Projection Calculations

M_j_t

Today I received a letter from a deferred pension that I have. In the letter it gives an early retirement value of 5,742.72 pa and then in a second option I could take a cash free sum of 29,076.15 along with a reduced pension of 4,361.43 (based upon 14/02/2017).

The letter also mentions that the early retirement payment is reduced by 4% for each year up to to 5 years and then 3% per year.

My Normal retirement date is 14/03/2022.

I'm trying to get a ball park figure of what to expect at age 65.

What I have done is multiply 29076.15 by 4 (assuming this is the 25% cash free lump sum) to then get a current value of the fund as 116,304.60.

As I'm 5 years away I've taken the reduction to be 20%, I've then multiplied 116304.60 by 1.25 to reach an amount of 145,380.75, as the ball park value of the fund in 2022.

Additionally, I've divided 116304.60 by 5,742.72 (the pension it would currently buy) and then divided the 145,380.75 by the result to come getting a value of of 7,178.36 as a guesstimate of the pension I would get in 2022.

Is this a reasonable projection? I guess that it could be more due to the resultant pension having to cover a shorter term.

Silvertabby

This doesn't sound like the LGPS, but is a similar scheme with what appears to be a commutation rate of approx 1:12 (ie, £12 of tax free cash for every £1 of annual pension you give up).

So, your basic reduced pension of £5742.72 without the 20% early payment reduction would be £7178.36, as you say.

The notional fund value (for 25% tax free cash, LTA, etc - but NOT the CETV) is 20 times the annual pension plus any automatic lump sum. So, in your case, £7178.36 x 20 = £143567.20 x 25% = £35891.80 maximum tax free cash (exact amounts of lump sum and pension given up depends on the commutation rate).

Yes, the early retirement reduction is because your pension would be paid for 5 years longer if you take it from age 60 instead of 65.

I'm sure your pension provider would give you a quote as at 65 if you asked them.

M_j_t

Thanks SilverTabby, it's the 7k that is the important figure, so I have some sort of idea of what I would be getting. The scheme is Safeway Pensions.

Silvertabby

Thanks SilverTabby, it's the 7k that is the important figure, so I have some sort of idea of what I would be getting. The scheme is Safeway Pensions.

You're welcome. Sounds like you won't be interested in commutation - but as it looks like Safeway use 1:12 it's not overly generous.

If the pension is index linked then it will increase by that factor over the next 5 years as well.