PCSPS actuarial reduction

Acquinas

Does anyone have any idea of what the actual actuarial reduction factor is on the Civil Service Classic scheme? All the guidance say "about 5%" a year, but it's quite hard to nail down in practice. The MYCSP web-site has a number of excel estimators on it, but the results seem to vary. A colleague of mine who took the pension earlier this year suggested that the factor was nearer 4% than 5%. Not much perhaps, but it would matter to me in that the incremental impact over several years of "early" retirement would get me much closer to my target "number" of post-retirement income. It could even trigger a decision to pack in work a year or so sooner than I was thinking about.

jamesperrett

I had a proper pension estimate done earlier this year and the figure came out the same as my own estimate using the most favourable Excel calculator on their web site. For the Classic scheme the reduction is something like 4.25% per year if you are retiring 4 or more years early but seems to rise to 4.5% if retiring 2 years early or just over 5% if retiring 1 year early.

PensionTech

The simple answer is that there isn't a single constant annual rate, simple or compound, used to work out the early retirement factor for a given number of years before normal retirement age. Early retirement factors are worked out using a ratio of the equivalent annuity cost at different ages. Because this calculation involves several complex elements such as estimated mortality rates that don't follow a simple arithmetic or geometric rule, the resulting early retirement factors do not work out nicely. Some schemes simplify early retirement factors for administrative purposes such that there is an annual reduction rate that is applied to the number of years retiring early, but most schemes use a table of discrete factors calculated individually for given ages (and interpolate between them as needed). You can use the calculators on their website to work out roughly what your pension might be if you take it at different ages.

Acquinas

Interesting. The 5% quoted then seems be to a bit of a ceiling figure quoted to manage expectations, while the actual factor used will vary as the result of the same external components that drive commercial annuity calculations and will vary from time to time. I have tried various calculators and found that the one that gave the most favourable result was the one hosted by the Joint Superannuation Services of the scheme of the Research Councils Pension Scheme (which seems to be just another badge for the PCSPS).

http://jsspensions.nerc.ac.uk/preserved.asp

When I used this it did seem to throw out the effect explained by jamesperrett above, i.e. there was a kind of tapering effect which suggested that the incremental gain in waiting longer tailed off. A 5% a year reduction on a straightline basis, for me, ought to mean an increase of about £100 a month for each month I wait. But the JSS calculator suggested a monthly gain of about £72 only. All of which is driving me to conclude that this may be a case of a bird in the hand.

jamesperrett

Acquinas wrote: »

...the Joint Superannuation Services of the scheme of the Research Councils Pension Scheme (which seems to be just another badge for the PCSPS).

JSS is currently a separate organisation running 'by analogy' pension schemes for the reseach councils - which means the terms and conditions of their pension schemes match the PCSPS although they haven't yet implemented the Alpha scheme. It is intended to be abolished by April 2018 with all their business transferred to MyCSP.

I'm hoping the transition to MyCSP won't be too painful as I'll be one of those whose pensions are affected.

Acquinas

There seems to be quite a lot of noise about MyCSP, though I have found them Ok to deal with. They were late last year in getting the calculators up on their site for the cost of buying additional pension from redundancy lump sum. The effective date for the calculation was 1 April and my leaving date was the end of the same month, which made things a little hairy. In the end they said that I could hold back a bit of my lump sum and if, once the calculator came up and in the event that I didn't like the calculation, they would pay it back to me. Which seemed like a piece of sensible pragmatism.

moo121

Hi long time lurker here just unlurking to share my experience. I took my classic pension actuarially reduced earlier this year at the tender age of 51. Would have preferred not to take it so early but caring responsibilities forced me into it. I received a pension and lump sum worth approximately 63 percent of my pension.


Having previously seen information relating to the actuarial reduction I believe the reduction is about 5% per year age 55 to 60 and 3% age 50 to 55 and my experience fell in line with that.

Acquinas

Thanks moo121. Sorry to hear about your experiences, but for my part I had to get out of the service to save my mental health. I've just turned 54, so going on that basis the reduction would be in the region of (60-54= 6) x 3 = 18%, so basically 82% of what I would have got from waiting until 60. Putting aside tax considerations for a moment (which I will address) I would have to live to 87 to be worse off by taking the money early (i.e. to gain more than what I will have "banked" in those 6 years). Obviously I will apply for a formal estimate, but it very much sounds as if I would be a fool to delay.

PensionTech

I'm guessing the figures put forward by moo121 apply per year rather than over the whole period - i.e. 6 years early would be around 5% pa to get from 60 to 55, and another 3% to get from 55 to 54 - I also don't know whether this is simple or compound, but if simple you'd be looking at a reduction of about 28%.

I wouldn't be making any decisions until you get some quotes from the administrators for retiring at different ages.

Acquinas

Sure PensionTech. I'm certainly not going to do anything until I have received a formal estimate. But at least I know that there's a good reason to apply for an estimate rather than procrastinate further. Either way, given that I know that I am fortunate enough to be part of a golden generation that at least has the option to take even a reduced pension now as opposed to waiting for years then the key issue is whether I want a little bit of financial freedom now as opposed to being a few quid a month better off in my 80s (assuming that I even get there) so that they state can take it to pay for my care home bills.

jamesperrett

I've just put Moo121's example into the actuarial reduction spreadsheet that I've been using and it comes out at 3.74% per year. Going 10 years early brings the reduction down to 3.63% per year. Unfortunately the part of the spreadsheet where the calculations are performed is locked down so all I've done is to run different scenarios and see what the scale factor is.

The time taken to break even if you buy out the actuarial reduction also seems to change - it seems to be 22 years at age 50 but falls to 21 years at age 55. Of course, this doesn't take wage rises or inflation into account.

Another factor is expected wage rises compared to inflation. If civil service pay increases remain at 1% and CPI rises above this then it may tip the balance in favour of retiring.