Commutation rates

elantan

How would I find the information on any penalties for early retirement ?

greenturnips

You will need to ask the administrators of the scheme.

They should be able to do these quotes for you.

greenturnips

Sorry just saw you commented twice, you are right that penalties apply more the earlier you retire, however at 60 I think you'll find it's still quite a reduction. Once you have the reduction applied to the benefits, you will see that the cash is lower even though the CF might be higher.

Also is the benefit in payment subject to the same increase as there is probably a different CF for each element, such as post 05 benefit having a different CF to other element which may not be caped at 2.5%. I am really clutching at straws here as I don't know this scheme, but wanted to make it a bit clearer that there are quite a bit of info to take into account when calculation final benefits.

RichandJ

greenturnips wrote: »

Sorry just saw you commented twice, you are right that penalties apply more the earlier you retire, however at 60 I think you'll find it's still quite a reduction. Once you have the reduction applied to the benefits, you will see that the cash is lower even though the CF might be higher.

Also is the benefit in payment subject to the same increase as there is probably a different CF for each element, such as post 05 benefit having a different CF to other element which may not be caped at 2.5%. I am really clutching at straws here as I don't know this scheme, but wanted to make it a bit clearer that there are quite a bit of info to take into account when calculation final benefits.

+100

There could be several different tranches of pension earned in different periods which get differing rates of early retirement reduction, different comm factors & different increases in retirement. Then there's the question of whether all tranches have the same comm factor and whether they would be applied in a specific order or 'smoothed' across the whole pension. There might be GMP if service started pre 6/4/97, which can complicate matters even more.

elantan, if you post the link to the specific scheme people may be able to help further after having a look at it.

I'd also advise against listening to the generic 'man down the pub', far better to get the true facts from the scheme administrators.

elantan

Hi all thanks for getting back, am now home so have looked out his statement


https://www.ofgem.gov.uk/ofgem-publications/42859/sgnofgempensionquestionnaire.pdf

Hi all this is where I got my info from

Husbands last statement reads like this

Your benefits aged 65

Estimated pension of £13407
Or
Tax free lump sum £63769 and a pension of £9565

Benefits aged 60

Estimated pension of £10887
Or
Lump sum of £53801 and a pension of £8070

This is the 2012 statement he won't receive the 2013 statement for a while

elantan

Does that help ?

RichandJ

elantan wrote: »

Hi all thanks for getting back, am now he so have looked out his statement


https://www.ofgem.gov.uk/ofgem-publications/42859/sgnofgempensionquestionnaire.pdf

Hi all this is where I got my info from

Husbands last statement reads like this

Your benefits aged 65

Estimated pension of £13407
Or
Tax free lump sum £63769 and a pension of £9565

Benefits aged 60

Estimated pension of £10887
Or
Lump sum of £53801 and a pension of £8070

This is the 2012 statement he won't receive the 2013 statement for a while

Those figures certainly confirm the commutation factors (CF), i.e.

at 65: 63,769 ÷ (13,407 - 9,565) = 16.6 (rounded to 1dp)

at 60: 53,801 ÷ (10,887 - 8,070) = 19.1 (rounded to 1dp)

Presumably the CF would be interpolated for retirements between 60 & 65, but the administrators would be able to confirm how.

I can't make any assumptions about possible early retirement reduction factors from the detail given though.

elantan

I need to then get my head around the fact that if he / we choose to go for a lump sum it would be better done at 60 compared to 65

That seems alien to me tbh

Thank you very much for explaining it though

kidmugsy

elantan wrote: »

I need to then get my head around the fact that if he / we choose to go for a lump sum it would be better done at 60 compared to 65

I think I see why. If your husband retires at 60 he might draw (say) 25 years of pension whereas if he retires at 65 he'd draw 20 years. So from the point of view of the scheme, which has to look after the interests of the other members too, they can afford to offer a proportionately bigger lump sum to avoid 25 years of pension payments rather than 20 years.

If that's not clear, think of the extreme case where you personally were paying an annuity to someone. If he said that he'd rather have a lump sum rather than a monthly payment, you'd be prepared to pay proportionately more to rid yourself on paying out for another 24 months than you would if it were just 12 months of payouts you avoided.

RichandJ

elantan wrote: »

I need to then get my head around the fact that if he / we choose to go for a lump sum it would be better done at 60 compared to 65

That seems alien to me tbh

Thank you very much for explaining it though

Think of it this (very simplified) way, at age 60 the scheme's actuaries think somone will live for another 19.1 years so each pound of pension given up will realise a cash sum of £19.10. At 65 they think life expectancy will be 16.6 years so £16.60 cash for each £1 pension given up. This is why (again very simplified) CFs decrease with age.

It's not necessarily better to go at 60 as there may be early retirement penalties on the pension at 60 before the cash available is calculated. It also depends on a host of other factors - health, overall financial position, legislative change ('political risk') and it is very likely that the CFs will change between now and 2029. Try not to get too fixated on the CFs, they should be seen in the round.