BT pension- Aged 57, take it now or defer?

smjxm09

Key facts:


I left BT on 31st December 2014. Pension would have been £12,695.79 if pension started that day.

If I had left one month later on 31st January 2015 Pension would have been £12,799.29 if pension started that day. By the end of May the pension would have been £13,165. I understood that before I decided to leave.

I have asked to take my pension on January 10th 2015 and have the forms to sign. If I don’t sign them I can’t apply for another 6 months.

Pre-2009 final salary service 31 years 220 days
Post 2009 CARE service 5 years 9 months
Section B member


Those extra 10 days from January 1st are worth £1.52 per year while if I left one month later I would have got an extra £103.50 per year.

I have read posts from BT people who have left or are thinking about leaving saying that it is a good idea to defer the pension until 60, which is the termination date for the final salary part of the pension while the CARE part would have to be taken 5 years early.

I just can’t see it as the pension increase once left is minimal by deferring it. Am I missing something as by taking it now I will have banked around £28,568

Shedman

What's your early reduction factor (ie what % are they reducing it for each year taken early)? Normally it is around 5% p.a so taking the 5 years pension early at age 55 would reduce it by 25%. Simplistically it would take 20 years (100% / 5%) before you started to gain on leaving it until 60 i.e in above example from age 75 onwards. Of course there are other factors such as spouse's pension would be higher if left to 60.

I am currently doing same calcs for my pension due to impending redundancy and my problem is that there is a risk that the reduction factor wil be increased from 4% to 5% pa shortly which makes it an 'interesting' set of projections!

smjxm09

No idea. BT now only show a pension estimate for 65 when the CARE part of the pension pays out. By waiting to 65 the final salary part of the pension would have been defered by 5 years. In my case a pension of £12,695.79 paid now would only become £15,156 by waiting over 7 years. The comments here is that the final salary pension paid at 60 is worth waiting for. I can't see it but nor do I know the actual figure.

kangoora

Take a look at this thread, lots of BT people discussing retirement options

https://forums.moneysavingexpert.com/discussion/5152666

smjxm09

Thanks for that, I had seen that thread but missed the last few posts. It seems that once I left the company the pension creeps up and I find it hard to see the logic of not taking it straight away rather than waiting to 60 and hoping I make it to 80 when I would be in profit.

In my case in those 2.25 years I would get £28,000 pension rather than spending £28,000 in savings waiting for the pension to kick in.

I have to add that I do have over £400,000 in the bank so I could live on savings.

robin61

smjxm09 wrote: »

Thanks for that, I had seen that thread but missed the last few posts. It seems that once I left the company the pension creeps up and I find it hard to see the logic of not taking it straight away rather than waiting to 60 and hoping I make it to 80 when I would be in profit.

In my case in those 2.25 years I would get £28,000 pension rather than spending £28,000 in savings waiting for the pension to kick in.

I have to add that I do have over £400,000 in the bank so I could live on savings.

Hi, for me I am hoping to leave BT when I am 57. So a bit less than 3 years away. I am pretty sure that I will take the pension at 57 and accept the actuarial reduction although it does annoy me. However when I looked at the figures taking into account everything I reckoned that it would take me 20 years or so to start to make money by deferring to age 60.
OK so it is a gamble as to how long you live but as one of the other guys put it how much money will you need to live on when you are fast approaching 80 and don't forget you have the old age pension as well long before that age.
Your nice nest egg puts you in a pretty enviable position no matter which way you jump. I hope you enjoy your retirement.

madeinireland_2

Here are the actuary reduction figures I was given a couple of years ago to help you with your calculations

Pre Care

55. 24.9%
56 20.6%
57 16%
58 11.1%
59 5.8%

Post care

55 44.4%
56 41.3%
57 38%
58 34.4%
59 30.6%
60 26.4%
61 22%
62 17.1%
63 11.9%
64 6.2%

I will be deferring till 60 but decision is different for all

Good Luck

kidmugsy

smjxm09 wrote: »

I have to add that I do have over £400,000 in the bank so I could live on savings.

What is your £400k invested in? Does it give a higher return or lesser risk than deferring the pension will?

smjxm09

I am pretty sure that I will take the pension at 57 and accept the actuarial reduction although it does annoy me.

Some people view those actuary reductions as almost being a fine for taking the pension early but that can't be the case. It just means that the pot of pension money has to start paying out earlier but will be paid out for longer but ultimately is still is worth the same.

I thought I read or was told that BT makes the assumption that their pensioners will live to their early to mid 80's so the pension is based on that and I think it is the early to mid 80's that is the turning point as to whether you make a profit or loss regardless of whether the pension was started before 60.

smjxm09

What is your £400k invested in? Does it give a higher return or lesser risk than deferring the pension will?

Basically cash with interest rate shown:

£10,000 5%
£5673 4.3%
£6474 4.25%
£118,115 3%
£64,493 2.3%
£50,640 1.69%
£10,000 1.6%
£87,357 1.5%
£21,000 premium bonds
£39,150 pension lump sum
£38,082 AVC
£6583 shares
£2,000 in day to day bank account
Total £459,708.

This year that will all be tax free interest due to me hammering AVC's. From April around £148,000 will be tied to ISA's with the rest taxable.

I have already been told it is not a good idea to have most of my money tied up in cash accounts. A wealth at work adviser is seeing me in March. For a one off 2% plus 0.5% per year he will invest some of the money to produce an income.

Not sure I would want to pay 12% in fees over 20 years when I have enough money to last me a lifetime with no risks plus a pension.

smjxm09

Here are the actuary reduction figures I was given a couple of years ago to help you with your calculations
pre care
57 16%
58 11.1%
post care
57 38%
58 34.4%

Still difficult to work out for my simple mind but according to BT my
Pension now aged 57 and 261 days is £12,697 and £15,156 at 65. I am thinking that at age 60 it would be maybe still under £14,000 plus lump sum.

So by taking the pension now I will get £28,568.25 by the time I am 60 but by waiting to 60 and getting an extra £1300 a year I would have to get to 82 to break even. That is assuming that I would indeed get an extra £1300.

Also to factor in is the reduced contacted out state pension that for me kicks in at 66 so income will be increased from that date.

I am thinking that I will probably go for the pension now for no other reason than to help protect the money I have in the bank. If I get £28,568.25 in pension before I am 60 then that is £28,568.25 extra that I will have from 60 sitting in one of my accounts.

Are my thoughts complete rubbish and I am thinking about this in the wrong way?