DB pension lump sum?

lexington013

A bit confused on this one.
My Sainsburys final salary pension is payable from age 65. Estimated at £26,500. I intend to take it at 63 with an actuarial reduction of 12% so a pension of circa £23,400.
Full state pension payable at age 67 due to my contributions.
I have heard that a tax free lump sum could be taken and therefore a reduced annual pension.
Any idea what this would be? Is it the same as a DC pension (ie 25% TFLS)
My latest CETV was £445000 for the DB scheme. I don't intend to transfer it to a DC/ SIPP as I have a DC pension currently worth £130,000.
I'm 50 years of age and looking to retire at 55 using the DC pot. I'm aware I can take the 25% lump sum from the DC pension.
I also have savings that could support the 8 years from age 55 to 63.

kidmugsy

lexington013 wrote: »

My Sainsburys final salary pension is payable from age 65. Estimated at £26,500. I intend to take it at 63 with an actuarial reduction of 12% so a pension of circa £23,400.

That's quite a heavy penalty: could you aim to bridge the gap with 0% credit cards and the like?

lexington013 wrote: »

I have heard that a tax free lump sum could be taken and therefore a reduced annual pension. Any idea what this would be?

You have to ask them (a) whether a lump sum is available, and (b) if so, on what terms. In practice the terms are often rather unattractive unless there are special circumstances e.g. a single person in poor health. And then it might be wiser to take the CETV anyway.

Or maybe rather than ask them you could look at your literature on the scheme. Or google it.

hyubh

lexington013 wrote: »

My Sainsburys final salary pension is payable from age 65. Estimated at £26,500. I intend to take it at 63 with an actuarial reduction of 12% so a pension of circa £23,400.

Given the other pensions and savings you mention, do you really need to take it early and take that hit...?

Full state pension payable at age 67 due to my contributions.

What exactly do you mean by 'full', given you must have been contracted out quite a bit to get that Sainsbury's FS pension...?

I have heard that a tax free lump sum could be taken and therefore a reduced annual pension.
Any idea what this would be?

Called 'commutation', the basics should be detailed in any scheme booklets you received, if you've still got them. In any case, contact the administrator to ask (https://www.jspensions.co.uk/sainsburys-pension-scheme/). Of particular concern (assuming commutation is possible) should be the 'commutation rate' - how much lump sum do you get per £1 of pension forgone?

Is it the same as a DC pension (ie 25% TFLS). My latest CETV was £445000 for the DB scheme.

An HMRC limit of '25%' applies in some form, but not in relation to the CETV. Again, ask the pension scheme administrator for figures.

lexington013

By full state pension I went online to check and it showed a pension of £8k per year based on my NI contributions.
Forgot to say I'm a deferred member of the Final salary scheme with Sainsburys.

Dazed_and_confused

Have you definitely read the forecast correctly?

Mine implies the full £8k figure but when you look closer that is subject to quite a few years of additional (post April 2016) contributions being added due to contracting out in the past.

You may be ok with the anticipated years left which you intend to work but worth another look I'd say.

Pun

If you're 50 now, it will be impossible for your final salary pension at 65 to be predicted with any accuracy. It is also impossible to predict so far ahead what the reduction factor will be for taking your pension 3 years early.

This being so, it is unlikely your pension scheme administrators will be able to give you any meaningful projections so far in advance, so don't feel you are being hard done by if they appear less than co-operative - they really aren't being that, just realistic to try and avoid misleading a scheme member.

This isn't meant to be a negative answer...the figures might be better than you hoped for, as opposed to worse!

hyubh

Pun wrote: »

If you're 50 now, it will be impossible for your final salary pension at 65 to be predicted with any accuracy.

Given revaluation is (presumably) by section 52 orders, whether the pension at 65 is either on or somewhere under its value now, in real terms, will just depend on how often one wishes to assume inflation will rise above the 5% cap (or 2.5% for the last bit of service, if applicable). Any GMP adds a complicating factor, but not too much (I'm assuming fixed rate revaluation is used for that, given a private sector scheme).

It is also impossible to predict so far ahead what the reduction factor will be for taking your pension 3 years early.

Just ask for what the factors are for a 62 year old now. Sure that doesn't mean the factors will be the same in ten years time, but so what? The chances are they will be very similar.

That said, I agree the administrator is unlikely to sell itself a hostage to fortune by providing a formal estimate of the pension at 65.

errolt1

I am in a similar position in that I am 53 and had forecast final salary the following from my DB scheme from previous employer of £25k at 65 and just under £24k at 60 and £16.5k at 55.
The CETV is more than £200k more than your forecast which is what I am now contemplating taking.
The differences on the CETV are staggering and there are probably loads more on your scheme than mine which has a max of 8000 employees.
How old was the valuation done on your DB ?

lexington013

errolt1 wrote: »

I am in a similar position in that I am 53 and had forecast final salary the following from my DB scheme from previous employer of £25k at 65 and just under £24k at 60 and £16.5k at 55.
The CETV is more than £200k more than your forecast which is what I am now contemplating taking.
The differences on the CETV are staggering and there are probably loads more on your scheme than mine which has a max of 8000 employees.
How old was the valuation done on your DB ?

The CETV was requested 6 weeks ago.