Civil Service Retirement before NRA

bitofatit

My partners a career Civil Servant.

Her NRA is mid December this year, but she has decided to go Mid September & after 37 years why not!

My question is should she use savings between September & December or take the actuarial reduced Pension in September?

Any advice appreciated

kidmugsy

I expect it's a choice between a good thing and another good thing.

If you have savings that are not paying good interest, nor in a tax shelter, and if you have heaps of cash for emergencies, I don't see much harm in using capital for three months.

Does the Civil Service scheme pay a lump sum? Are there any subtle wrinkles to do with e.g. tax? At what time of year is the index-linking applied to her pension?

xylophone

Whatever she decides, it'll be wise to get her claim in early......

https://forums.moneysavingexpert.com/discussion/5056343

She might need to be living on savings for more than three months...:eek:

Although she can try the Twitter solution if the worst comes to the worst...:) post 149 of above.

Has she calculated how much of an actuarial reduction there would be, bearing in mind that she will also be losing future index linking on that amount?

Has she obtained her new state pension statement? https://www.gov.uk/state-pension-statement

bitofatit

Hmm.. thanks for the responses.

The questions you raised are the kind of thing I hoped some knowledgable Civil Servant might respond to! I had hoped it would be a no brainer answer i.e. yes do that or don't do the other

Her Civil Service NRA is 60 but state pension is 67 I think.

I note the myCSP malarky they appear to be hopeless but improving - we'll see. So I guess my question remains?

I'll be honest I do't know how much reduction she will taking by going 3 months early and if I did how to calculate what the reduction would be! I guess that's where an enquiry to MyCSO would help but it appears they don't respond to questions of this type at present.

xylophone

http://www.civilservicepensionscheme.org.uk/members/member-calculators/

might give a rough idea....

She gets the state pension estimate from link cited.

OldBeanz

First question would be what type of pension does she have Classic, Classic + or Premium? I am in the "not much difference either way" camp.

MyCSP are still in deep doodoo. I would allow a minimum of 6 months for them to sort out a pension at present.

atush

In the mean time, if you have savings, why not whack some into a PP or Sipp? She could draw some of that with the boost?

She could put in enough to keep from taking the DB for another year (to keep the actuarial reduction as small as poss)?

hugheskevi

Does the Civil Service scheme pay a lump sum?

The member is very likely to be in the classic 80ths scheme with 3/80ths lump sum, unless they chose to move scheme back in 2002 when there was an opportunity to change schemes, including past service.

At what time of year is the index-linking applied to her pension?

1 April

Has she calculated how much of an actuarial reduction there would be, bearing in mind that she will also be losing future index linking on that amount?

Based on information given and assuming classic membership, the actuarial reduction will be 1.3% to the annual pension.

She could put in enough to keep from taking the DB for another year (to keep the actuarial reduction as small as poss)?

The actuarial reduction is only 3 months anyway.

My question is should she use savings between September & December or take the actuarial reduced Pension in September?

The actuarial reduction is based on a discount rate of 5%. Other things being equal (ie your partner thinks they have normal characteristics) if your partner is receiving less than 5% interest on the savings then it would be better to use savings.

But probably a good option is for your partner to buy-out the actuarial deduction using the savings, getting tax relief on the cost of buying out the deduction. The calculator for that is at http://www.civilservicepensionscheme.org.uk/media/91686/actuarial-reduction-100pc-buyout-calc-august-2012.xls

jamesd

It's a bad idea to take an actuarial reduction. It's unnecessarily throwing money away. Here are some alternatives that make her better off than that:

1. Make a contribution to a personal pension then take out the 25% tax free lump sum and put the rest into flexi-access drawdown. Then she can take income/lump sums from the 75% later. As soon as she takes a penny of the 75% her pension money purchase annual allowance will be reduced from £40k to £10k a year. So get all the pension money in before she takes any of the 75%. Say more about her income and past contributions and how much she might like to pay in and we can explain any relevant limits. She actually makes 6.5% on this if she's a basic rate tax payer now and in retirement. Likely to easily beat buying out the actuarial reduction.

2. Get a 0% for spending credit card and spend on that while waiting, then repay out of the income later, using balance transfer card deals to delay as long as needed.

3. Use money in savings accounts. they aren't likely to be paying her anything close to how much she'd loose from the actuarial reduction.

4. Not appropriate for her but if it was for longer and more money, an equity release mortgage that allows gradual drawing would be cheaper than the actuarial reduction and it can be repaid out of some o f the higher unreduced income.

Friends don't let friends take actuarial reductions unless there's really no choice. It's throwing money away.

Once she's retired she should continue making pension contributions to get the tax relief. No earned income and she can still pay in £2880 net a year, have that grossed up to £3600 then take out 25% tax free and the rest as taxable income. Need to watch out for going into different tax brackets but other than that it's a nice move to boost income at low or no cost. This has to stop once she reaches age 75.