Actuarially Reduced pension

MargaretG

poorchester wrote: »

Are you sure you are still in Classic? If you are 51 you would be in Alpha by now.
If you are/were in Classic you would get a lump some without giving up any pension.

I was in the Classic up till April 2015 ! I have now moved to the Alpha, my quotes are based on my contributions in the Classic Scheme .

MargaretG

mgdavid wrote: »

Hope this doesn't sound harsh - it isn't meant to.
Many people are fed up with their job but stick at it.
Many people are grateful that they have a job at all.
Most people work until 65 or 66.
I think you have some hard decisions to make, which could affect your financial well-being for the expected remaining 30+ years of your life.

I am no longer motivated to continue in my current job and i am looking at other more challenging job roles. Although it is fast looking like a very bad idea, I thought I could draw on my pension early to help me set up my new venture! I definitely intend to work until age 70 if possible, but not in my current role!

MargaretG

BobQ wrote: »

Margaret,


What would you do if you retired at 51? Can you afford to live without drawing your pension? If so the benefit of leaving the pension to 60 is that it will increase in value to match CPI (both the pension income and the lump sum). That will perhaps be more that your pay will rise in that period? (You will have to make that call).

Partial retirement works just the same. You could reduce your hours (with your employers agreement) say to 3 days a week and draw the equivalent of 2 days salary as pension. In the short term your income would remain the same, but the pension you draw would still be actuarially reduced.

I have opted for partial retirement to start with and have not left my job as yet! I am unfortunately not knowledgeable in these matters (learning fast though). I am actually more interested in the lump sum I can access now without doing too much damage! I am beginning to understand the risks involved but surely life is full of risks!

A far better option if you can afford to do so is to save into a private pension like a SIPP and accumulate enough money to make up the difference between your full pension at 60 and an actuarially reduced one in the future.

This sounds like an option I might consider!!

Also remember your state pension will be increasing now that you are no longer contracted out but you will still not be able to draw it for15-16 years.

Wasn't aware of this! A lot can happen in 16 years .

MargaretG

poorchester wrote: »

Are you sure you are still in Classic? If you are 51 you would be in Alpha by now.
If you are/were in Classic you would get a lump some without giving up any pension.

Exactly what I have been offered but not on a very good deal!

bostonerimus

Your plan is risky and you have not provided any numbers to judge whether the early access to the pension and lump sum is a good deal. Do you know the discount rate being used to calculate the lump sum and the reduced pension? Do you have a budget and do you know how much you will need to live on when you retire?

Irrespective of the value of the early access and pension lump sum to put it into a "new venture" is taking a guaranteed benefit and converting it into something where it could be lost. I would not use a lump sum in that way.

BobQ

bostonerimus wrote: »

Your plan is risky and you have not provided any numbers to judge whether the early access to the pension and lump sum is a good deal. Do you know the discount rate being used to calculate the lump sum and the reduced pension? Do you have a budget and do you know how much you will need to live on when you retire?

Irrespective of the value of the early access and pension lump sum to put it into a "new venture" is taking a guaranteed benefit and converting it into something where it could be lost. I would not use a lump sum in that way.

As I read Margaret's post she was in the Classic scheme until April 2015 and has been in Alpha since then.

Classic is a 1/80th per year Final Salary DB Scheme that also pays 3/80ths per year as a Tax free lump sum with NRA of 60.

Alpha is a DB CARE scheme that accrues a pension at 2.32% of salary per year uprated for CPI and has a NRA the same as the state pension retirement age.

So her pension will be based on her Classic benefits with a lump sum plus the Alpha pension accrued since 2015. That is in two separate parts. Alpha will have a higher degree of actuarial reduction than Classic because of the higher retirement age.

Something Margaret should also be aware of is that the Classic part of her pension will be based on her final salary when she leaves, so if she stays in the Civil Service it will be based on her FS when she retires even though she is in Alpha.

atush

MargaretG wrote: »

I am no longer motivated to continue in my current job and i am looking at other more challenging job roles. Although it is fast looking like a very bad idea, I thought I could draw on my pension early to help me set up my new venture! I definitely intend to work until age 70 if possible, but not in my current role!

I would consider, rather than taking your pension early and setting up a business with the Lump sum- that you work another job as an employee somewhere else.

Robbing your future income to pay for things today isnt always a wise course of action.

If you work elsewhere, at something you enjoy, you wont be as as stressed out.

What is your mtg situation like? Could you move/downsize and use that money to set up a new venture?

enthusiasticsaver

Drawing money out of a very good pension scheme to put it into a new venture is very risky and I would think carefully before doing it. Setting up new ventures are expensive, more often than not fail and it could be a very quick way of robbing you of your income in retirement.

GarthThomas

Does anyone have have an estimate of the likely prediction caused by not paying in for decades, and taking the pension decades early a sin this case?

It'll be catastrophic, of course, but I'd be interested to see how much it cuts the pension down. I expect that Margaret would be, too.