PCSPS actuarial reduction

Acquinas

Rises in pay have been at 0% or 1% since 2010 and there are signs that inflation will take off thanks to the Brexit/sterling slide. And Mr Hammond doesn't exactly look like the sort of chap who is going to take his foot off the public sector pay restraint brake. Actuarial buy-out was an option a few years ago when it was possible to re-cycle a redundancy lump sum to effect the buy out, and although it was never actually quite enough to close the gap entirely, HMT was sometimes persuaded to step in and take on the difference. Those days have gone though. I gave up just enough of my redundancy lump sum to reduce the tax-take to a sum that I could live with, but that only gave me about another £1k (at 60). One option that I could look at though is what is called "reverse commutation". Most of the comment on this site is to the effect that "commutation" (i.e. giving up annual pension for increased lump sum) is a bit of a swizz as you are bought out at a rate of 12:1 but that it is effectively impossible to get a rate of return on the lump sum that would give you the annual (and index-linked) pension that you miss out on. So, by the same token, it might be reasonable to assume that "reverse commutation" (i.e. give up lump sum for more annual pension) is a good deal? I've no mortgage to speak of and a little bit of savings, so it could make sense and get me a couple of notches closer to "the number".

hugheskevi

Actuarial buy-out was an option a few years ago when it was possible to re-cycle a redundancy lump sum to effect the buy out, and although it was never actually quite enough to close the gap entirely, HMT was sometimes persuaded to step in and take on the difference.

The Exchequer was always 'persuaded' in voluntary redundancy cases, as that was the rules of the scheme. In voluntary exit schemes offer of buy-out was discretional.

Those days have gone though.

Employer funded actuarial reduction buy-out is still a feature of exit and redundancy schemes, albeit only available above age 55 and if the cost is above £95,000 it will be subject to the cap on exit payments when the cap is enacted.

So, by the same token, it might be reasonable to assume that "reverse commutation" (i.e. give up lump sum for more annual pension) is a good deal?

If it was priced at 12:1 it would be a great deal. The price for reverse commutation is much higher, usually above 20:1.

Still worthy of consideration, but not the sensational deal it would be at 12:1.

Acquinas

Again, I've got to commend the JSS people for their excellent guidance - rather better than MyCSP:

http://jsspensions.nerc.ac.uk/docs/inverse-commutation.pdf

This sets out the reverse commutation factors from age 50 to 74. Essentially you have to hit 75 to get a factor of 8.00, which works out at a ratio of 12.5:1. Even at 60 its only 19.3:1. So at my tender age, I'm looking at factor of 4.67, i.e. 21.4:1. Putting that in real terms, I could give up £10,000 of lump sum for additional pension of £467.00. That still looks better than I could get by buying an annuity.

hugheskevi

Putting that in real terms, I could give up £10,000 of lump sum for additional pension of £467.00. That still looks better than I could get by buying an annuity.

Remember to take account of the reverse commutation being purchased with tax-free lump sum money, whereas as annuity would be purchased with capital subject to tax.

Acquinas

Fair point, so assuming I'm paying at basic rate I would discount down the 4.67 to about 3.89 to give me the real rate of return?

OldBeanz

Another factor is your best pension year. Having retired this year on Classic+ my pension is based on my 2007 salary and approximately 10% more than I thought it would be i.e. if you have had no incremental pay rises or promotion since 2007 you are 10% worse off through inflation.
As for MyCSP they took about 8 months to arrive at the correct figure for my pension which included lying to me and generally ignoring everything I said until a formal complaint was lodged. The records they hold from your department are a shambles which helped them eventually reach a decision (they could not disprove a letter I had).
For good measure I received a letter from HMRC last Saturday saying I owed over £600 in tax and that MyCSP had paid no tax on my behalf. I mailed my P60 (no copies, faxes or emails) to them showing the same amount paid which they received on Tuesday but they have until the 6th January to read while already following up with details of how to pay. I rang HMRC and the person who I talked to could not understand my frustration that 2 Government agencies could not talk to each other. "Who are MyCSP?" MyCSP, over the phone, just state they use the tax code given to them so I have now had to write to them. Just when you think they could not go wrong they come back and bite you.

jerrysimon

The other thing to remeber is that if drawn before 55, annual pension inflation increases are not applied until 55.

My pension is also administered by Research Councils Pension Scheme Joint Superannuation Services. As stated they provide an excellent web site and service

I have made exstensive use of their various calulators and found by using them, that my own estimates match those they formally provide when I have requested them

Planning to leave next year taking my pension 3.5 years early. Although reduced I have decided that the addition of claiming pension for 3.5 years would take me 12 years to recover at the full unreduced reduce if I waited until 60. It depends how you look at it of course, in that you could argue if I stayed I would also earn 3.5 years of full pay.

After 10 years my SP will kick in (unless they change the rules again) so that adds more encouragement for me to leave early more than matching my pension reduction. By the time I leave I will have 39 years in and had always planned to leave at 57 years old anyway.

PS been round and round the figures about increasing lump sump and reducing anual pension and in the end the fact I hope to draw it a lot longer, have decided to take the anual pension at the normal rate.

Jerry

Acquinas

What a nightmare for you, but without in any way trying to suggest that my former colleagues were anything other than good people toiling away under increasing politically-driven burdens, I think you have to plan on the basis that the bureaucracy will be a shambles if you do anything that is slightly non-standard. Part of the problem is that so much of the back-office operation has been outsourced and of course MyCSP is a case in point. But my old dept was little better. they had moved their HR and payroll to a shared service centre hosted by another Dept but in turn outsourced to an outside agency that seemed to change every 18 months. My issue - which I anticipated - was that my scheduled day of leaving was at the end of April, i.e. just into the new tax year but not soon enough to get a P60 before I got my P45. As requested I raised a "service request" a month before leaving to ensure that a P60 would be posted to me at home. When - of course - it never arrived I phoned them and they told me that I could no longer request one because I had left and my account had been deleted. But, to me fair, the HMRC have played it all with a straight bat. I know I would end up paying excess tax on my lump sum because PAYE month-on-month would apply a 45% banding. I worked out how much the tax should have been and sent it back to them and they promptly refunded me.