To defer, or not to defer?

dunroving

Hello All:

I talked with my Final Salary/Career Average DB scheme provider yesterday (USS) to ask about deferring receiving my pension. I am currently a little more than 7 year from normal pension age (April 2022), but would like to "retire" from my current job in about 3 years and a bit (summer 2018).

I was hoping to leave my current employer in just over 3 years, but defer receiving my benefits, until a mutually-agreed date. This would be me effectively "retiring" from my current profession. However, I couldn't find any information on this being an option - all references to deferred members related to people who resigned/left the job, rather than applying to retire, with deferred benefits.

Seems the situation I was hoping for doesn't exist. So, if I want to "retire" from the job but defer receiving pension, my only option is to resign/leave in 2018, and then apply to retire at a later date (around 2021). I reach normal pension age for the benefits in April 2022. I am hoping to survive between 2018 and 2021-ish on current savings, SIPPs, and a small amount of US Social Security (I can apply to start receiving this in early 2019). I would also do some self-employed work and might even take another, different, F-T job.

I have two concerns if I do it this way (resign, and then apply direct to USS to receive pension about 3 years later).

First, I would no longer have a relationship with the employer after 2018, and so any negotiation for an employer top-up (bearing in mind this is an early retirement) or reduction in the early retirement penalty would not be possible. If I "actually" retire from USS in 2018, I could negotiate with my employer for a reduced penalty for early retirement (some people have been able to do this in the past).

Second is that while I am not officially retired from USS (period between 2018-2021), further adverse changes to the USS system may affect me when I officially retire in 2021. If I officially retired in 2018, my pension is then agreed/set, and any future scheme changes do not affect existing retirees.

I would appreciate any advice or recommendations from any kind people who have been in a similar situation.

dunroving

dunroving wrote: »

Hello All:

I talked with my Final Salary/Career Average DB scheme provider yesterday (USS) to ask about deferring receiving my pension. I am currently a little more than 7 year from normal pension age, but would like to "retire" from my current job in about 3 years and a bit.

I was hoping to leave my employer in just over 3 years, but defer receiving my benefits, until a mutually-agreed date. However, I couldn't find any information on this being an option - all references to deferred members related to people who left the scheme (primarily, people who resigned/left the job).

Seems the situation I was hoping for doesn't exist. So, if I want to "retire" from the job but defer receiving pension, my only option is to resign/leave in 2018, and then apply to retire at a later date (around 2021). I reach normal pension age for the benefits in 2022. I am hoping to survive between 2018 and 2021-ish on current savings, SIPPs, and a small amount of US Social Security (I can apply to start receiving this in early 2019). I would also do some self-employed work and might even take another, different, F-T job.

I have two concerns if I do it this way (resign, and then apply direct to USS to receive pension about 3 years later).

First, I would no longer have a relationship with the employer after 2018, and so any negotiation for an employer top-up (bearing in mind this is an early retirement) or reduction in the early retirement penalty would not be possible. If I "actually" retire from USS in 2018, I could negotiate with my employer for a reduced penalty for early retirement (some people have been able to do this in the past).

Second is that while I am not officially retired from USS (period between 2018-2021), further adverse changes to the USS system may affect me when I officially retire in 2021. If I officially retired in 2018, my pension is then agreed/set, and any future scheme changes do not affect existing retirees.

I would appreciate any advice or recommendations from any kind people who have been in a similar situation.

I should maybe add that my reasons for wanting to defer are:

1) Increase my guaranteed income - the higher pension I'd get by deferring, in comparison to the amount I'd get by translating my savings into an annuity, are superior.

2) Avoid Windfall Elimination Provision reduction of my US Social Security for 3-4 years, which I calculated would give higher Social Security income by about £2,000+ per year for the 3 years until I take USS pension and/or the 4 years until I take partial UK state pension.

If my employer agrees to give me a "bump" (alleviate some of the penalty for early retirement) if I retire in 3 and a bit years, the above two factors may no longer be relevant. But I won't know this until I actually apply for a retirement estimate so I am trying to gather information if the answer from my employer is "No bump".

tigerspill

Sorry I can't help but I have a question - what is the difference between resigning and retiring? In both cases you are just stopping work at that point. Is there a subtlety I am missing?

dunroving

tigerspill wrote: »

Sorry I can't help but I have a question - what is the difference between resigning and retiring? In both cases you are just stopping work at that point. Is there a subtlety I am missing?

Yes, it is all to do with my status in terms of entitlement to pension benefits.

If I retire and start taking USS pension in 3+ years, I am retired and my benefits are agreed upon. If I resign I become a deferred member of USS and am (I think) more open to the negative effects of any changes in USS pension benefits between then and when I elect to start taking pension from them.

jem16

dunroving wrote: »

If I resign I become a deferred member of USS and am (I think) more open to the negative effects of any changes in USS pension benefits between then and when I elect to start taking pension from them.

Accrued benefits in a Defined Benefit scheme are unlikely to be affected in any different way to those already receiving a pension.

dunroving

jem16 wrote: »

Accrued benefits in a Defined Benefit scheme are unlikely to be affected in any different way to those already receiving a pension.

I was hoping as much. I have looked very carefully at how the current plans for USS will affect me at retirement and as far as existing and short-term future contributions are concerned, it seems "Not at all". I was surprised to realise that even Normal Pension Age doesn't change for new contributions for a while.

But this deferral idea I have is something relatively new and I wasn't sure if there are any disadvantages to deferring that I am not thinking of, other than the missed years of (lower) pension income.

