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

Mr_Prudent

As an aside, reading today that BT’s pension fund deficit has increased to 7 billion!! Makes you think that putting your pension into payment as soon as possible might not be such a bad idea.

ExBT_Bob

Mr_Prudent wrote: »

As an aside, reading today that BT’s pension fund deficit has increased to 7 billion!! Makes you think that putting your pension into payment as soon as possible might not be such a bad idea.

It makes no difference - BT announced plans to pay back £2bn over the next three years, and will subsequently make regular payments through to 2030, a plan fully agreed with the Trustees. This has been going on for years.
Broker note:
An increase in the size of the pension deficit will grab headlines, but investors should look at the detail. Assets in BT's pension fund rose more than had been assumed at the last Actuarial review, but the fall in real yields pushed up the present value of BT's future liabilities to pensioners by more.
To correct the deficit, BT is putting some money in up front, £1.5bn by the end of April, followed by £250m in the following two financial years. Over three years, this is less than they were going to be paying under the previous plan. Real new cash costs only kick in ten years down the line, by which time the current period of extraordinarily low yields may well have come to an end and BT may in fact never be required to meet those costs.

It does make me think fondly back to the days of pension scheme surplus and PO/BT taking payment holidays..(whilst we all continued to pay)..ahh, Happy Days :rotfl:

smjxm09

Ok I have worked out my figures based on 31.68 years service pre-1999 and 5.66 years career average service from 1999. I will be 58 on April 21st. Included in the calculation is a rising lump sum and tax above £10600.

The bottom line is that it doesn't seem to matter if I draw a pension at 58 or 59 as the figures are basically the same. If I die before the age of 75 I should take my pension now. There is then no advantage in delaying the pension until say 59 as the break even point is still 75.

So I either take it now or live in savings for just over 2 years.

ExBT_Bob

smjxm09 wrote: »

Ok I have worked out my figures based on 31.68 years service pre-1999 and 5.66 years career average service from 1999. I will be 58 on April 21st. Included in the calculation is a rising lump sum and tax above £10600.

The bottom line is that it doesn't seem to matter if I draw a pension at 58 or 59 as the figures are basically the same. If I die before the age of 75 I should take my pension now. There is then no advantage in delaying the pension until say 59 as the break even point is still 75.

So I either take it now or live in savings for just over 2 years.

Of course the final decision is yours - it's your pension! I still fail to understand why anyone - unless they have minimal savings - would want to accept an actuarial reduction to their hard earned pension for life.
I'd be interested in reading your calculations as it isn't feasible that the actual outcome would 'be the same', as the actuarial reduction reduces over the next 2yrs (and beyond).

Mr_Prudent

ExBT_Bob wrote: »

Of course the final decision is yours - it's your pension! I still fail to understand why anyone - unless they have minimal savings - would want to accept an actuarial reduction to their hard earned pension for life.
I'd be interested in reading your calculations as it isn't feasible that the actual outcome would 'be the same', as the actuarial reduction reduces over the next 2yrs (and beyond).
(In fact if you left it even longer, your Pre Apr 2009 portion actually gets enhanced after age 60 - although I won't personally be contemplating the latter of course!)

Although you keep saying you are “giving up” part of your pension for taking it two years early you also have to take into account that the pension has been paid two years earlier, that’s why it is reduced. You can’t have something for nothing in this life. As smjx says he doesn’t start to lose out until his mid seventies. Some people may have health issues or maybe there is a history of heart disease or cancer in the family that makes some decide to “vive ut vivas” (live so that you may live)

ExBT_Bob

Mr_Prudent wrote: »

Although you keep saying you are “giving up” part of your pension for taking it two years early you also have to take into account that the pension has been paid two years earlier, that’s why it is reduced. You can’t have something for nothing in this life. As smjx says he doesn’t start to lose out until his mid seventies. Some people may have health issues or maybe there is a history of heart disease or cancer in the family that makes some decide to “vive ut vivas” (live so that you may live)

Don't get me wrong - as a deferred member I would love it if every other member took their 25% reduced pension at 55, then BT and BTPS would benefit enormously!

The actuarial reductions are too high for it to make sense.

Assume payment up to 80yrs old (BT assume around 85yrs) and normal pension at 60 of £20k. Reduced pension at 55 of £15k for 25yrs = £375k, unreduced at 60 of £20K for 20yrs = £400k. Compound indexation over the period makes the gap even wider. (I don't see where I quoted 'giving up' but maybe that's correct).

Serious illness is a completely different matter with another range of options including immediate lump payment, transfer to SIPP for better inheritance, etc....etc

jem16

ExBT_Bob wrote: »

Assume payment up to 80yrs old (BT assume around 85yrs) and normal pension at 60 of £20k.

If normal pension age is 60 to get a unreduced pension, would that not be a 25% reduction for taking it 5 years early at age 55?

ExBT_Bob

jem16 wrote: »

If normal pension age is 60 to get a unreduced pension, would that not be a 25% reduction for taking it 5 years early at age 55?

Of course - original post corrected - thanks

Mr_Prudent

ExBT_Bob wrote: »

Don't get me wrong - as a deferred member I would love it if every other member took their 25% reduced pension at 55, then BT and BTPS would benefit enormously!

On the other hand if you leave it until you’re 60 (or 65 in some cases) and unexpectedly fall of your perch within a few years the pension fund has also benefited and then thank you very much for not taking it earlier. You see you can look at this from many different angles. Some people are glass have empty, some half full. I guess we will just have to respect each other’s views and go with what you feel is right for you.

jem16

ExBT_Bob wrote: »

Assume payment up to 80yrs old (BT assume around 85yrs) and normal pension at 60 of £20k. Reduced pension at 55 of £15k for 25yrs = £375k, unreduced at 60 of £20K for 20yrs = £400k. Compound indexation over the period makes the gap even wider. (I don't see where I quoted 'giving up' but maybe that's correct).

You're also going to have to take into account that for the first 5 years if you don't take it early, you are going to have to spend up to £100k (assuming you still want £20k a year) of your savings/investments to actually live on. We could go with £18k net as that would be equivalent to £20k gross.

So at 80 years old, it's really £375k or £400k less £90k = £310k.

You really have to take into account the savings/investment capital plus any lost interest and/or return from investments.