LGPS: rule of 85/CRA/actuarial reductions

inthebubble

Hello all you LGPS experts out there.

I have to decide whether to take voluntary redundancy. The payout would be 42 weeks.

I am 52 with 18 years local government service and an AVC pot of approx £120k. Current salary: £67k.

No mortage, children or other commitments.

I have two other final salary pensions that will come into payment at age 60, unreduced, totalling £10k a year.

Outside of my day job, I do some casual teaching which brings in about £8k a year, about a third of which is pensionable in TPS, from SPA. I would hope to do more of this if I leave local government.

Overall, I would like to be sure of £2k a month net income.

So my questions are:

1. If I leave local government now, and pick up my deferred LGPS pension at age 55, what would my actuarial reductions be?

I have tried to study the new guidance and I think it would be.

pre-2008 service: minus 25% as my CRA would be 60 but I'm really not sure about this, if I don't work the years until 60, and nor am I deferred until 60.

2008-2014: minus 40%

April 2014 onwards: unknown but presumably 43% or something like that.

Are these figures right? Esp interested in pre 2008 numbers. The scheme admin won't give them to me, as I'm not 55 now.

2. Would I be mad to take such a bit hit? Every one says so, but the scheme says that the actuarial adjustment is fair so that it all evens out in the end.

I am mindful of the fact that I've a big lump sum tied up in the AVC, which I'd rather get sooner rather than later to supplement my income until I'm 60 when the other pensions kick in.

3. I started the AVCs in 1997 and I understand that I have the right to convert them into service credits at approx 17:1 which would then be reduced by 40% if I took the pension at 55. I assume there's no point at all in doing this?

Any other thoughts or advice would be very welcome.
Many thanks.

inthebubble

Hello again

Not sure why I haven't got any replies and fear I've done something wrong.

Maybe my question was too complicated - shall I split the parts up into separate threads?

Many thanks!

kidmugsy

inthebubble wrote: »

Hello all you LGPS experts out there.

Not me, then.

inthebubble wrote: »

I am 52 with 18 years local government service and an AVC pot of approx £120k. .... I am mindful of the fact that I've a big lump sum tied up in the AVC, which I'd rather get sooner rather than later to supplement my income until I'm 60 when the other pensions kick in.

I'd be loathe to turn AVCs into pension that then faces 40% reduction. You might like to look at p13 of this, and then ask LGPS experts for comments.
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/332714/pensions_response_online.pdf

Drp8713

At 60 you will have 26 years service and notional service so therefore will meet the 85 year rule.


If you took your pension at 55 , your pre 2008 service would suffer a 5 year reduction as it is payable from 60.


As you are 60 after 2020, your service from 2008-2014 is not protected by the 85 year rule, and you would suffer a 10 year reduction on it as it is payable from 65.


Your post 2014 service is payable from your State Pension Age and will be reduced by the number of years between 55 and your SPA.


Be aware that if you do not take the AVC at the same time as a main scheme benefits you will only be able to access 25% of the fund as cash and have to use the rest on the open market.

Teaandscones

You would benefit from the rule of 85 for your pre 31st march 2008 service, but only of right if you took it at 60. If you took it before then under new rules, then the default is that the actuarial reduction would be from your Normal Pension Age which is 65 until 2014. Thus, the actuarial reduction would be 10 years not 5 UNLESS the employer agreed to waive the extra reduction.

Even if the employer agreed to waive the additional reduction and only apply the 25%, it is still a poor deal.

The principle of an actuarial reduction is perfectly fair, as if you take a pension early then you get paid it for longer and this needs to be reflected in lower annual payments. If your scheme says it is fair it is talking b****. For your example, if you took a 75% of your pension at 55 rather than 100% at 60 the break even point is age 75, yet schemes assume (on good evidence from actuaries) that new pensioners can on average expect to live until their late 80's.

inthebubble

Many thanks for your thoughtful replies.


I note that there are different perspectives about whether pension taken by a deferred member, now aged 52, in three years at age 55 would be subject to a 25% or 40% reduction for pre-2008 service, assuming a CRA of 60.


My initial thought was that it would be the former, based on online guidance from LGPS.


This forum won't let me post a link (as I'm a newbie) but the site address is LGPSREGS
it has a dot org suffix
followed by the following text




images/AdministrationGuides/85YearRulev1.7clean.pdf

Hope that works!

Any comments on that idea would be much appreciated.


All best wishes and thanks.

Teaandscones

The guide you refer to has been put up today:

https://www.lgpsregs.org/images/AdministrationGuides/85YearRulev1.7.pdf

From reading this, it seems that your pre 2008 service would be subject to just a 25% reduction though I would check with your pension administrator as this seems to be one of the details that is being finalised at the last minute. I would also check whether you would be able as of right to take a deferred pension at age 55.