There is an Ego issue with retiring vs. resigning, but I can get over that as long as the financials are sound. I am hoping there may even be an institutional voluntary redundancy and/or early retirement opportunity some time in the next three years, as we had two tranches back in about 2009-2011, but my guess is the chances are Slim to None.

hyubh

I was hoping to leave my current employer in just over 3 years, but defer receiving my benefits, until a mutually-agreed date. This would be me effectively "retiring" from my current profession.

To echo what the others have said, from the pension scheme's point of view that would just be a regular deferment given you would be under your USS normal pension age, not a 'retirement'. For the pension scheme the term 'retirement' is just a word for 'member begins drawing their pension'.

First, I would no longer have a relationship with the employer after 2018, and so any negotiation for an employer top-up (bearing in mind this is an early retirement) or reduction in the early retirement penalty would not be possible.

Presumably by 'top-ups' you mean the (standardised) payment to the pension fund to prevent an actuarial reduction for retiring early? Would require leaving because you were made redundant in the interests of efficiency:

http://www.uss.co.uk/schemerules/Schemerules120/Pages/11Earlyretirementattheinstanceoftheemployer.aspx

Second is that while I am not officially retired from USS (period between 2018-2021), further adverse changes to the USS system may affect me when I officially retire in 2021.

Highly unlikely - changes will be about future accrual.

dunroving

hyubh wrote: »

To echo what the others have said, from the pension scheme's point of view that would just be a regular deferment given you would be under your USS normal pension age, not a 'retirement'. For the pension scheme the term 'retirement' is just a word for 'member begins drawing their pension'.



Presumably by 'top-ups' you mean the (standardised) payment to the pension fund to prevent an actuarial reduction for retiring early? Would require leaving because you were made redundant in the interests of efficiency:

http://www.uss.co.uk/schemerules/Schemerules120/Pages/11Earlyretirementattheinstanceoftheemployer.aspx



Highly unlikely - changes will be about future accrual.

Thanks - yes, that is what I meant (bolded). I am not 100% sure but I don't think it would necessarily require redundancy. From information on various sites, I have found that the university will sometimes add years if the person accepts retirement for efficiency reasons. Examples from St. Andrews' site are:


"1. Cost savings

1. The post will:
2. not be replaced or not be replaced immediately; or

• will be replaced at a lower grade; or
• will be replaced at a lower FTE.

2. Efficiency

1. The retirement will provide an opportunity to re-design/restructure the post to achieve greater organisational efficiency.
2. [THREE] Re-structure
3. [sub-bullet one] The retirement will allow for the re-organisation of the structure of the School/Unit to engage in new activities or provide new services."

[sorry, the bullets got messed up when I copied and pasted]

- I'm still looking into how my employer operates this but I know in the past the university has paid to add anything between 1 and 5 years for early retirees. I'm not holding my breath, but it never hurts to ask.

hyubh

dunroving wrote: »

Thanks - yes, that is what I meant (bolded). I am not 100% sure but I don't think it would necessarily require redundancy.

From the link I gave:

This rule applies to a member:

11.2.1 - whose eligible employment is terminated by reason of redundancy; or

11.2.2 - whose employment is terminated in the interests of the efficient exercise of the institution's functions (unless the employer dismissed the member for good cause other than by reason of the physical or mental incapacity of the member or redundancy) and the employer gives its consent to payment of the benefits; or

11.2.3 - who has attained age 60 and retires with the consent of the employer (such consent not to be unreasonably withheld) to the provision of benefits under sub‑rule 11.3 without actuarial reduction for pensionable service accrued or credited before 1 October 2011 only (or for all pensionable service in relation to an exempt member).

Are you referring the last paragraph...?

From information on various sites, I have found that the university will sometimes add years if the person accepts retirement for efficiency reasons.

That's something different from removing the actuarial reduction for retiring early. What section are you an active member of (FS or CARE)? If CARE 'added years' is unlikely to be applicable, however IIRC the USS sets out a fairly complex set of possibilities for an employer to pay for additional pension. Have you spoken with HR?

dunroving

hyubh wrote: »

From the link I gave:

Are you referring the last paragraph...?

That's something different from removing the actuarial reduction for retiring early. What section are you an active member of (FS or CARE)? If CARE 'added years' is unlikely to be applicable, however IIRC the USS sets out a fairly complex set of possibilities for an employer to pay for additional pension. Have you spoken with HR?

Yes, I was referring to the final paragraph. I will be over 60 in 3 years' time.

I am in the FS section (though presumably after April 2016, new contributions will be in the CARE section). I agree with you on the actuarial reduction terminology.

I think for colleagues who have previously retired early, the university negotiated a higher pension and usually referred to it as enhancing the pension by X years. I don't know how this was achieved. Bottom line though was that the employee was given an offer of £**,000 pension which they chose to take or not.

I haven't spoken with HR yet. The university doesn't seem to be too interested in talking hypotheticals until you are ready to actually retire. I plan to talk with them in the summer of 2017, one year before I may retire early/resign.

hyubh

I think for colleagues who have previously retired early, the university negotiated a higher pension and usually referred to it as enhancing the pension by X years.

Quite possibly. The (historical) equivalent in the LGPS and TPS was called 'compensatory added years' (CAY) and was quite commonly given. I think the USS equivalent is called the 'Premature Retirement Compensation Scheme' and (unlike CAY) is still going, though to be honest, I'm stretching at my knowledge here.

I haven't spoken with HR yet. The university doesn't seem to be too interested in talking hypotheticals until you are ready to actually retire. I plan to talk with them in the summer of 2017, one year before I may retire early/resign.

The question to ask HR is what the institution's pension policies are on premature retirements (policies by definition aren't hypotheticals, even if they are about them). Might even be a reference to them in the staff handbook or equivalent...?