Taking LGPS early

enthusiasticsaver

I am taking voluntary early retirement on 31.12.17 and my normal retirement date had I continued working would be February 2026 so I am retiring just over 8 years early at age 57.

I am a member of the LGPS and have a combination of final salary/care benefits. I have worked part time so the pension is not huge but as it stands my pension (no tax due as below personal threshold after April 2018) will be just over 40% of my current take home pay. The lump sum works out at just over 2 years worth of pension. I have other savings/investments and my DH is already retired and his pension covers 75% of our required income so the additional 25% will come from our savings and my pension until another occupational pension of mine kicks in February 2020.

The quotes I have received and the online pension calculator say that I will be losing £983.07 per annum by taking my pension so early and the lump sum is reduced by £604.21. Given I will be receiving the pension for 8 years longer I have worked out I would have to live until 94.5 to make it worth hanging on until 2026 and that does not account for index linking.

Why is it not reduced by more considering I am retiring so early and is there anything I have missed? Does anyone know how they work it out? It works out at just over a 20% deduction on the annual pension for taking it 8 years early and the lump sum is only reduced by 6%.

quotememiserable

Is this calculator a specific one that knows your employment history, or are you putting in some basic figures yourself?

The reason is likely to be this. LGPS used to allow Rule Of 85 pensions, where you could leave with your pension not reduced at all if you age + you pension years = 85 or more. Also, rules on reductions are often different over a certain age if you're redundant rather than resigning or sacked.
These rules have changed a couple of times, but changes don't apply retrospectively, so it looks like you have some of your pension that doesn't get reduced and some that does. I'd say talk to your pension dept.

Silvertabby

When did you join?

The lump sum reduction means that you must have some pre 2008 service, so youwill have some Rule of 85 protections which would reduce the overall reduction.

That said, unless you have a LOT of pre 2008 service, a 20% reduction at 57 does sound a little low...

hyubh

enthusiasticsaver wrote: »

Why is it not reduced by more considering I am retiring so early and is there anything I have missed? Does anyone know how they work it out? It works out at just over a 20% deduction on the annual pension for taking it 8 years early and the lump sum is only reduced by 6%.

What are your service dates, i.e. when did you join the scheme? Only pension earned from April 2014 will have an NPA of your current state pension age; pension from service between April 2008 and March 2014 will have an NPA of 65, and pension and lump sum on pre-April 2008 service will probably have 85 year rule protections that mean actuarial reductions only kick in for some time between 60 and 65.

enthusiasticsaver

I joined the scheme in September 99 but I transferred an old pension in from a previous employer which bought me an additional 6 years and on my service history on the online calculator it says 1991 to 1997 which are the dates of my previous employment.

Silvertabby

I joined the scheme in September 99 but I transferred an old pension in from a previous employer which bought me an additional 6 years and on my service history on the online calculator it says 1991 to 1997 which are the dates of my previous employment.

OK...

That means that your pre 2008 benefits may not be reduced for early payment if taken at 60 - but as you are taking them at 57 they are being reduced for early payment (before 60). That's the 6% from your lump sum and approx 12 % from your pension.

Now, your pension from 2008 to 2014 will be reduced for every year taken before 65 - that's between 35% and 40%

And your pension from 2014 until your date of leaving will be reduced for every year taken before NRA (66?) so that reduction will be at least 40%.

Where did you get your forecast from? Did you use the on-line calculator? If so, I strongly urge you to get a proper quote from your LGPS provider before committing to retirement. I can't say for sure but, as I said before, the overall 20% reduction to your pension doesn't sound right unless, perhaps, you were full time up to 2008 and then switched to part time? Even if that is the case, please do check.

enthusiasticsaver

Silvertabby wrote: »

OK...

That means that your pre 2008 benefits wouldn't be reduced for early payment if taken at 60 - but as you are taking them at 57 they are being reduced for early payment (before 60). That's the 6% from your lump sum and approx 12 % from your pension.

Now, your pension from 2008 to 2014 will be reduced for every year taken before 65 - that's between 35% and 40%

And your pension from 2014 until your date of leaving will be reduced for every year taken before NRA (66?) so that reduction will be at least 40%.

Where did you get your forecast from? Did you use the on-line calculator? If so, I strongly urge you to get a proper quote from your LGPS provider before committing to retirement. I can't say for sure but, as I said before, the overall 20% reduction to your pension doesn't sound right unless, perhaps, you were full time up to 2008 and then switched to part time? Even if that is the case, please do check.

I have had the quotes double checked by my provider in writing as originally I got the quotes from the forecast and then asked for them specifically from the pension administrator. They said if anything the forecast was on the conservative side as it did not take account of contributions still to be made before I actually retire next month. I am puzzled too as to why the shortfall is not bigger but they are adamant the forecast is correct. I have already committed to retire but this pension will only provide a small percentage of our overall income. I worked full time for around 5 years from 2004 to 2009 so maybe that is why?

enthusiasticsaver

I also paid additional contributions for about three years when I was full time, sorry I forgot that so I think that might be the reason why the reduction is not as much as I expected.

hyubh

enthusiasticsaver wrote: »

I also paid additional contributions for about three years when I was full time, sorry I forgot that so I think that might be the reason why the reduction is not as much as I expected.

Added years or ARC/APC? Either way, technically this won't counteract an actuarial reduction to your main benefits. Rather, the additional benefits bought by the added years contract or ARC/APC will themselves be subject to an actuarial reduction, depending on what tranche of main benefit they get added to.

enthusiasticsaver

quotememiserable wrote: »

Is this calculator a specific one that knows your employment history, or are you putting in some basic figures yourself?

The reason is likely to be this. LGPS used to allow Rule Of 85 pensions, where you could leave with your pension not reduced at all if you age + you pension years = 85 or more. Also, rules on reductions are often different over a certain age if you're redundant rather than resigning or sacked.
These rules have changed a couple of times, but changes don't apply retrospectively, so it looks like you have some of your pension that doesn't get reduced and some that does. I'd say talk to your pension dept.

The calculator is a specific one which shows all my various periods of service which have varied considerably from 40% to 98% and shows the transfer in from my previous employer and the additional contributions I paid in from 2004 to 2007. The 98% period was from 2004 to 2009 so in view of what Silver Tabby said about the pre 2008 service not being reduced that much I think this is why there is not a huge reduction for me going early.