advice please

mrs_motivated

Hi everyone,


I am 50 years old and want to retire ideally in 5 years, but it will most probably be in 8 years time.


I have just got a state pension forecast and have 35 years full NI contributions, however, to get the full state pension its saying I need to contribute another 7 years. Is this due to been contracted out?


My other pension is a Local Government Scheme which I would want to draw on retirement, which hopefully should pay approx. £18000 lump sum and £32k per year (still waiting for this years pension statement).


My mortgagee is not due to end until I am 65, however, I am overpaying and should be finished in 8years.


I am wondering whether I would be better to keep overpaying the mortgage or whether to reduce the overpayments and pay AVC into my pension. I got an Avc projection, which showed and increased pension amount of about £5k, is this per year or how does this work?

Kynthia

When does your pension begin, is it 60? How will you fund your lifestyle between when you retire and your LGPS pension pays out?

What is your mortgage interest rate? Can you get better gain with your money in savings accounts or in AVCs. Will your AVCs pay out before you claim your pension or will they only pay out when you claim your pension?

AlanP_2

LGPS AVC pays out at same time as main pension, can't be split.

OP - I'm not doubting your credibility or accuracy but can I just double check your LGPS figures?

Have you adjusted the £32k for the reduction they will make if you take it early as 7-10 years of early payments will make a sizeable impact on it.

mrs_motivated

Hi and thanks for your responses.

Hi Alan, the £32K is not adjusted for early retirement (which i believe retiring 8 years early would reduce by about 30%), although the company I manage is not a Local Authority it has admitted status to the LPGS scheme, if i retire early the company will make efficiency savings on my salary and effectively I would take redundancy and as i understand it the scheme will then pay out without reductions and the employer will pay the shortfall.

Kynthia - I can take my pension from 55 (at a much reduced rate ) see above. So when i do retire I will be in receipt of my pension and plan to live off of that, there is ways where my employer can pay the shortfall etc. which i have already discussed with them. My mortgage is 3.2% fixed to November next year.

hyubh

mrs_motivated wrote: »

if i retire early the company will make efficiency savings on my salary and effectively I would take redundancy and as i understand it the scheme will then pay out without reductions and the employer will pay the shortfall.

Yes, your employer would have to pay a strain charge to the pension fund which will then pay for the lack of an actuarial reduction - it would be looking at a capital sum of around £160,000, maybe more. At the risk of sounding nasty (which isn't the intention), are other key players fine about this, or even appreciate it? Further, you previously described yourself as the CEO of a small housing association. Is the CEO post itself going away? Because if you still are CEO, then the role itself going away will likely need to be the formal position.

mrs_motivated

Thanks everyone for your replies, most useful.

hyubh without wanting to get into to much detail on my job, I would expect due to a proposed merger, that yes, I expect the role of ceo would go in the future, with an agreed and long term exit strategy and then the salary saving would quickly cover the capital sum you mention.

atush

Think about this. Instead of taking your pension so early, and so reduced, pay into a PP or Sipp for the next 5 years (alongside your LGPS) instead of overpaying your mtg. With any extra cash you can (even savings if you have more than enough).

You could take this at age 55, then live off it as long as you can (at least 1-2 years?) then take your LGPS. Still reduced but not by as much.

highet

as well as taking into account the 30% actuarial reduction for retiring early have you factored in the fact the the sum being reduced by 30% will be smaller as you will have 5 years less reckonable service??

hyubh

mrs_motivated wrote: »

without wanting to get into to much detail on my job, I would expect due to a proposed merger...

Ah, yes, that would do it.

the salary saving would quickly cover the capital sum you mention.

Has HR (or equivalent) got a strain charge estimate from the pension administrator? Would be best to get one sooner rather than later to avoid a nasty shock.

More generally, with your CEO's hat on, presumably the pensions implications of the merger are in hand, in particular the existing admission agreement(s) and avoiding an exit valuation? When two merging housing associations are in the same LGPS fund, it can be possible to novate the two old agreements and kick the fateful day into the distance, otherwise formally exiting the pension fund can be painful (it could well make the strain charge required for your early retirement look like loose change).

mrs_motivated

highet wrote: »

as well as taking into account the 30% actuarial reduction for retiring early have you factored in the fact the the sum being reduced by 30% will be smaller as you will have 5 years less reckonable service??

It wont be reduced at all (see above posts) and the £32K is based on my current salary projected forward, which will increase over the next 5 years.

mrs_motivated

Hyubh - We will be keeping our admitted status to our existing scheme, (basically we will be part of a group structure not a traditional merger, heads of terms and partnership agreement have been agreed) but our organisations are in different LGPS schemes, but there are a few more hurdles to cross before we move forward.


We have closed the existing LPGS scheme to new employees and existing employees not currently admitted prior to auto enrolment, primarily due to the ever increasing pension liability sat on our balance sheet, currently over £0.5million with only a relatively few members of staff in the scheme. We are in the process of setting up a new scheme which is more affordable for both staff and the company which is a defined contribution scheme instead of the defined benefit scheme we are currently in.


Moving forward, please don't think I am been awkward, but I would rather not discuss work any further as I don't really want to be identified and would rather stick to my personal situation. Your input has been really useful though.


Please can you or anyone else confirm that the reason I need another 7 years contributions to receive full state pension (despite having 35 full years contributions) is due to been contracted out?