Pension Levelling?

kidmugsy

Seabee42 wrote: »

... The 6 years of extra payments is £27282 and they will then reduce the [annual pension] by £1180. ... on those numbers you get back to neutral in 23 years from 66.

That's a good way to look at it. I'm trying to see how "escalation" would affect it. Suppose we are in a low inflation period now, so that the £27282 is a good estimate of the actual gain that will materialise over the six years. Suppose that thereafter annual inflation is higher and the pension gets full inflation protection; then the £1180 p.a. sails happily upward and so its absence will be felt more heavily. On the other hand, if inflation-protection is less than the inflation rate, then the £1180 p.a. would shrink in purchasing power and its loss will be less heavily felt.

So the answer will depend in part on what the inflation-protection guarantee is. The best policy will also depend on how much you'd prefer the extra income in your husband's early sixties, rather than later in life. For treats such as travel, it might be natural to take the money early.

In_a_spin

I think I am even more confused now.

The widow's pension is not affected by the levelling, it would be paid at the same rate as if it did not occur.

Looking on the scheme website, the Pension is reviewed each April and any increase is based on the Retail Prices Index for the previous September.

It was contracted out of the second pension and there is a GMP which is does not come into play until age 65 for Men, from what I understand the GMP increases at the rate of 3% from that point and the rest of the pension at the RPI rate.

I do not think it will be an option to take the Aviva pension at 55 as I am still working and paying into this scheme. My employer pays a 6% on top of my contributions which I would lose if taken early.

greenglide

In_a_spin wrote: »

It was contracted out of the second pension and there is a GMP which is does not come into play until age 65 for Men, from what I understand the GMP increases at the rate of 3% from that point and the rest of the pension at the RPI rate.

For people who reach state pension age after 5/4/2014 (the date that STP starts) there will be no GMP and inflation proofing of the GMP by the state (in whole or in part) will end.

It would seem that public sector schemes will be expected to take over full inflation proofing of all the pension (the schemes generally allow this any way) but private sector schemes will, presumably, have a decision to make. The scheme I am in currently says:-

• Your Guaranteed Minimum Pension (GMP) relating to service prior to 6 April 1988 will be
increased in line with inflation. These increases will be paid by the State and added to your
basic State pension.
• Your GMP relating to service from 6 April 1988 will be increased with inflation. Increases up to
3% each year will be paid by the Plan. Any increases above 3% will be paid by the State from
State Pension Age and will be added to your basic State pension.
• Your Plan pension in excess of your GMP will increase at a minimum of 3% per annum for that
part accrued prior to 6 April 1997. The portion accrued between 6 April 1997 and 5 April 2006
will increase in line with the lower of the rise in the Retail Prices Index (RPI) and 5% per annum.
The portion accrued from 6 April 2006 will increase in line with the lower of the RPI and 2.5% per
annum.

Since there will be no GMP and DWP definitely will not be paying what would have been their share they will presumably have to do some hard thinking and decide whether to dip their hands in the scheme's pockets. I have asked my scheme what they are going to do but am awaiting a response.

kidmugsy

In_a_spin wrote: »

I do not think it will be an option to take the Aviva pension at 55 as I am still working and paying into this scheme. My employer pays a 6% on top of my contributions which I would lose if taken early.

I've seen references on MSE to the trick of stopping contributing to such a pension, crystallising it (at 55), and then restarting contributions. You may not fancy the hassle. Nor might your employer's rules allow it. As you'll see, I don't know much about it.