from April 6th to June 17th: I don't know how the detail will be dealt with there.)

You'll also have the lump sum of £9700: do you happen to know whether you are allowed to forgo that lump sum and take a bigger pension instead? If so, it might be worth checking the terms on which it can be done. It's possible that they could be so good that you'd be well-advised to do it even though you might then want to borrow a bit from somewhere to see you through to the start of your State Pension. On the other hand if you are someone who hates the idea of being in debt you may want to ignore this idea and sleep easily instead.

Anyway, you also have the Personal Pension with Aegon: if there really are no penalties for crystallising it whenever you like, and if there is no "market value reduction"/"market value adjustment" at present - do phone and check - there's a case for doing it now and getting your 25% lump sum out and put securely into a Cash ISA, earning interest free of income tax. You could then set up income withdrawal (at Aegon or a competitor as already mentioned in my earlier comment) so that you get the first year's withdrawal out and into your Cash ISA too in this tax year. Cash ISA interest rates often perk up a bit in March so your money might come at roughly a convenient time. Then when you get your £9700 lump sum in June (supposing that you do) you can use part of it to fill a Cash ISA for tax year '13-'14.

The only other stunt I can think of is the use of "stranded pots" legislation. The idea is that after you are 60 on 29/03/2013, you would be allowed to cash in completely up to two pension pots, neither exceeding £2000, with 25% being tax-free lump sum and the other 75% being exposed to income tax. Maybe there's some way you can move the great bulk of your private pension from Aegon while leaving, say, £1900 behind - and then you do a stranded pots cash-in on that if Aegon provides that service. (You'd have to check: the law permits them to do it but doesn't insist that they offer the service.) Further, if it were possible to split the amount transferred out of Aegon into two different private pensions, you could arrange that one is, again, worth about £1900 and pull the stunt for a second time. By this means you'll have liberated £1900x2 plus 25%x(£16000 - £3800) = £6850, less tax (0.2x0.75x£3800 = £570). That's a pretty decent portion of the £16000 you started with. Meantime you start the income withdrawal on the amount left in your pension pot, namely £16000 - £6850 = £9150. I have to admit that I don't know whether the "stranded pots" stunt involves costs that make it unattractive to use.

There's one last complication. The annual amount you're allowed to take by income withdrawal from your surviving personal pension pot is calculated in terms of a percentage called "the GAD rate". Currently the maximum you can withdraw is the GAD rate, but the government has announced that in future you'll be allowed to use the GAD rate multiplied by 1.2 - i.e. you could withdraw 20% more per annum. Unfortunately they haven't yet said when this new rule will take effect, so you'd presumably need to keep your eyes on the papers or the internet.

One last thing: I'm an amateur so if anyone wants to correct anything I've said, would they please do so?

Wellinever

Thank you Kidmugsy for your detailed reply.

The Lump Sum cannot be added to my Teacher's Pension. I had intended to use it to pay off my car loan as I don't like being in debt.

I like the idea of using a lump sum and income from my Aegon Pension to fund ISAs and I understand it much better than the more complicated "stranded pots".

philip1988

Wellinever wrote: »

Thanks for your reply kidmugsy.

In answer to your questions:-
I could have taken both work pensions from age 50 but with penalties. I am 60 on 29th March 2013.

If you joined the Teachers pension Scheme before the 1st January 2007 your normal retirement age (NRA) without incurring any penalties is 60. People you have joined the scheme since then their NRA has been increased to 65.

Unfortunately you have left it to late (as I did) to move your private pension into the Teachers scheme